<PAGE> 1
JOHN HANCOCK
CAPITAL GROWTH
FUND
CLASS A AND CLASS B SHARES
PROSPECTUS
MAY 1, 1995
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Expense Information................................................................... 2
The Fund's Financial Highlights....................................................... 3
Investment Objective and Policies..................................................... 5
Organization and Management of the Fund............................................... 7
Alternative Purchase Arrangements..................................................... 8
The Fund's Expenses................................................................... 10
Dividends and Taxes................................................................... 10
Performance........................................................................... 12
How to Buy Shares..................................................................... 13
Share Price........................................................................... 14
How to Redeem Shares.................................................................. 21
Additional Services and Programs...................................................... 23
Investments, Techniques and Risk Factors.............................................. 26
</TABLE>
This Prospectus sets forth the information about John Hancock Capital Growth
Fund (the "Fund"), a diversified fund, that you should know before investing.
Please read and retain it for future reference.
Additional information about the Fund has been filed with the Securities and
Exchange Commission (the "SEC"). You can obtain a copy of the Fund's Statement
of Additional Information, dated May 1, 1995 and incorporated by reference into
this Prospectus, free of charge by writing or telephoning: John Hancock Investor
Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116,
1-800-225-5291 (1-800-554-6713 TDD).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 2
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various fees and expenses you will bear, directly or indirectly, when you
purchase Fund shares. The operating expenses included in the table and
hypothetical example below are based on fees and expenses for the Fund's fiscal
year ended December 31, 1994 adjusted to reflect certain current expenses.
Actual fees and expenses in the future may be greater or less than those
indicated.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
------- -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a percentage of offering price).................... 5.00% None
Maximum sales charge imposed on reinvested dividends............................................. None None
Maximum deferred sales charge.................................................................... None* 5.00%
Redemption fee+.................................................................................. None None
Exchange fee..................................................................................... None None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management fee................................................................................... 0.63% 0.63%
12b-1 fee***..................................................................................... 0.25% 1.00%
Other expenses**................................................................................. 0.71% 0.71%
Total Fund operating expenses.................................................................... 1.59% 2.34%
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, but for these investments a contingent deferred sales
charge may be imposed, as described below under the caption "Share Price,"
in the event of certain redemption transactions within one year of purchase.
** Other Expenses include transfer agent, legal, audit, custody and other
expenses.
*** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average net assets, and the remaining portion will be
used to cover distribution expenses.
+ Redemption by wire fee (currently $4.00) not included.
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses for the indicated period of years on a
hypothetical $1,000 investment, assuming 5% annual return
Class A Shares...................................................................... $ 65 $ 98 $ 132 $229
Class B Shares
-- Assuming complete redemption at end of period................................ $ 74 $ 103 $ 145 $249
-- Assuming no redemption....................................................... $ 24 $ 73 $ 125 $249
</TABLE>
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.)
The Fund's payment of a distribution fee may result in a long-term shareholder
indirectly paying more than the economic equivalent of the maximum front-end
sales charge permitted under the National Association of Securities Dealers,
Inc.'s Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contract."
2
<PAGE> 3
THE FUND'S FINANCIAL HIGHLIGHTS
The following table of financial highlights has been audited by Ernst & Young
LLP, the Fund's independent auditors, whose unqualified report is included in
the Statement of Additional Information. Further information about the
performance of the Fund is contained in the Fund's Annual Report to shareholders
which may be obtained free of charge by writing or telephoning John Hancock
Investor Services Corporation ("Investor Services"), at the address or telephone
number listed on the front page of this Prospectus.
Selected data for each class of shares outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
CLASS A SHARES
--------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1994(1)(2) 1993(2) 1992(2) 1991(2) 1990(2)(3) 1989(2)(3) 1988(2)(3)
---------- ------- ------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE INCOME AND CAPITAL
CHANGES FOR A SHARE
OUTSTANDING DURING EACH
PERIOD:
Net asset value, beginning of
period...................... $12.66 $11.90 $11.47 $ 9.82 $10.65 $ 9.00 $7.52
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss)...................... (0.02) (0.11) (0.14) (0.13) (0.09) 0.05 0.09
Net realized and unrealized
gain (loss) on
investments................. (1.42) 0.87 0.76 3.73 (0.60) 1.82 1.45
----- ------- ------- ------- ------- ------- ------
Total from Investment
Operations.................. (1.44) 0.76 0.62 3.60 (0.69) 1.87 1.54
LESS DISTRIBUTIONS
Dividends from net investment
income...................... -- -- -- -- (0.01) (0.07) (0.06)
Distributions from realized
gains....................... (0.29) -- (0.19) (1.95) (0.13) (0.15) --
----- ------- ------- ------- ------- ------- ------
Total Distributions.......... (0.29) -- (0.19) (1.95) (0.14) (0.22) (0.06)
----- ------- ------- ------- ------- ------- ------
Net asset value, end of
period...................... $10.93 $12.66 $11.90 $11.47 $ 9.82 $10.65 $9.00
====== ======= ======= ======= ======= ======= ======
TOTAL RETURN(5).............. (11.34)% 6.39% 5.48% 38.00% (6.37)% 20.71% 20.42%
====== ======= ======= ======= ======= ======= ======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average
net assets.................. 1.59% 1.46% 1.41% 1.68% 1.54% 1.83% 3.87%
Ratio of expense
reimbursement to average net
assets...................... -- -- -- -- -- -- (1.37)%
------ ------- ------- ------- ------- ------- ------
Ratio of net expenses to
average net assets.......... 1.59% 1.46% 1.41% 1.68% 1.54% 1.83% 2.50%
====== ======= ======= ======= ======= ======= ======
Ratio of net investment
income (loss) to average net
assets...................... (0.14)% (0.92)% (1.20)% (1.04)% (0.82)% 0.46% 1.01%
Portfolio turnover........... 290% 159 % 70 % 139% 152% 108% 220%
Net Assets, end of period
(in thousands).............. $70,090 $85,553 $94,861 $89,008 $56,794 $59,357 $5,851
<CAPTION>
CLASS A SHARES
----------------------------------------
YEAR ENDED
DECEMBER 31, PERIOD ENDED
---------------------- DECEMBER 31,
1987(2)(3) 1986(3) 1985(4)(3)
---------- ------- -------------
<S> <C> <C> <C>
PER SHARE INCOME AND CAPITAL
CHANGES FOR A SHARE
OUTSTANDING DURING EACH
PERIOD:
Net asset value, beginning of
period...................... $6.87 $6.56 $5.45
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss)...................... (0.08) (0.06) (0.03)
Net realized and unrealized
gain (loss) on
investments................. 1.69 1.83 1.14
----- ------ -----
Total from Investment
Operations.................. 1.61 1.77 1.11
LESS DISTRIBUTIONS
Dividends from net investment
income...................... -- -- --
Distributions from realized
gains....................... (0.96) (1.46) --
----- ------- -----
Total Distributions.......... (0.96) (1.46) --
----- ------ -----
Net asset value, end of
period...................... $7.52 $6.87 $6.56
===== ====== =====
TOTAL RETURN(5).............. 22.43% 27.10% 20.50%
===== ====== =====
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average
net assets.................. 5.57% 20.94% 4.43%
Ratio of expense
reimbursement to average net
assets...................... (3.07)% (19.45)% (3.84)%
----- ------ -----
Ratio of net expenses to
average net assets.......... 2.50% 1.49% 0.59%
===== ====== =====
Ratio of net investment
income (loss) to average net
assets...................... (0.88)% (1.11)% (0.52)%
Portfolio turnover........... 272% 267% 36%
Net Assets, end of period
(in thousands).............. $3,910 $208 $164
</TABLE>
- ---------------
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser. Prior to this date, Transamerica Fund Management Company was the
investment adviser.
(2) Per share information has been calculated using the average number of shares
outstanding.
(3) Per share information has been adjusted retroactively for the 2 for 1 stock
split to shareholders of record on September 10, 1990.
(4) Financial highlights, including total return, are for the period September
26, 1985 (date that the Fund's initial registration statement under the
Securities Act of 1933 became effective) to December 31, 1985 and have not
been annualized.
(5) Total return does not include the effect of the initial sales charge for
Class A Shares.
3
<PAGE> 4
<TABLE>
<CAPTION>
CLASS B SHARES
-----------------------------------
PERIOD FROM
YEAR ENDED JUNE 30, 1993
DECEMBER 31, TO DECEMBER 31,
1994(1)(2) 1993(2)(3)
------------- ---------------
<S> <C> <C>
Per share income and capital changes for a share outstanding during each period:
Net asset value, beginning of period.................................................... $12.59 $11.28
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)............................................................ (0.09) (0.07)
Net realized and unrealized gain (loss) on investments.................................. (1.41) 1.38
------- ------
Total from Investment Operations........................................................ (1.50) 1.31
LESS DISTRIBUTIONS
Dividends from net investment income.................................................... -- --
Distributions from realized gains....................................................... (0.29) --
------- ------
Total Distributions..................................................................... (0.29) --
------- ------
Net asset value, end of period.......................................................... $10.80 $12.59
======= ======
Total Return(4)......................................................................... (11.88)% 11.61%
======= ======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net assets................................................. 2.34% 1.06%
Ratio of expense reimbursement to average net assets.................................... -- --
------- ------
Ratio of net expenses to average net assets............................................. 2.34% 1.06%
======= ======
Ratio of net investment income (loss) to average net assets............................. (0.89)% (0.54)%
Portfolio turnover...................................................................... 290% 159%
Net Assets, end of period (in thousands)................................................ $16,652 $440
</TABLE>
- ---------------
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser. Prior to this date, Transamerica Fund Management Company was the
investment adviser.
(2) Per share information has been calculated using the average number of shares
outstanding.
(3) Financial highlights, including total return, have not been annualized.
Portfolio turnover is for the year ended December 31, 1993.
(4) Total return does not include the effect of the contingent deferred sales
charge for Class B Shares.
4
<PAGE> 5
INVESTMENT OBJECTIVE AND POLICIES
The Fund's primary objective is capital appreciation. Current income may be
incidental and is not an important factor in the selection of portfolio
securities. In normal circumstances, at least 65% of the Fund's total assets
will be invested in domestic or foreign equity securities (i.e., both dividend
and non-dividend paying common stocks or securities which are convertible or
exchangeable for such stocks including warrants). While investment in equity
securities for long-term capital appreciation will be emphasized, investments
for short-term capital appreciation may be made from time to time when such
action is believed by John Hancock Advisers Inc. (the "Adviser") to be desirable
and consistent with sound investment practice. The Fund maintains a flexible
investment approach toward types of companies as well as types of industries and
market sectors depending upon such factors as the economic and industry
environment, market conditions and the relative attractiveness of various market
sectors and industries. See "Investments, Techniques and Risk Factors" for a
discussion of the risks of investing in foreign securities.
- -------------------------------------------------------------------------------
THE FUND'S PRIMARY OBJECTIVE IS CAPITAL
APPRECIATION.
- -------------------------------------------------------------------------------
Under favorable economic and market conditions, as determined by the Adviser,
the Fund will pursue its investment objective aggressively. For example, a
substantial portion of the Fund's portfolio may at times be fully invested in
equity securities that the Adviser believes to have the greatest potential for
capital appreciation and which, therefore, may be more volatile over the short
and medium terms than other types of investments. Under less favorable economic,
industry and market conditions, the Fund would employ a less aggressive
investment management strategy.
The Fund's investments, at any given time, may include or emphasize securities
of smaller, less well established companies as well as those of larger or better
established companies and may include securities traded over-the-counter as well
as those traded on a primary exchange. Because these smaller, rapidly growing
companies may still be in an early developmental stage, they are subject to
additional risks, and their securities will typically have more market
volatility than the equity securities of larger, well-established companies.
Developing companies often have limited product lines, markets or financial
resources or they may be dependent upon a limited management group. The Fund may
invest in newly issued securities of startup companies or companies whose
securities have not previously been publicly traded, provided that no more than
10% of the Fund's total assets will be invested in securities of companies
having a record, together with predecessors, of less than three years continuous
operation. Such unseasoned issuers share similar risks to developing companies
described above.
The Fund will ordinarily diversify its investments among various industries;
however, the Fund has as an investment restriction that, even at times when it
emphasizes its investments in a limited number of industries, no more than 25%
of its assets will be invested in any one industry. To the extent the Fund
invests in a group of industries which has common characteristics, the Fund will
be subject to the similar risks affecting that group. Groups of industries
include, but are not
5
<PAGE> 6
limited to, construction, energy, health care, financial services, consumer
products/services, technology and transportation.
Since the Fund may pursue its goal of capital appreciation aggressively, the
Fund may emphasize those industries which have not reached maturity of product
development or growth in demand or market segmentation. In addition, the Fund's
diversification policy permits more than 25% of the Fund's assets to be held in
a group of similar industries (i.e., certain industries overlap in particular
respects, creating a "sector.") For example, the biotechnology, electronics,
computer and telecommunications industries include companies whose products,
processes or services are derived from or applied to commercial utilization of
technological or scientific advancements. Although the Fund will be required to
invest in at least four industries, when the Fund should emphasize investment in
a sector characterized by the common elements held by a group of industries, the
Fund will be especially subject to the particular common risks affecting that
group. Companies in the technology sector, for example, face the lack of
commercial acceptance of a new product or process from technological change or
obsolescence.
OTHER INVESTMENTS. Under normal circumstances, up to 35% of the Fund's assets
may be invested in investment grade debt securities and preferred stocks which
are believed to offer opportunities for long-term capital appreciation (e.g.,
where interest rates are expected to decline or the credit rating of the issuer
is expected to improve). For defensive purposes of preserving capital, the Fund
may temporarily invest without limit in investment grade debt securities,
repurchase agreements or preferred stocks or hold its assets in cash. During
such times, the Fund would not be pursuing its investment objective. Bonds rated
BBB or lower by Standard & Poor's Ratings Group ("S&P") or Baa by Moody's
Investor Services, Inc. ("Moody's"), although of investment quality, may have
speculative characteristics as well. The prices of fixed-income securities in
which the Fund may invest will generally increase as market rates of interest
fall and will decrease as market rates of interest rise. The amount of the
increase or decrease in the price of a fixed-income security in response to a
given change in interest rates is typically dependent upon the maturity of the
security, with longer term securities being more volatile than shorter term
securities such as money market instruments.
The Fund may purchase and write (sell) options on securities in which it may
invest and on securities indices and may purchase and sell securities index
futures and options on such futures. Options and futures contracts are generally
considered to be "derivative" instruments because they derive their value from
the performance of an underlying asset, index or other economic benchmark. See
"Investments, Techniques and Risk Factors" for additional discussion of
derivative instruments.
- -------------------------------------------------------------------------------
THE FUND MAY EMPLOY CERTAIN INVESTMENT
STRATEGIES TO HELP ACHIEVE ITS INVESTMENT
OBJECTIVE.
- -------------------------------------------------------------------------------
The Fund may invest without limitation in securities of foreign issuers and in
connection with such investments may enter into contracts to purchase and sell
foreign currency, may lend its portfolio securities, enter into repurchase
agreements and reverse repurchase agreements, purchase restricted and illiquid
securities and purchase securities on a when-issued or delayed delivery basis.
The Fund may, from time to time, engage in leverage, a practice which involves
borrowing
6
<PAGE> 7
money from banks for investing in portfolio securities. The use of leverage,
whether through direct borrowing from banks or engaging in reverse repurchase
agreements, is considered a speculative investment technique. See "Investments,
Techniques and Risk Factors" for more information about the Fund's investments.
The Fund has adopted certain investment restrictions which are enumerated in
detail in the Statement of Additional Information where they are classified as
fundamental or nonfundamental. Those restrictions designated as fundamental may
not be changed without shareholder approval. The Fund's investment objective and
its investment policies may be changed by a vote of the Trustees without
shareholder approval. Shareholders will be given 60 days advance written notice
of a change to the Fund's investment objective and its policy to invest, under
normal market conditions, 65% of its assets in equity securities of domestic and
foreign issuers. Notwithstanding the Fund's fundamental investment restriction
prohibiting investments in other investment companies, the Fund may, pursuant to
an order granted by the SEC, invest in other investment companies in connection
with a deferred compensation plan for the non-interested trustees of the John
Hancock Group of Funds. There can be no assurance that the Fund will achieve its
investment objective.
- -------------------------------------------------------------------------------
THE FUND FOLLOWS CERTAIN POLICIES WHICH
MAY HELP TO REDUCE INVESTMENT RISK.
- -------------------------------------------------------------------------------
RISK FACTORS. The Fund's investments will be subject to market fluctuation and
other risks inherent in all securities. The return and price volatility of the
Fund depend on the type and quality of its investments as well as market and
other factors. In addition, the Fund's potential investments and management
techniques may entail specific risks. There can be no assurance that the Fund
will achieve its investment objective. For additional information about risks
associated with an investment in the Fund, see "Investments, Techniques and Risk
Factors."
The primary consideration in choosing brokerage firms to carry out the Fund's
transactions is execution at the most favorable prices, taking into account the
broker's professional ability and quality of service. Consideration may also be
given to the broker's sales of Fund shares. Pursuant to procedures determined by
the Trustees, the Adviser may place securities transactions with brokers
affiliated with the Adviser. The brokers include Tucker Anthony Incorporated,
Sutro and Company, Inc. and John Hancock Distributors, Inc., which are
indirectly owned by the John Hancock Mutual Life Insurance Company (the "Life
Company"), which in turn indirectly owns the Adviser.
- -------------------------------------------------------------------------------
BROKERS ARE CHOSEN ON BEST PRICE AND
EXECUTION.
- -------------------------------------------------------------------------------
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a diversified open-end management investment company organized as a
Massachusetts business trust in 1984. The Fund reserves the right to create and
issue a number of series of shares, or funds or classes thereof, which are
separately managed and have different investment objectives. The Fund is not
required to and does not intend to hold annual meetings of shareholders,
although special meetings may be held for such purposes as electing or removing
Trustees, changing fundamental policies or approving a management contract. The
Fund, under certain circumstances, will assist in shareholder communications
with other shareholders.
- -------------------------------------------------------------------------------
THE TRUSTEES ELECT OFFICERS AND RETAIN THE
INVESTMENT ADVISER WHO IS RESPONSIBLE FOR
THE DAY-TO-DAY OPERATIONS OF THE FUND,
SUBJECT TO THE TRUSTEES' POLICIES AND
SUPERVISION.
- -------------------------------------------------------------------------------
7
<PAGE> 8
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Fund,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds, Inc.
("John Hancock Funds") distributes shares for all of the John Hancock mutual
funds through Selling Brokers. Certain Fund officers are also officers of the
Adviser and John Hancock Funds. Investment decisions are made primarily by the
portfolio manager, Ben Hock. Mr. Hock has served as the Fund's portfolio manager
since August 1993. Prior to managing the Fund, Mr. Hock was senior vice-
president at Securities Management Research and at Interfirst Investment
Management.
- -------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES
INVESTMENT COMPANIES HAVING A TOTAL ASSET
VALUE OF APPROXIMATELY $13 BILLION.
- -------------------------------------------------------------------------------
In order to avoid any conflict with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities trading
by personnel of the Adviser and its affiliates. Some of these restrictions are:
preclearance for all personal trades and a ban on the purchase of initial public
offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
ALTERNATIVE PURCHASE ARRANGEMENTS
You can purchase shares of the Fund at a price equal to their net asset value
per share plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge Alternative,"
Class A shares) or on a contingent deferred basis (the "Contingent Deferred
Sales Charge Alternative," Class B shares). If you do not specify on your
account application the class of shares you are purchasing, it will be assumed
that you are investing in Class A shares.
- -------------------------------------------------------------------------------
AN ALTERNATIVE PURCHASE PLAN ALLOWS YOU TO
CHOOSE THE METHOD OF PAYMENT THAT IS BEST
FOR YOU.
- -------------------------------------------------------------------------------
CLASS A SHARES. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount of your purchase is $1 million or more.
If you purchase $1 million or more of Class A shares, you will not be subject to
an initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Share Price -- Qualifying for a Reduced Sales Charge."
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS A SHARES ARE SUBJECT
TO AN INITIAL SALES CHARGE.
- -------------------------------------------------------------------------------
CLASS B SHARES. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
six years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class B shares. Investing in Class B shares permits all of
your dollars to work from the time you make your investment, but the higher
ongoing distribution fee will cause these shares to have higher expenses than
those of Class A shares. To the
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS B SHARES ARE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.
- -------------------------------------------------------------------------------
8
<PAGE> 9
extent that any dividends are paid by the Fund, these higher expenses will
also result in lower dividends than those paid on Class A shares.
Class B shares are not available for full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE. The alternative purchase
arrangement allows you to choose the most beneficial way to buy shares, given
the amount of your purchase, the length of time you expect to hold your shares
and other circumstances. You should consider whether, during the anticipated
life of your Fund investment, the CDSC and accumulated fees on Class B shares
would be less than the initial sales charge and accumulated fees on Class A
shares purchased at the same time, and to what extent this differential would be
offset by the Class A shares' lower expenses. To help you make this
determination, the table under the caption "Expense Information" on the inside
cover page of this Prospectus shows examples of the charges applicable to each
class of shares. Class A shares will normally be more beneficial if you qualify
for reduced sales charges. See "Share Price -- Qualifying for a Reduced Sales
Charge."
- -------------------------------------------------------------------------------
YOU SHOULD CONSIDER WHICH CLASS OF SHARES
WOULD BE MORE BENEFICIAL TO YOU.
- -------------------------------------------------------------------------------
Class A shares are subject to lower distribution fees and, accordingly, pay
correspondingly higher dividends per share, to the extent any dividends are
paid. However, because initial sales charges are deducted at the time of
purchase, you would not have all of your funds invested initially and,
therefore, would initially own fewer shares. If you do not qualify for reduced
initial sales charges and expect to maintain your investment for an extended
period of time, you might consider purchasing Class A shares. This is because
the accumulated distribution and service charges on Class B shares may exceed
the initial sales charge and accumulated distribution and service charges on
Class A shares during the life of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you will
be subject to higher distribution and service fees and, for a six-year period, a
CDSC.
In the case of Class A shares, the distribution expenses that John Hancock Funds
incurs in connection with the sale of the shares will be paid from the proceeds
of the initial sales charge and ongoing distribution and service fees. In the
case of Class B shares, the expenses will be paid from the proceeds of the
ongoing distribution and service fees, as well as from the CDSC incurred upon
redemption within six years of purchase. The purpose and function of the Class B
shares' CDSC and ongoing distribution and service fees are the same as those of
the Class A shares' initial sales charge and ongoing distribution and service
fees. Sales personnel distributing the Fund's shares may receive different
compensation for selling each class of shares.
Dividends, if any, on Class A and Class B shares will be calculated in the same
manner, at the same time and on the same day. They also will be in the same
amount, except for differences resulting from each class bearing only its own
9
<PAGE> 10
distribution and service fees, shareholder meeting expenses and any incremental
transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays to the Adviser a
monthly fee of .625% of the Fund's average daily net assets.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). Under these Plans, the Fund will pay distribution and service fees
at an aggregate annual rate of up to 0.25% of the Class A shares' average daily
net assets and an aggregate annual rate of 1.00% of the Class B shares' average
daily net assets. In each case, up to 0.25% is for service expenses and the
remaining amount is for distribution expenses. The distribution fees will be
used to reimburse John Hancock Funds for its distribution expenses, including
but not limited to: (i) initial and ongoing sales compensation to Selling
Brokers and others (including affiliates of John Hancock Funds) engaged in the
sale of Fund shares; (ii) marketing, promotional and overhead expenses incurred
in connection with the distribution of Fund shares; (iii) unreimbursed
distribution expenses under the Fund's prior distribution plans; (iv)
distribution expenses incurred by other investment companies which sell all or
substantially all of their assets to, merge or otherwise engage in a
reorganization transaction with the Fund; and (v) with respect to Class B shares
only, interest expenses on unreimbursed distribution expenses. The service fees
will be used to compensate Selling Brokers for providing personal and account
maintenance services to shareholders.
- -------------------------------------------------------------------------------
THE FUND PAYS DISTRIBUTION AND SERVICE
FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
- -------------------------------------------------------------------------------
In the event John Hancock Funds is not fully reimbursed for payments it makes or
expenses it incurs under the Class A Plan, these expenses will not be carried
beyond one year from the date they were incurred. Unreimbursed expenses under
the Class B Plan will be carried forward together with interest on the balance
of these unreimbursed expenses. For the fiscal year ended December 31, 1994, an
aggregate of $13,713 of distribution expenses or .08% of the average net assets
of the Fund's Class B Shares was not reimbursed or recovered by John Hancock
Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior
periods.
Information on the Fund's total expenses is in the Financial Highlights section
of this Prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund generally declares and distributes dividends representing
all or substantially all of its net investment income, if any, annually. The
fund will distribute realized net short-term or long-term capital gains, if any,
annually after the close of the fiscal year (December 31).
Dividends are reinvested in additional shares of your class unless you elect the
option to receive them in cash. If you elect the cash option and the U.S. Postal
Service cannot deliver your checks, your election will be converted to the
10
<PAGE> 11
reinvestment option. Because of the higher expenses associated with Class B
shares, any dividends on these shares will be lower than those on the Class A
shares. See "Share Price."
TAXATION. Dividends from the Fund's net investment income, certain net foreign
currency gains and the Fund's net short-term capital gains are taxable to you as
ordinary income. Dividends from the Fund's net long-term capital gains are
taxable as long-term capital gains. These dividends are taxable, whether
received in cash or reinvested in additional shares. Certain dividends may be
paid by the Fund in January of a given year but may be taxable to you as if you
received them the previous December. Corporate shareholders may be entitled to
take the corporate dividends received deduction for dividends received from the
Fund that are attributable to dividends received by the Fund from U.S. domestic
corporations, subject to certain restrictions under the Internal Revenue Code of
1986, as amended (the "Code"). The Fund will send you a statement by January 31
showing the tax status of the dividends you received for the prior year.
- -------------------------------------------------------------------------------
YOU SHOULD KEEP YOUR ACCOUNT STATEMENTS
RECEIVED FROM THE FUND FOR YOUR PERSONAL
TAX RECORDS.
- -------------------------------------------------------------------------------
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund will not be subject to Federal income tax on any net
investment income or net realized capital gains distributed to its shareholders
within the time period prescribed by the Code. When you redeem (sell) or
exchange shares, you may realize a taxable gain or loss.
On the account application, you must certify that the social security or other
tax-payer identification number you provide is correct and that you are not
subject to backup withholding of Federal income tax. If you do not provide this
information or are otherwise subject to this withholding, the Fund may be
required to withhold 31% of your taxable dividends, the proceeds of redemptions
or exchanges.
The Fund may be subject to foreign withholding taxes or other foreign taxes on
income (possibly including capital gains) on certain of its foreign investments,
if any, which will reduce the yield or return from those investments. The Fund
expects that it will generally not qualify to pass such taxes through to its
shareholders, who consequently will generally not include them in income or be
entitled to associated foreign tax credits or deductions.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes with respect to your investment in and distributions from the Fund. A
state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the Fund's distributions are
derived from interest on (or, in the case of intangibles taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in some
states that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Non-U.S. shareholders and tax-exempt shareholders
are subject to different tax treatment not described above. You should consult
your tax adviser for specific advice.
11
<PAGE> 12
PERFORMANCE
The Fund's total return shows the overall dollar or percentage change in value
of a hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period of
time. Average annual total return shows the cumulative return divided over the
number of years included in the period. Because average annual total return
tends to smooth out variations in the Fund's performance, you should recognize
that it is not the same as actual year-to-year results.
- -------------------------------------------------------------------------------
THE FUND MAY ADVERTISE ITS TOTAL RETURN.
- -------------------------------------------------------------------------------
Total return calculations are based on the overall change in value of a
hypothetical investment in the Fund. Total return calculations for Class A
shares generally include the effect of paying the maximum sales charge (except
as shown in "The Fund's Financial Highlights"). Investments at a lower sales
charge would result in higher performance figures. Total return for Class B
shares reflects the deduction of the applicable CDSC imposed on a redemption of
shares held for the applicable period. All calculations assume that all
dividends are reinvested at net asset value on the reinvestment dates during the
periods. Total return of Class A and Class B shares will be calculated
separately and, because each class is subject to different expenses, the total
return may differ with respect to that class for the same period. The relative
performance of the Class A and Class B shares will be affected by a variety of
factors, including the higher operating expenses attributable to the Class B
shares, whether the Fund's investment performance is better in the earlier or
later portions of the period measured and the level of net assets of the Classes
during the period. The Fund will include the total return of Class A and Class B
shares in any advertisement or promotional materials including Fund performance
data. The value of Fund shares, when redeemed, may be more or less than their
original cost. Total return is a historical calculation, and are not an
indication of future performance. See "Factors to Consider in Choosing an
Alternative."
12
<PAGE> 13
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
The minimum initial investment in Class A and Class B shares is $1,000
($250 for group investments and retirement plans). Complete the Account
Application attached to this Prospectus. Indicate whether you are
purchasing Class A or Class B shares. If you do not specify which class of
shares you are purchasing, Investor Services will assume that you are
investing in Class A shares.
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------
BY CHECK 1. Make your check payable to John Hancock Investor Services
Corporation,
P.O. Box 9115, Boston, MA 02205-9115.
2. Deliver the completed application and check to your registered
representative, or broker with an agreement with John Hancock
Funds ("Selling Broker") or mail it directly to Investor
Services.
- ---------------------------------------------------------------------------------
BY WIRE 1. Obtain an account number by contacting your registered
representative or Selling Broker, or by calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Capital Growth Fund
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative or Selling Broker or mail it directly to
Investor Services.
- ---------------------------------------------------------------------------------
MONTHLY 1. Complete the "Automatic Investing" and "Bank Information"
AUTOMATIC sections on the Account Privileges Application designating a
ACCUMULATION bank account from which funds may be drawn.
PROGRAM 2. The amount you elect to invest will be automatically withdrawn
(MAAP) from your bank or credit union account.
</TABLE>
- -------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B
SHARES
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------
BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information" sections
on the Account Privileges Application designating a bank
account from which your funds may be drawn. Note that in order
to invest by phone, your account must be in a bank or credit
union that is a member of the Automated Clearing House system
(ACH).
2. After your authorization form has been processed, you may
purchase additional Class A or Class B shares by calling
Investor Services toll-free 1-800-225-5291.
3. Give the Investor Services representative the name(s) in which
your account is registered, the Fund name, the class of shares
you own, your account number, and the amount you wish to
invest.
4. Your investment normally will be credited to your account the
business day following your phone request.
- ---------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BY CHECK 1. Either complete the detachable stub included on your account
statement or include a note with your investment listing the
name of the Fund, the class of shares you own, your account
number and the name(s) in which the account is registered.
</TABLE>
- -------------------------------------------------------------------------------
BUYING ADDITIONAL
CLASS A AND CLASS B
SHARES (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
2. Make your check payable to John Hancock Investor Services
Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling
Broker.
- ---------------------------------------------------------------------------------
BY WIRE Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Capital Growth Fund
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
- ---------------------------------------------------------------------------------
</TABLE>
Other Requirements: All purchases must be made in U.S. dollars. Checks
written on foreign banks will delay purchases until U.S. funds are received,
and a collection charge may be imposed. Shares of the Fund are priced at the
offering price based on the net asset value computed after Investor Services
receives notification of the dollar equivalent from the Fund's custodian
bank. Wire purchases normally take two or more hours to complete and, to be
accepted the same day, must be received by 4:00 P.M., New York time. Your
bank may charge a fee to wire funds. Telephone transactions are recorded to
verify information. Certificates are not issued unless a request is made
in writing to Investor Services.
- --------------------------------------------------------------------------------
You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
- -------------------------------------------------------------------------------
YOU WILL RECEIVE ACCOUNT STATEMENTS THAT
YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL
RECORDKEEPING.
- -------------------------------------------------------------------------------
SHARE PRICE
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of outstanding
shares of that class. The NAV of each class can differ. Securities in the Fund's
portfolio are valued on the basis of market quotations, valuations provided by
independent pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt investments
maturing within 60 days are valued at amortized cost which approximates market
value. Foreign securities are valued on the basis of quotations from the primary
market in which they are traded and are translated from the local currency into
U.S. dollars using current exchange rates. If quotations are not readily
available, assets are valued by a method that the Trustees believe accurately
reflects fair value.
- -------------------------------------------------------------------------------
THE OFFERING PRICE OF YOUR SHARES IS THEIR
NET ASSET VALUE PLUS A SALES CHARGE, IF
APPLICABLE, WHICH WILL VARY WITH THE
PURCHASE ALTERNATIVE YOU CHOOSE.
- -------------------------------------------------------------------------------
The NAV is calculated once daily as of the close of regular trading on the New
York Stock Exchange (the "Exchange") (generally at 4:00 P.M., New York time) on
each day that the Exchange is open.
14
<PAGE> 15
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock Funds.
If you buy shares of the Fund through a Selling Broker, the Selling Broker must
receive your investment before the close of regular trading on the Exchange and
transmit it to John Hancock Funds before its close of business to receive that
day's offering price.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The offering price you pay
for Class A shares of the Fund equals the NAV plus a sales charge as follows:
<TABLE>
<CAPTION>
COMBINED
SALES CHARGE AS REALLOWANCE REALLOWANCE TO
AMOUNT INVESTED SALES CHARGE AS A PERCENTAGE OF AND SERVICE FEE AS SELLING BROKERS AS
(INCLUDING SALES A PERCENTAGE OF THE AMOUNT A PERCENTAGE OF A PERCENTAGE OF
CHARGE) OFFERING PRICE INVESTED OFFERING PRICE(+) THE OFFERING PRICE(*)
- ------------------------------------- --------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Less than $50,000 5.00% 5.26% 4.25% 4.01%
$50,000 to $99,999 4.50% 4.71% 3.75% 3.51%
$100,000 to $249,999 3.50% 3.63% 2.85% 2.61%
$250,000 to $499,999 2.50% 2.56% 2.10% 1.86%
$500,000 to $999,999 2.00% 2.04% 1.60% 1.36%
$1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
</TABLE>
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales
charge. In addition to the reallowance allowed to all selling Brokers,
John Hancock Funds will pay the following: Round trip airfare to a resort
will be offered to each registered representative of a Selling Broker (if
the Selling Broker has agreed to participate) who sells certain amounts of
shares of John Hancock funds. John Hancock Funds will make these incentive
payments out of its own resources. A Selling Broker to whom substantially
the entire sales charge is reallowed or who receives these incentives may
be deemed to be an underwriter under the Securities Act of 1933. Other
than distribution and service fees, the Fund does not bear distribution
expenses.
(**) No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions within one year of purchase.
(***) John Hancock Funds may pay a commission and the first year's service fee
(as described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of $1 million or more in aggregate as follows:
1% on sales to $4,999,999, 0.50% on the next $5 million and 0.25% on
amounts over $10 million.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance in an amount equal to 0.25% of the net
assets invested in the Fund. Thereafter, it pays the service fee
periodically in arrears in an amount up to 0.25% of the Fund's average
annual net assets. Selling Brokers receive the fee as compensation for
providing personal and account maintenance services to shareholders.
15
<PAGE> 16
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional
Class A shares of the Fund.
In addition, John Hancock Funds will pay certain affiliated Selling Brokers at
an annual rate of up to 0.05% of the daily net assets of accounts attributable
to these brokers.
Under certain circumstances described below, investors in Class A shares may be
entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales
Charge."
CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS A
SHARES. Purchases of $1 million or more of Class A shares will be made at net
asset value with no initial sales charge, but if the shares are redeemed within
12 months after the end of the calendar month in which the purchase was made
(the CDSC period), a CDSC will be imposed. The rate of the CDSC will depend on
the amount invested as follows:
<TABLE>
<CAPTION>
AMOUNT INVESTED CDSC RATE
--------------- ---------
<S> <C>
$1 million to $4,999,999............................................. 1.00%
Next $5 million to $9,999,999........................................ 0.50%
Amounts of $10 million and over...................................... 0.25%
</TABLE>
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994 and participant directed defined
contribution plans with at least 100 eligible employees at the inception of the
Fund account may purchase Class A shares with no initial sales charge. However,
if the shares are redeemed within 12 months after the end of the calendar year
in which the purchase was made, a CDSC will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the redeemed Class A shares. Accordingly,
no CDSC will be imposed on increases in account value above the initial purchase
price, including any distributions which have been reinvested in additional
Class A shares.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
Therefore, it will be assumed that the redemption is first made from any shares
in your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver of Contingent Deferred Sales
Charge" below.
QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $50,000 in Class
A shares of the Fund or a combination of funds within the John Hancock family of
funds (except money market funds), you may qualify for a reduced sales charge on
your investments in Class A shares through a LETTER OF INTENTION. You may also
be able to use the ACCUMULATION PRIVILEGE and the COMBINATION PRIVILEGE to take
advantage of the value of your previous investments in Class A shares of the
John Hancock funds in meeting the breakpoints for a
- -------------------------------------------------------------------------------
YOU MAY QUALIFY FOR A REDUCED SALES CHARGE
ON YOUR INVESTMENT IN CLASS A SHARES.
- -------------------------------------------------------------------------------
16
<PAGE> 17
reduced sales charge. For the ACCUMULATION PRIVILEGE and COMBINATION
PRIVILEGE, the applicable sales charge will be based on the total of:
1. Your current purchase of Class A shares of the Fund.
2. The net asset value (at the close of business on the previous day) of (a) all
Class A shares of the Fund you hold, and (b) all Class A shares of any other
John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
EXAMPLE:
If you hold Class A shares of a John Hancock fund with a net asset value of
$20,000 and, subsequently, invest $30,000 in Class A shares of the Fund, the
sales charge on this subsequent investment would be 4.50% and not 5.00% (the
rate that would otherwise be applicable to investments of less than $50,000. See
"Initial Sales Charge alternative -- Class A Shares.")
- -------------------------------------------------------------------------------
CLASS A SHARES MAY BE AVAILABLE WITHOUT A
SALES CHARGE TO CERTAIN INDIVIDUALS AND
ORGANIZATIONS.
- -------------------------------------------------------------------------------
If you are in one of the following categories, you may purchase Class A shares
of the Fund without paying a sales charge:
o A Trustee/Director or officer of the Fund; a Director or officer of the
Adviser and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family of any of
the foregoing; or any Fund, pension, profit sharing or other benefit plan for
the individuals described above.
o Any state, county, city or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any registered
investment management company.*
o A bank, trust company, credit union, savings institution or other type of
depository institution, its trust departments or common trust funds if it is
purchasing $1 million or more for non-discretionary customers or accounts.*
o A broker, dealer or registered investment adviser that has entered into an
agreement with John Hancock Funds providing specifically for the use of Fund
shares in fee-based investment products made available to their clients.
o A former participant in an employee benefit plan with John Hancock Funds, when
he/she withdraws from his/her plan and transfers any or all of his/her plan
distributions directly to the Fund.
- ------------------
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A Shares of the Fund may be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
17
<PAGE> 18
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares
are offered at net asset value per share without a sales charge so that your
entire initial investment will go to work at the time of purchase. However,
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the rates set forth below. This charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
shares being redeemed. Accordingly, you will not be assessed a CDSC on increases
in account value above the initial purchase price, including shares derived from
dividend reinvestment.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
reinvestment of dividends, and next from the shares you have held the longest
during the six-year period. The CDSC is waived on redemptions in certain
circumstances. See the discussion "Waiver of Contingent Deferred Sales Charge"
below.
EXAMPLE:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time, your CDSC will be calculated as follows:
<TABLE>
<S> <C>
o Proceeds of 50 shares redeemed at $12 per share $ 600
o Minus proceeds of 10 shares not subject to CDSC because they were
acquired through dividend reinvestment (10 X $12) -120
o Minus appreciation on remaining shares, also not subject to CDSC
(40 X $2) - 80
------
- - Amount subject to CDSC $ 400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses
part of them to defray its expenses related to providing the Fund with
distribution services connected to the sale of Class B shares, such as
compensating Selling Brokers for selling these shares. The combination of the
CDSC and the distribution and service fees makes it possible for the Fund to
sell Class B shares without deducting a sales charge at the time of the
purchase.
18
<PAGE> 19
The amount of the CDSC, if any, will vary depending on the number of years from
the time you purchase your Class B shares until the time you redeem them. Solely
for the purposes of determining this holding period, any payments you make
during the month will be aggregated and deemed to have been made on the last day
of the month.
<TABLE>
<CAPTION>
YEAR IN WHICH
CLASS B SHARES CONTINGENT DEFERRED SALES
REDEEMED FOLLOWING CHARGE AS A PERCENTAGE OF
PURCHASE DOLLAR AMOUNT SUBJECT TO CDSC
- ------------------ -----------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision of
personal and account maintenance services to shareholders during the twelve
months following the sale, and thereafter the service fee is paid in arrears.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in these circumstances:
- -------------------------------------------------------------------------------
UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON
CLASS B AND CLASS A SHARE REDEMPTIONS WILL
BE WAIVED.
- -------------------------------------------------------------------------------
o Redemptions of Class B shares made under Systematic Withdrawal Plan (see "How
to Redeem Shares"), as long as your annual redemptions do not exceed 10% of
your original account value plus 10% of the value of your subsequent
investments (less redemptions) in that account at the time you notify Investor
Services. This waiver does not apply to Systematic Withdrawal Plan redemptions
of Class A shares that are subject to a CDSC.
o Redemptions made to effect distributions from an Individual Retirement Account
either before or after age 59 1/2, as long as the distributions are based on
the life expectancy or the joint-and-last survivor life expectancy of you and
your beneficiary. These distributions must be free from penalty under the
Code.
o Redemptions made to effect mandatory distributions under the Code after age
70 1/2 from a tax-deferred retirement plan.
o Redemptions made to effect distributions to participants or beneficiaries from
certain employer-sponsored retirement plans including those qualified under
Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the
Code and deferred compensation plans under Section 457 of the Code. The waiver
also applies to certain returns of excess contributions made to these plans.
In all cases, the distributions must be free from penalty under the Code.
o Redemptions due to death or disability.
o Redemptions made under the Reinvestment Privilege, as described in "Additional
Services and Programs" of this Prospectus.
19
<PAGE> 20
o Redemptions made pursuant to the Fund's right to liquidate your account if you
have less than $100 invested in the Fund.
o Redemptions made in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
o Redemptions from certain IRA and retirement plans that purchased shares prior
to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services either directly or through your Selling Broker at the time you
make your redemption. The waiver will be granted once Investor Services has
confirmed that you are entitled to the waiver.
CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of
reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following eight years
after the shares were purchased, and will result in lower annual distribution
fees. If you exchanged Class B shares into the Fund from another John Hancock
fund, the calculation will be based on the time you purchased the shares in the
original fund. The Fund has been advised that the conversion of Class B Shares
to Class A Shares should not be taxable for Federal income tax purposes and
should not change a shareholder's tax basis or tax holding period for the
converted shares.
20
<PAGE> 21
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services, less any applicable CDSC. The Fund
may hold payment until it is reasonably satisfied that investments recently made
by check or Invest-by-Phone have been collected (which may take up to 10
calendar days).
Once your shares are redeemed, the Fund generally sends you payment on the next
business day. When you redeem your shares, you may realize a taxable gain or
loss depending usually on the difference between what you paid for them and what
you receive for them, subject to certain tax rules. Under unusual circumstances,
the Fund may suspend redemptions or postpone payment for up to seven days or
longer, as permitted by Federal securities laws.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BY TELEPHONE All Fund shareholders are automatically eligible for the
telephone redemption privilege. Call 1-800-225-5291, from
8:00 A.M. to 4:00 P.M. (New York time), Monday through
Friday, excluding days on which the Exchange is closed.
Investor Services employs the following procedures to
confirm that instructions received by telephone are
genuine. Your name, the account number, taxpayer
identification number applicable to the account and other
relevant information may be requested. In addition,
telephone instructions are recorded.
</TABLE>
- -------------------------------------------------------------------------------
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION
REQUEST, PLEASE FOLLOW THESE PROCEDURES.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
You may redeem up to $100,000 by telephone, but the address
on the account must not have changed for the last thirty
days. A check will be mailed to the exact name(s) and
address shown on the account.
If reasonable procedures, such as those described above,
are not followed, the Fund may be liable for any loss due
to unauthorized or fraudulent telephone instructions. In
all other cases, neither the Fund nor Investor Services
will be liable for any loss or expense for acting upon
telephone instructions made in accordance with the
telephone transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or shares of the Fund that
are in certificated form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement
due to a large volume of calls. During these times, you
should consider placing redemption requests in writing or
use EASI-Line. EASI-Line's telephone number is
1-800-338-8080.
- ---------------------------------------------------------------------------------
BY WIRE If you have a telephone redemption form on file with the
Fund, redemption proceeds of $1,000 or more can be wired on
the next business day to your designated bank account, and
a fee (currently $4.00) will be deducted. You may also use
electronic funds transfer to your assigned bank account,
and the funds are usually collectible after two business
days. Your bank may or may not charge a fee for this
service. Redemptions of less than $1,000 will be sent by
check or electronic funds transfer.
This feature may be elected by completing the "Telephone
Redemption" section on the Account Privileges Application
included with this Prospectus.
- ---------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
IN WRITING Send a stock power or "letter of instruction" specifying
the name of the Fund, the dollar amount or the number of
shares to be redeemed, your name, class of shares, your
account number and the additional requirements listed below
that apply to your particular account.
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TYPE OF REGISTRATION REQUIREMENTS
-------------------- -------------
<S> <C>
Individual, Joint Tenants, Sole A letter of instruction signed (with titles
Proprietorship, Custodial where applicable) by all persons authorized
(Uniform Gifts or Transfer to to sign for the account, exactly as it is
Minors Act), General Partners registered with the signature(s) guaran-
teed.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s) authorized
to act on the account with the signature(s)
guaranteed.
Trusts A letter of instruction signed by the
trustee(s) with the signature(s) guaranteed.
(If the trustee's name is not registered on
your account, also provide a copy of the
trust document, certified within the last 60
days.)
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
- ---------------------------------------------------------------------------------
A signature guarantee is a widely accepted way to protect you and the Fund by
verifying the signature on your request. It may not be provided by a notary
public. If the net asset value of the shares redeemed is $100,000 or less, John
Hancock Funds may guarantee the signature. The following institutions may
provide you with a signature guarantee, provided that the institution meets
credit standards established by Investor Services: (i) a bank; (ii) a securities
broker or dealer, including a government or municipal securities broker or
dealer, that is a member of a clearing corporation or meets certain net capital
requirements; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association; or (v) a
national securities exchange, a registered securities exchange or a clearing
agency.
</TABLE>
- -------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR SIGNATURE.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption.
Contact your broker for instructions.
</TABLE>
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------
If you have certificates for your shares, you must submit them with your stock
power or a letter of instructions. Unless you specify to the contrary, any
outstanding Class A shares will be redeemed before Class B shares. You may not
redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining small accounts, the Fund
reserves the right to redeem at net asset value all shares in an account which
holds less than $100 (except accounts under retirement plans) and to mail the
proceeds to the shareholder, or the transfer agent may impose an annual fee of
$10.00. No account will be involuntarily redeemed or additional fee imposed, if
the value of the account is in excess of the Fund's minimum initial investment.
No CDSC will be imposed on involuntary redemptions of shares.
Shareholders will be notified before these redemptions are to be made or this
fee is imposed, and will have 30 days to purchase additional shares to bring
their account balance up to the required minimum. Unless the number of shares
acquired by further purchases and dividend reinvestments, if any, exceeds the
number of shares redeemed, repeated redemptions from a smaller account may
eventually trigger this policy.
- ---------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of investment
goals. Contact your registered representative or Selling Broker and request a
prospectus for the John Hancock funds that interest you. Read the prospectus
carefully before exchanging your shares. You can exchange shares of each class
of the Fund only for shares of the same class of another John Hancock fund. For
this purpose, John Hancock funds with only one class of shares will be treated
as Class A, whether or not they have been so designated.
- -------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES OF THE FUND ONLY
FOR SHARES OF THE SAME CLASS OF ANOTHER
JOHN HANCOCK FUND.
- -------------------------------------------------------------------------------
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Class B shares of the Fund that are subject to a CDSC may be exchanged
into Class B shares of another John Hancock fund without incurring the CDSC;
however, these shares will be subject to the CDSC schedule of the shares
acquired (except that exchanges into John Hancock Short-Term Strategic Income
Fund, John Hancock Limited-Term Government Fund and John Hancock Adjustable U.S.
Government Trust will be subject to the initial fund's CDSC). For purposes of
computing the CDSC payable upon redemption of shares acquired in an exchange,
the holding period of the original shares is added to the holding period of the
shares acquired in an exchange. However, if you exchange Class B shares
purchased prior to January 1, 1994 for Class B shares of any other John Hancock
Fund, you will be subject to the CDSC schedule in effect on your initial
purchase date.
You may exchange Class B shares of the Fund into shares of a John Hancock Money
Market fund at net asset value; however, you will continue to be subject to a
CDSC upon redemption.
The Fund reserves the right to require you to keep previously exchanged shares
(and reinvested dividends) in the Fund for 90 days before you are permitted to
execute a new exchange. The Fund may also terminate or alter the terms of the
exchange privilege, upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares in another for Federal income tax purposes. An exchange may
result in a taxable gain or loss.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers and
investment advisers may exchange their clients' Fund shares, subject to the
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and other
23
<PAGE> 24
restrictions that do not apply to exchanges requested by shareholders directly,
as described above.
Because Fund performance and shareholders can be hurt by excessive trading, the
Fund reserves the right to terminate the exchange privilege for any person or
group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely. The
Fund may also temporarily or permanently terminate the exchange privilege for
any person who makes seven or more exchanges out of the Fund per calendar year.
Accounts under common control or ownership will be aggregated for this purpose.
Although the Fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time.
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable to
the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
IN WRITING
1. In a letter, request an exchange and list the following:
-- the name and class of the Fund whose shares you currently own
-- your account number
-- the name(s) in which the account is registered
-- the name of the fund in which you wish your exchange to be invested
-- the number of shares, all shares or dollar amount you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
24
<PAGE> 25
REINVESTMENT PRIVILEGE
1. You will not be subject to a sales charge on Class A shares reinvested in
shares of any John Hancock fund that is otherwise subject to a sales charge
as long as you reinvest within 120 days from the redemption date. If you paid
a CDSC upon a redemption, you may reinvest at net asset value in the same
class of shares from which you redeemed within 120 days. Your account will be
credited with the amount of the CDSC previously charged, and the reinvested
shares will continue to be subject to a CDSC. For purposes of computing the
CDSC payable upon a subsequent redemption, the holding period of the shares
acquired through reinvestment will include the holding period of the redeemed
shares.
- -------------------------------------------------------------------------------
IF YOU REDEEM SHARES OF THE FUND, YOU MAY
BE ABLE TO REINVEST ALL OR PART OF THE
PROCEEDS IN SHARES OF THIS FUND OR ANOTHER
JOHN HANCOCK FUND WITHOUT PAYING AN
ADDITIONAL SALES CHARGE.
- -------------------------------------------------------------------------------
2. Any portion of your redemption may be reinvested in Fund shares or in shares
of any of the other John Hancock funds, subject to the minimum investment
limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the Fund's
name, the account number and class from which your shares were originally
redeemed.
SYSTEMATIC WITHDRAWAL PLAN
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You can
also obtain this application by calling your registered representative or by
calling 1-800-225-5291.
- -------------------------------------------------------------------------------
YOU CAN PAY ROUTINE BILLS FROM YOUR
ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF
FUNDS FROM YOUR RETIREMENT ACCOUNT TO
COMPLY WITH IRS REGULATIONS.
- -------------------------------------------------------------------------------
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually or
annually or on a selected monthly basis to yourself or any other designated
payee.
4. There is no limit on the number of payees you may authorize, but all payments
must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently
with purchases of additional Class A or Class B shares, because you may be
subject to initial sales charges on your purchases of Class A shares or to a
CDSC on your redemptions of Class B shares. In addition, your redemptions are
taxable events.
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks or if deposits to a bank account are returned for any reason.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
1. You can authorize an investment to be automatically withdrawn each month from
your bank, for investment in Fund shares under the "Automatic Investing" and
"Bank Information" sections of the Account Privileges Application.
- -------------------------------------------------------------------------------
YOU CAN MAKE AUTOMATIC INVESTMENTS AND
SIMPLIFY YOUR INVESTING.
- -------------------------------------------------------------------------------
25
<PAGE> 26
2. You can also authorize automatic investment through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program plan at any
time.
4. There is no charge to you for this program, and there is no cost to the Fund.
5. If you have payments being withdrawn from a bank account and we are notified
that the account has been closed, your withdrawals will be discontinued.
GROUP INVESTMENT PROGRAM
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate dollar
amount of all participants' investments. To determine how to qualify for this
program, contact your registered representative or call 1-800-225-5291.
- -------------------------------------------------------------------------------
ORGANIZED GROUPS OF AT LEAST FOUR PERSONS
MAY ESTABLISH ACCOUNTS.
- -------------------------------------------------------------------------------
2. The initial aggregate investment of all participants in the group must be at
least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at any
time.
RETIREMENT PLANS
1. You can use the Fund as a funding medium for various types of qualified
retirement plans, including Individual Retirement Accounts, Keogh Plans (H.R.
10), Pension and Profit Sharing Plans (including 401(k) plans), Tax Sheltered
Annuity Retirement Plans (403(b) plans) and 457 Plans.
2. The initial investment minimum or aggregate minimum for any of the above
plans is $250. However, accounts being established as Group IRA, SEP, SARSEP,
TSA, 401(k) and 457 Plans will be accepted without an initial minimum
investment.
INVESTMENTS, TECHNIQUES AND RISK FACTORS
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its net
assets in illiquid investments, which include repurchase agreements maturing in
more than seven days, restricted securities and securities not readily
marketable.
LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing
additional (taxable) income, the Fund may lend to broker-dealers portfolio
securities amounting to not more than 33% of its total assets taken at current
value or may enter into repurchase agreements. In a repurchase agreement, the
Fund buys a security subject to the right and obligation to sell it back to the
issuer at the same price plus accrued interest. These transactions must be fully
collateralized at all times. The Fund may reinvest any cash collateral in
short-term highly liquid debt securities. However, they may involve some credit
risk to the
26
<PAGE> 27
Fund if the other party should default on its obligation and the Fund is delayed
in or prevented from recovering the collateral. Securities loaned by the Fund
will remain subject to fluctuations of market value.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Fund may purchase securities
on a forward or "when-issued" basis and may purchase or sell securities on a
forward commitment basis to hedge against anticipated changes in interest rates
and prices. When the Fund engages in such transactions, it relies on the seller
or the buyer, as the case may be, to consummate the transaction. Failure to
consummate the transaction may result in the Fund's losing the opportunity to
obtain an advantageous price and yield. If the Fund chooses to dispose of the
right to acquire a when-issued security prior to its acquisition or dispose of
its right to deliver or receive against a forward commitment, it can incur a
taxable gain or a loss.
SHORT TERM TRADING AND PORTFOLIO TURNOVER. Short-term trading means the
purchase and subsequent sale of a security after it has been held for a
relatively brief period of time. Short term trading may have the effect of
increasing portfolio turnover and may increase net short-term capital gains,
distributions from which would be taxable to shareholders as ordinary income.
The Fund does not intend to invest for the purpose of seeking short-term
profits. The Fund's portfolio securities may be changed, however, without regard
to the holding period of these securities (subject to certain tax restrictions),
when the Adviser deems that this action will help achieve the Fund's objective
given a change in an issuer's operations or changes in general market
conditions. A turnover rate of 100% would occur if the value of the lesser of
purchases and sales of portfolio securities for a particular year equaled the
average monthly value of portfolio securities owned during the year (excluding
short-term securities). A high rate of portfolio turnover (100% or more)
involves a correspondingly greater amount of brokerage commissions and other
costs which must be borne directly by the Fund and thus indirectly its
shareholders. It may also result in the realization of larger amounts of net
short-term capital gains, distributions from which are taxable to shareholders
as ordinary income and may, under certain circumstances, make it more difficult
for the Fund to qualify as a regulated investment company under the Code. The
Fund's portfolio turnover rate is set forth in the table under the caption
"Financial Highlights."
OPTIONS AND FUTURES TRANSACTIONS. The Fund may buy and sell options contracts
on securities and stock indices, stock index futures contracts and options on
such futures contracts. Options and futures contracts are bought and sold to
manage the Fund's exposure to changing interest rates and security prices. Some
options and futures strategies, including selling futures, buying puts and
writing calls, tend to hedge a Fund's investment against price fluctuations.
Other strategies, including buying futures, writing puts, and buying calls, tend
to increase market exposure. Options and futures may be combined with each other
or with forward contracts in order to adjust the risk and return characteristics
of the overall strategy. The Fund may invest in options and futures based on
securities and securities indices. The Fund may enter into transactions in
over-the-counter (OTC) options under the
27
<PAGE> 28
same circumstances in which it may effect transactions in exchange traded
options.
Options and futures can be volatile investments and involve certain risks.
Options and futures do not pay interest, but may produce taxable capital gains
or losses. The Fund will not engage in a transaction in futures or options on
futures if, immediately thereafter, the sum of initial margin deposits and
premiums paid for all options on securities and securities indices exceeds 5% of
the Fund's net assets, or required to establish positions in futures contracts
and options on futures would exceed 10% of the Fund's net assets. The Fund may
not write options on securities or securities indices with aggregate exercise
prices in excess of 30% of the Fund's total net assets measured at the time the
option is written. The Fund's transactions in options and futures contracts may
be limited by the requirements of the Code for qualification as a regulated
investment company. See the Statement of Additional Information for further
discussion of options and futures transactions, including tax effects and
investment risks.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements which involve the sale of securities held in its portfolio to a bank
or securities firm with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. The Fund will use proceeds obtained
from the sale of securities pursuant to reverse repurchase agreements to
purchase other investments. The use of borrowed funds to make investments is a
practice known as "leverage," which is considered speculative. The Fund will
enter into a reverse repurchase agreement only when the Adviser determines that
the interest income to be earned from the investment of the proceeds is greater
than the interest expense of the transaction. However, there is a risk that
interest expense will nevertheless exceed the income earned. Reverse repurchase
agreements involve the risk that the market value of securities purchased by the
Fund with proceeds of the transaction may decline below the repurchase price of
the securities sold by the Fund which it is obligated to repurchase. The Fund
would also continue to be subject to the risk of a decline in the market value
of the securities sold under the agreements because it will reacquire those
securities upon effecting their repurchase. To minimize risks associated with
reverse repurchase agreements, the Fund would establish and maintain with the
Fund's custodian a separate account consisting of highly liquid, marketable
securities in an amount at least equal to the repurchase prices of the
securities (plus any accrued interest thereon) under such agreements. The Fund
would not enter into reverse repurchase agreements exceeding in the aggregate
more than 33 1/3% of the value of its total net assets (including for this
purpose other borrowings of the Fund). The Fund will enter into reverse
repurchase agreements only with selected registered broker/dealers or with
federally insured banks or savings and loan associations which are approved in
advance as being creditworthy by the Board of Trustees. Under procedures
established by the Board of Trustees, the Adviser will monitor the
creditworthiness of the firms involved.
28
<PAGE> 29
LEVERAGE. In seeking to enhance investment performance, the Fund may, from time
to time, borrow money from banks for investment in portfolio securities. The
Fund may borrow only from banks and only if the value of the Fund's assets
(including the loan proceeds) less other liabilities of the Fund are at least
three (3) times the amount of the bank borrowing. This speculative practice may
help the Fund increase the net asset value of its shares in an amount greater
than would otherwise be the case when the market values of the securities
purchased through borrowing increase. However, if the return on the investment
of borrowed monies does not fully recover the costs of such borrowings to the
Fund, the net asset value of the Fund would fall in an amount greater than would
otherwise be the case. The time and extent to which the Fund may employ leverage
will be determined by the Adviser in light of changing facts and circumstances,
including general economic and market conditions. Under the 1940 Act, the value
of the Fund's assets, including the proceeds of the loan, less other liabilities
of the Fund, must be at least three times the proposed bank borrowing. If, due
to market conditions or other reasons, the value of the Fund's assets falls
below such requirement, the Fund must within three business days, reduce such
borrowings to satisfy such requirement. To do this, the Fund may have to sell a
portion of its investments at a time when it may be disadvantageous to do so.
RISKS OF FOREIGN INVESTMENTS. The Fund may invest without limitation in
securities issued by foreign companies and principally traded in securities
markets outside the United States; however, the Fund does not intend to invest
more than 25% of its assets in securities issued by companies located in any one
country outside of the United States. There are certain risks associated with
investments in foreign securities. Foreign investments may be affected favorably
or unfavorably by changes in currency rates and exchange control regulations and
costs will be incurred in connection with conversions between various
currencies. There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
uniform accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies may be less liquid or more volatile than securities of U.S. companies,
and foreign brokerage commissions and custodian fees are generally higher than
in the U.S. In addition, there is generally less government regulation of stock
exchanges, brokers and listed companies abroad than in the U.S. Investments in
foreign securities may also be subject to other risks different from those
affecting U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, the possible difficulty in obtaining
and enforcing judgments against a foreign issuer, and imposition of withholding
taxes on dividend or interest payments. Foreign securities, like other assets of
the Fund, will be held by the Fund's custodian or by any sub-custodian which may
hereafter be appointed in accordance with applicable requirements of the 1940
Act and the rules thereunder.
Generally, the Fund's foreign currency exchange transactions will be conducted
on a spot basis (i.e., cash basis) at the spot rate for purchasing or selling
currency prevailing in the foreign currency exchange market. However, in order
to hedge against possible variations in foreign exchange rates pending the
settlement of
29
<PAGE> 30
transactions in foreign securities or during the time the Fund holds the foreign
security, the Fund may enter into forward foreign currency contracts. This is
accomplished through agreements to purchase or sell a specified currency at a
specified date and price in amounts corresponding to specific payables or
receivables arising out of the purchase or sale of foreign securities. However,
such hedging transactions may not eliminate fluctuations in the prices of
portfolio securities due to factors other than currency fluctuations or prevent
losses if the prices of securities decline. In addition, such hedging
transactions preclude the opportunity for gain if the value of the hedged
security should rise due to changes in currency values. The Fund will not
speculate in forward foreign exchange transactions and will not effect a
position hedging transaction (i.e., the sale of forward foreign currency with
respect to a portfolio security denominated in such foreign currency) if as a
result more than 15% of the value of the Fund's total assets (exclusive of the
proceeds of any borrowings) would be committed to the consummation of such
contracts.
DERIVATIVE CONTRACTS. The Fund may purchase or enter into derivative contracts
to hedge against fluctuations in interest rates or securities prices or as a
substitute for the purchase or sale of securities. The Fund's transactions in
derivative contracts may include the purchase or sale of futures contracts on
securities or indices; options on futures contracts; and options on securities
or indices. All of the Funds' transactions in derivative contracts involve a
risk of loss or depreciation due to unanticipated adverse changes in interest
rates or securities prices. The loss on derivative contracts may exceed the
Fund's initial investment in these contracts. In addition, the Fund may lose the
entire premium paid for purchased options that expire before they can be
profitably exercised by the Fund.
RISKS ASSOCIATED WITH DERIVATIVE CONTRACTS. The risks associated with the
Fund's transactions in derivative contracts may include some or all of the
following:
Market Risk. Entering into a derivative contract involves a risk that the
applicable market will move against the Fund's position and that the Fund will
incur a loss. For derivative contracts other than purchased options, this loss
may exceed the amount of the initial investment made or the premium received by
the Fund.
Leverage and Volatility Risk. Derivative contracts may sometimes increase or
leverage the Fund's exposure to a particular market risk. Leverage enhances the
price volatility of derivative contracts held by the Fund. The Fund may
partially offset the leverage inherent in derivative contracts by maintaining a
segregated account consisting of cash and liquid, high grade debt securities, by
holding offsetting portfolio securities or contracts or by covering written
options.
Correlation Risk. A Fund's success in using derivative contracts to hedge
portfolio assets depends on the degree of price correlation between the
derivative instrument and the hedged asset. Imperfect correlation may be caused
by several factors, including temporary price disparities among the trading
markets for the derivative instrument, the assets underlying the derivative
instrument and the Fund's portfolio assets.
30
<PAGE> 31
Credit Risk. Over-the-counter derivative contracts involve a risk that the
issuer or counterparty will fail to perform its contractual obligations.
Liquidity and Valuation Risk. Some derivative securities are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, a commodity or exchange may suspend
or limit trading in an exchange-traded derivative contract, which may make the
contract temporarily illiquid and difficult to price. The staff of the
Securities and Exchange Commission ("SEC") takes the position that certain
over-the-counter options are subject to the Fund's 10% limit on illiquid
investments. The Fund's ability to terminate over-the-counter derivative
contracts may depend on the cooperation of the counterparties to such contracts.
For thinly traded derivative securities and contracts, the only source of price
quotations may be the selling dealer or counterparty.
31
<PAGE> 32
JOHN HANCOCK JOHN HANCOCK
CAPITAL CAPITAL
GROWTH FUND GROWTH FUND
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CLASS A AND CLASS B SHARES
PROSPECTUS
PRINCIPAL DISTRIBUTOR MAY 1, 1995
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
A MUTUAL FUND SEEKING
CAPITAL APPRECIATION
CUSTODIAN
Investors Bank
& Trust Company
24 Federal Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services
Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For Service Information
For Telephone Exchange call
1-800-225-5291
For Investment-by-Phone
For Telephone Redemption
For TDD call 1-800-554-6713
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
T14OP 5/95 (LOGO) Printed
TELEPHONE 1-800-225-5291
on Recycled Paper
<PAGE> 33
JOHN HANCOCK CAPITAL GROWTH FUND
CLASS A AND CLASS B SHARES
Statement of Additional Information
MAY 1, 1995
This Statement of Additional Information provides information
about John Hancock Capital Growth Fund (the "Fund") in addition to
the information that is contained in the Fund's Class A and Class
B Prospectus (the "Prospectus"), dated May 1, 1995.
This Statement of Additional Information is not a prospectus.
It should be read in conjunction with the Prospectus, a copy of
which can be obtained free of charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-5291
1-800-225-5291
TABLE OF CONTENTS
<TABLE>
<S> <C>
Organization of the Fund................................. 2
Investment Objective and Policies........................ 2
Certain Investment Practices............................. 5
Investment Restrictions.................................. 10
Those Responsible for Management......................... 12
Investment Advisory and Other Services................... 18
Distribution Contract.................................... 22
Net Asset Value.......................................... 25
Initial Sales Charge on Class A Shares................... 26
Deferred Sales Charge on Class B Shares.................. 28
Special Redemptions...................................... 28
Additional Services and Programs......................... 29
Description of the Fund's Shares......................... 30
Tax Status............................................... 33
Calculation of Performance............................... 38
Brokerage Allocation..................................... 43
Transfer Agent Services.................................. 45
Custody of Portfolio..................................... 45
Independent Auditors..................................... 45
Financial Statements..................................... 45
</TABLE>
-1-
<PAGE> 34
ORGANIZATION OF THE FUND
The Fund is a diversified open-end management investment
company organized as a business trust under the laws of The
Commonwealth of Massachusetts. Prior to the approval of John
Hancock Advisers, Inc. (the "Investment Adviser") as the Fund's
adviser effective December 22, 1994, the Fund was known as
Transamerica Capital Growth Fund.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE. As discussed under "Investment
Objective and Policies" in the Prospectus, the primary investment
objective of the Fund is capital appreciation. The Fund seeks to
achieve its objective by investing primarily in equity securities
of domestic and foreign companies. The Fund may also, from time
to time, in pursuit of its investment objective, engage in
leveraging and in a variety of special investment techniques in
seeking to hedge against changes in the prices of securities held
in its portfolio or which it intends to purchase such as the
purchase and sale of standardized stock options as well as options
on stock indexes, stock index futures and options on such futures.
The investment policies and techniques employed by the Fund
involve a greater degree of risk than those inherent with more
conservative investment approaches.
LEVERAGE. As discussed under "Investment Objective and
Policies" in the Prospectus, the Fund may from time to time borrow
money from banks for investment in portfolio securities. The time
and extent to which the Fund may engage in such borrowing will be
determined by the Investment Adviser in light of changing facts
and circumstances, including general economic and market
conditions. Under the Investment Company Act of 1940, as amended
(the "1940 Act"), the Fund may borrow money only from banks, and
only if the value of the Fund's assets, including the proceeds of
the loan, less other liabilities of the Fund, are at least three
times the proposed bank borrowing. The amount of borrowing will
also be limited by applicable margin limitations imposed by the
Federal Reserve Board.
The Fund may also invest in reverse repurchase agreements
with selected registered broker/dealers or with federally insured
banks or savings and loan associations. These agreements are
considered to be a borrowing and are subject to the asset coverage
requirements described above. The Fund's use of these agreements
will also have the effect of leveraging the Fund's assets.
LENDING OF PORTFOLIO SECURITIES. In order to generate
additional income, the Fund may, from time to time, lend
securities from its portfolios to brokers, dealers and financial
institutions such as banks and trust companies. Such loans will
be secured by collateral consisting of cash or U.S. Government
securities which will be maintained in an amount equal to at least
-2-
<PAGE> 35
100% of the current market value of the loaned securities. During
the period of the loan, the fund will receive the income on both
the loaned securities and the collateral and thereby increase its
return. Cash collateral will be invested in short-term high
quality debt securities, which will increase the current income of
the Fund. The loans will be terminable by the Fund at any time
and by the borrower on one day's notice. The Fund will have the
right to regain record ownership of loaned securities to exercise
beneficial rights such as rights to interest or other
distributions or voting rights on important issues. The Fund may
pay reasonable fees to persons unaffiliated with the Fund for
services in arranging such loans. Lending of portfolio securities
involves a risk of failure by the borrower to return the loaned
securities, in which event the Fund may incur a loss.
FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may enter into
forward contracts to purchase or sell foreign currencies as a
hedge against possible variations in foreign exchange rates. A
forward foreign currency contract is an agreement between the
contracting parties to exchange an amount of currency at some
future time at an agreed upon rate. The rate can be higher or
lower than the spot rate between the currencies that are the
subject of the contract. A forward contract generally has no
deposit requirement and such transactions do not involve
commissions. By entering into a forward contract for the purchase
or sale of the amount of foreign currency invested in a foreign
security transaction, the Fund can hedge against possible
variations in the value of the dollar versus the subject currency
either between the date the foreign security is purchased or sold
and the date on which payment is made or received or during the
time the Fund holds the foreign security. If the Fund enters into
a "position hedging transaction," which is the sale of forward
foreign currency with respect to a portfolio security denominated
in such foreign currency, its custodian bank will place cash or
liquid equity or debt securities in a separate account of the Fund
in an amount equal to the value of the Fund's total assets
committed to the consummation of such forward contract. If the
value of the securities placed in the separate account declines,
additional cash or securities will be placed in the account so
that the value of the account will equal the amount of the Fund's
commitment with respect to such contracts. The Investment Adviser
does not intend to enter into position hedging transactions on a
regular or continuous basis and will not do so if as a result more
than 15% of the value of the Fund's total assets would be
committed to the consummation of such contracts. In addition, the
Fund will not enter into a forward contract if as a result the
Fund would be obligated to deliver an amount of foreign currency
to consummate the contract in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency.
STOCK OPTIONS. A call option gives the purchaser of the
option, in return for a premium paid, the right to buy the
security underlying the option at a specified price at any point
during the term of the option. The seller ("writer") of the call
-3-
<PAGE> 36
option who receives the premium has the obligation to sell the
underlying security to the purchaser at the exercise price during
the option period, if assigned an exercise notice. A put option
gives the purchaser thereof the right to sell and the writer the
obligation to buy the security underlying the option at the
exercise price upon exercise of the option during the option
period.
A writer of an option may terminate the obligation to
purchase or sell prior to expiration of the option by making an
offsetting purchase of an identical option ("closing purchase
transaction"). Similarly, the buyer of an option may, prior to
expiration, make an offsetting sale of an identical option
("closing sale transaction"). A closing purchase or sale
transaction cancels out an investor's previous position as the
holder or the writer of an option.
An option may be exercised at any time from the day on which
it is bought until the last trading day before it expires. To
exercise an option the holder must direct his broker to give
exercise instructions to the Options Clearing Corporation ("OCC").
On the business day following receipt of an exercise instruction,
OCC randomly assigns the exercise to a Clearing Member account
that reflects the writing of an option or options identical to the
exercised option. The brokerage firm to which the exercise notice
is assigned must then allocate the assignment to a customer
maintaining a position as an option writer, whether on a random
selection basis or on a "first-in, first-out" basis. Brokers are
required to inform their customers which allocation method is used
and how it works.
An option position may be closed out only on an exchange
which provides a secondary market for an option of the same
series. Although the Fund will generally purchase or write only
those options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an
exchange will exist for any particular option at any particular
time. In such event it might not be possible to effect closing
transactions in particular options with the result that the Fund
would have to exercise its options in order to realize any profit.
This would result in the Fund incurring brokerage commissions upon
the exercise of call options and upon the subsequent disposition
of underlying securities acquired through the exercise of call
options or upon the purchase of underlying securities for the
exercise of put options. If the Fund as a covered call option
writer is unable to effect a closing purchase transaction in a
secondary market, unless the Fund is required to deliver the stock
pursuant to the assignment of an exercise notice, it will not be
able to sell the underlying security until the option expires.
Reasons for the potential absence of a liquid secondary
market on an exchange include the following: (i) there may be
insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening
-4-
<PAGE> 37
transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a
clearing corporation may not at all times be adequate to handle
current trading volume or (vi) one or more exchanges could, for
economic or other reasons decide or be compelled at some future
date to discontinue the trading of options (or a particular class
or series of options) in which event the secondary market on that
exchange (or in the class or series of options) would cease to
exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their
terms. There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at a particular
time, render certain of the facilities of any of the clearing
corporations inadequate and thereby result in the institution by
an exchange of special procedures which may interfere with the
timely execution of customers' orders. However, the Options
Clearing Corporation, based on forecasts provided by the U.S.
exchanges, believes that its facilities are adequate to handle the
volume of reasonably anticipated options transactions, and such
exchanges have advised such clearing corporation that they believe
their facilities will also be adequate to handle reasonably
anticipated volume.
CERTAIN INVESTMENT PRACTICES
REGULATORY MATTERS. The Fund has undertaken with the
Commodity Futures Trading Commission ("CFTC") staff that its
transactions in futures and in options on futures will be
exclusively for hedging purposes and that it will adhere to all
limitations in the manner and extent to which it may effect
transactions in futures and options on such futures currently
imposed by the CFTC as conditions for exemption of a mutual fund
or investment advisers thereto from registration as a commodity
pool operator.
OPTIONS ON STOCK INDEXES. The Fund's purchase and sale of
options on stock indexes will be subject to risks applicable to
options transactions generally. In addition, the distinctive
characteristics of options on indexes create certain risks that
are not present with stock options.
A stock index is a method of reflecting in a single number of
the market value of many different stocks. An index may be
designed to be representative of the market as a whole, of a broad
market segment (e.g., industrials), or of a particular industry
(e.g., computers). A stock index assigns relative values to the
stocks included in the index and the index fluctuates with changes
in the market values of those stocks. Options on stock indexes
are similar to options on stock except that when an index option
-5-
<PAGE> 38
is exercised, the exercise is settled by the payment of cash
rather than by the delivery of stock. The writer of an option,
when assigned an exercise notice is obligated to pay the
exercising holder an amount of cash if the closing level of the
index upon which the option is based is greater, in the case of a
call, or lesser, in the case of a put, than the exercise price of
the option. This amount of cash is equal to the difference
between the closing level of the underlying index on the exercise
date and the exercise price of the option multiplied by a
specified index "multiplier."
Index prices may be distorted if trading of certain stocks
included in the index is interrupted. Trading in index options
also may be interrupted in certain circumstances such as if
trading were halted in a substantial number of stocks included in
the index or if dissemination of the current level of an
underlying index is interrupted. If this occurred, the Fund would
not be able to close out options which it had purchased and, if
restrictions on exercise were imposed, may be unable to exercise
an option it holds, which could result in losses to the Fund if
the underlying index moves adversely before trading resumes.
However, it is the Fund's policy to purchase options only on
indexes which include a sufficient number of stocks so that the
likelihood of a trading halt in the index is minimized.
The purchaser of an index option may also be subject to a
timing risk. If an option is exercised by the Fund before final
determination of the closing index value for that day, the risk
exists that the level of the underlying index may subsequently
change. If such a change caused the exercised option to fall
out-of-the-money (that is, the exercising of the option would
result in a loss, not a gain), the Fund would be required to pay
the difference between the closing index value and the exercise
price of the option (times the applicable multiple) to the
assigned writer. Although the Fund may be able to minimize this
risk by withholding exercise instructions until just before the
daily cutoff time, it may not be possible to eliminate this risk
entirely because the exercise cutoff times for index options may
be earlier than those fixed for other types of options and may
occur before definitive closing index values are announced.
Alternatively, when the index level is close to the exercise price
the Fund may sell rather than exercise the option.
Although the markets for certain index option contracts have
developed rapidly, the markets for other index options are still
relatively illiquid. The ability to establish and close out
positions on such options will be subject to the development and
maintenance of a liquid secondary market. It is not certain that
this market will develop in all index option contracts. The Fund
will not purchase or sell any index option contract unless and
until in the Investment Adviser's opinion the market for such
options has developed sufficiently that such risk in connection
with such transactions is not greater than such risk in connection
with options on stocks.
-6-
<PAGE> 39
LIMITATION ON TRANSACTIONS IN STOCK INDEX OPTIONS. The Fund
will write put options on indexes only if they are covered by
segregating with the Fund's custodian an amount of cash or
short-term investments equal to the aggregate exercise price of
the puts. In addition, the Fund will write call options on
indexes only if, on the date of which any such option is written,
it holds securities qualified to serve as "cover" under applicable
rules of the national securities exchanges with a value at least
equal to the value of the index times the multiplier or maintains
in a segregated account an amount of cash or short-term
investments equal to the aggregate exercise price of such call
options. In the case of both put and call options on indexes, the
Fund will satisfy the foregoing conditions while such options are
outstanding.
STOCK INDEX FUTURES CHARACTERISTICS. Currently, stock index
futures contracts can be purchased or sold with respect to several
different stock indexes, each based on a different measure of
market performance. A determination as to which of the index
contracts would be appropriate for purchase or sale by the Fund
will be based upon, among other things, the liquidity offered by
such contracts and the volatility of the underlying index. Prior
to effecting a transaction in stock index futures or options
thereon, the Investment Adviser will determine the total value of
the Fund's stock portfolio which it desires to hedge and, by
computer program or otherwise, determine the stock index whose
performance most accurately tracks that portfolio at such time.
Positions in futures on the index so identified or options on such
futures will be established unless the trading market for futures
or options on the index is not believed by the Investment Adviser
to be sufficiently liquid, in which case positions will be
established on the index next most closely tracking the portfolio
and which is appropriately liquid. Positions will be established
in an amount which correlates to the market value of the Fund's
stock portfolio which the Investment Adviser wishes to hedge,
taking into account the relative volatility of the Fund's stock
portfolio to the index. As the portion of the Fund's assets
invested in stocks is reduced, a corresponding portion of the
hedge will be lifted (i.e., will be closed out).
Unlike when the Fund purchases or sells a security, no price
is paid or received by the Fund upon the purchase or sale of a
futures contract. Instead, the Fund will be required to deposit
with its broker an amount of cash or U.S. treasury bills equal to
approximately 5% of the contract amount. This is called "initial
margin." Such initial margin is in the nature of a performance
bond or good faith deposit on the contract which is returned to
the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. In addition, because
under current futures industry practice daily variations in gains
and losses on open contracts are required to be reflected in cash
in the form of variation margin payments, the Fund may be required
to make additional payments during the term of the contract to its
broker. Such payments would be required where, during the term of
-7-
<PAGE> 40
a stock index futures contract purchased by the Fund, the price of
the underlying stock index declined, thereby making the Fund's
position less valuable. In all instances involving the purchase
of stock index futures contracts by the Fund, an amount of cash
together with such other securities as permitted by applicable
regulatory authorities to be utilized for such purpose, at least
equal to the market value of the futures contracts, will be
deposited in a segregated account with the Fund's Custodian to
collateralize the position. At any time prior to the expiration
of a futures contract, the Fund may elect to close its position by
taking an opposite position which will operate to terminate the
Fund's position in the futures contract.
Where futures are purchased to hedge against a possible
increase in the price of a security before the Fund is able in an
orderly fashion to invest in the security, it is possible that the
market may decline instead. If the Fund, as a result, concluded
not to make the planned investment at that time because of concern
as to possible further market decline or for other reasons, the
Fund would realize a loss on the futures contract that is not
offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect
correlation or no correlation at all between movements in the
stock index futures and the portion of the portfolio being hedged,
the price of stock index futures may not correlate perfectly with
movements in the stock index due to certain market distortions.
All participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close
futures contracts through offsetting transactions which could
distort the normal relationship between the index itself and the
value of a future. Moreover, the deposit requirements in the
future market are less onerous than margin requirements in the
securities market and may therefor cause increased participation
by speculators in the futures market. Such increased
participation may also cause temporary price distortions. Due to
the possibility of price distortion in the futures market and
because of the imperfect correlation between movements in stock
indexes and movements in the prices of stock index futures, the
value of stock index futures contracts as a hedging device may be
reduced.
In addition, if the Fund has insufficient available cash it
may at times have to sell securities to meet variation margin
requirements. Such sales may have to be effected at a time when
it may be disadvantageous to do so.
RISKS OF TRANSACTIONS IN STOCK INDEX FUTURES. As discussed
under "Special Investment Techniques", there are several risks in
connection with the use of stock index futures by the Fund as a
hedging device. One risk arises because of the imperfect
correlation between movements in the price of the stock index
future and movement in the prices of the securities which are the
-8-
<PAGE> 41
subject of the hedge. The risk of imperfect correlation increases
as the composition of the Fund's securities portfolio diverges
from the securities included in the applicable stock index. The
price of a stock index future may move more than or less than the
price of the securities being hedged. If the price of the stock
index future moves less than the price of the securities which are
the subject of the hedge, the hedge will not be fully effective
but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than
if it had not hedged at all. If the price of the securities being
hedged has moved in a favorable direction, this advantage will be
partially or totally offset by the losses on the corresponding
futures positions. If the price of the future moves more than the
price of the stock, the Fund will experience either a loss or a
gain on the future which will not be completely offset by movement
in the price of the securities which are the subject of the hedge.
To compensate for the imperfect correlation of movements in
the price of securities being hedged and movements in the price of
the stock index futures, the Fund may buy or sell stock index
futures contracts in a greater dollar amount than the dollar
amount of securities being hedged if the historical volatility of
the prices of such securities has been greater than the historical
volatility of the index. Conversely, the Fund may buy or sell
fewer stock index futures contracts if the historical volatility
of the prices of such securities has been less than the historical
volatility of the stock index. It is also possible that, where
the Fund has sold futures to hedge its portfolio against a decline
in the market, the market may advance and the value of securities
held in the Fund's portfolio may decline. If this occurred, the
Fund would lose money on the future and also experience a decline
in value in its portfolio securities. However, while this could
occur for a very brief period or to a very small degree, over time
the value of a diversified portfolio will tend to move in the same
direction as the market indexes upon which the futures are based.
Positions in stock index futures may be closed out only on an
exchange or board of trade which provides a secondary market for
such futures. Although the Fund intends to purchase or sell
futures only on exchanges or boards of trade where there appears
to be an active secondary market, as with stock options there is
no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any
particular time. In such event, it may not be possible to close a
futures position and, in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of
variation margin. In such circumstances, an increase in the price
of securities which are the subject of the hedge, if any, may
partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price
of the securities will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to
losses on a futures contract.
-9-
<PAGE> 42
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment
restrictions. Under these investment restrictions the Fund may
not:
(1) Invest more than 5% of its assets (taken at market value
at the time of each investment) in the securities of any
one issuer or purchase more than 10% of the outstanding
voting securities of any one company or more than 10% of
any class of a company's outstanding securities, except
that these restrictions shall not apply to U.S.
government securities.
(2) Invest more than 10% of its total assets (taken at
market value at the time of each investment) in
securities of companies having a record, together with
predecessors, of less than three years of continuous
operations, except that this restriction shall not apply
to U.S. government securities.
(3) Make short sales of securities.
(4) Purchase securities on margin or borrow money, except as
set forth in the Prospectus and Statement of Additional
Information under "Leverage" provided however, that the
Fund may borrow money from a bank for temporary or
emergency purposes in amounts not exceeding 5% (taken at
the lower of cost or market) of the Fund's total assets
(not including the proceeds of any borrowings). The
borrowing restriction does not prohibit the use of
reverse repurchase agreements, in an amount, (including
any borrowings) not to exceed 33 1/3% of its net assets.
(5) Engage in the underwriting of securities except insofar
as the Fund may be deemed an underwriter under the
Securities Act of 1933 in disposing of a portfolio
security.
(6) Purchase or sell commodities or commodity futures
contracts except stock index futures and options on such
futures for hedging purposes under policies developed by
the Fund's Board of Trustees and forward foreign
currency contracts as described in the Prospectus and
Statement of Additional Information.
(7) Make loans, except through loans of portfolio
securities, the purchase of fixed income securities and
by entering into repurchase agreements. For the purpose
of this restriction, collateral arrangements with
respect to stock options, options on stock indices,
stock index futures and options on such futures are not
deemed to be a loan of assets.
-10-
<PAGE> 43
(8) Engage in arbitrage transactions or purchase oil, gas or
other mineral leases, rights or royalty contracts or
exploration or development programs, except that the
Fund may invest in the securities of companies which
invest in or sponsor such programs.
(9) Purchase securities of other investment companies in an
amount exceeding the limitations set forth in Section
12(d) of the Investment Company Act of 1940 and the
rules thereunder, except in connection with a merger,
consolidation, reorganization or acquisition of assets.
(10) Invest for the purpose of exercising control or
management of another company.
(11) Invest in securities of any company if, to the knowledge
of the Fund, any officer or trustee or director of the
Fund or of the Investment Adviser owns more than of 1%
of the outstanding securities of such company, and such
officers and trustees or directors who own of 1% in
the aggregate more than 5% of the outstanding securities
of such company.
(12) Issue senior securities, as defined in the Investment
Company Act, except that the Fund may enter into
repurchase agreements, lend its portfolio securities,
and may borrow money from banks.
(13) Purchase any security or enter into a repurchase
agreement if as a result more than 10% of the value of
the Fund's total assets (taken at market value at the
time of each investment) would be invested in any
combination of: securities that are subject to legal or
contractual restrictions on resale ("restricted
securities"); securities for which there are no readily
available market quotations; or repurchase agreements
maturing in more than seven days.
(14) Invest in real estate or interests therein.
(15) Invest more than 5% of its total assets in warrants,
including not more than 2% of such assets in warrants
not listed on either the NYSE or American Stock
Exchange. However, the acquisition of warrants attached
to other securities is not subject to this restriction.
The fundamental investment restrictions set forth above may
not be changed without the prior approval by the holders of a
majority of the outstanding shares of the Fund as defined in the
1940 Act. A majority for this purpose means: (a) more than 50%
of the outstanding shares, or (b) 67% or more of the shares
represented at a meeting where more than 50% of the outstanding
shares are represented, whichever is less.
-11-
<PAGE> 44
The Fund's Board of Trustees has approved the following
non-fundamental investment policy pursuant to an order of the SEC:
Notwithstanding any investment restriction to the contrary, the
Fund may, in connection with the John Hancock Group of Funds
Deferred Compensation Plan for Independent Trustees/Directors,
purchase securities of other investment companies within the John
Hancock Group of Funds provided that, as a result, (i) no more
than 10% of the Fund's assets would be invested in securities of
all other investment companies, (ii) such purchase would not
result in more than 3% of the total outstanding voting securities
of any one such investment company being held by the Fund and
(iii) no more than 5% of the Fund's assets would be invested in
any one such investment company.
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 Investment Adviser or officers and directors of
the Fund's distributor, John Hancock Funds, Inc. ("John Hancock
Funds" or the "Distributor").
Set forth below is information with respect to each of the
Fund's officers and Trustees. The officers and Trustees may be
contacted at 101 Huntington Avenue, Boston, MA 02199-7603. Their
affiliations represent their principal occupations during the past
five years.
EDWARD J. BOUDREAU, JR., Trustee, Chairman and Chief Executive
Officer. Chairman and Chief Executive Officer, the
Investment Adviser and The Berkeley Financial Group
("The Berkeley Group"); Chairman, NM Capital Management,
Inc. ("NM Capital"); John Hancock Advisers International
Limited ("Advisers International"); John Hancock Funds,
Inc.; John Hancock Investor Services Corporation
("Investor Services"); and Sovereign Asset Management
Corporation ("SAMCorp"); (hereinafter the Investment
Adviser, the Berkeley Group, NM Capital, Advisers
International, John Hancock Funds, Inc., Investor
Services and SAMCorp are collectively referred to as the
"Affiliated Companies"); Chairman, First Signature Bank
& Trust; Director, John Hancock Freedom Securities
Corporation, John Hancock Capital Corporation, New
England/Canada Business Council; Member, Investment
Company Institute Board of Governors; Trustee, Museum of
Science; President, the Investment Adviser (until July
1992); Trustee or Director of other investment companies
managed by the Investment Adviser; and Chairman, John
Hancock Distributors, Inc. (until April, 1994).
-12-
<PAGE> 45
JAMES F. CARLIN, Trustee. Chairman and CEO, Carlin Consolidated,
Inc. (insurance); Director, Arbella Mutual Insurance
Company (insurance), Consolidated Group Trust (group
health plan), Carlin Insurance Agency, Inc. and West
Insurance Agency, Inc.; Receiver, the City of Chelsea
(until August 1992); and Trustee or Director of other
investment companies managed by the Investment Adviser.
WILLIAM H. CUNNINGHAM, Trustee. Chancellor, University of Texas
System and former President of the University of Texas,
Austin, Texas; Regents Chair in Higher Education
Leadership; James L. Bayless Chair for Free Enterprise;
Professor of Marketing and Dean College of Business
Administration/Graduate School of Business (1983-1985);
Centennial Chair in Business Education Leadership,
1983-1985; Director, LaQuinta Motor Inns, Inc. (hotel
management company); Director, Jefferson-Pilot
Corporation (diversified life insurance company);
Director, Freeport-McMoran Inc. (oil and gas company);
Director, Barton Creek Properties, Inc. (1988-1990)
(real estate development) and LBJ Foundation Board
(education foundation); Advisory Director, Texas
Commerce Bank - Austin; and Trustee or Director of other
investment companies managed by the Investment Adviser.
CHARLES L. LADNER, Trustee. Director, Energy North, Inc. (public
utility holding company); Senior Vice President, Finance
UGI Corp. (public utility holding company) (until 1992);
and Trustee or Director of other investment companies
managed by the Investment Adviser.
LEO E. LINBECK, JR., Trustee. Chairman, President, Chief
Executive Officer and Director, Linbeck Corporation (a
holding company engaged in various phases of the
construction industry and warehousing interests);
Director and Chairman, Federal Reserve Bank of Dallas;
Chairman of the Board and Chief Executive Officer,
Linbeck Construction Corporation; Director, Panhandle
Eastern Corporation (a diversified energy company);
Director, Daniel Industries, Inc. (manufacturer of gas
measuring products and energy related equipment);
Director, GeoQuest International, Inc. (a geophysical
consulting firm); Director, Greater Houston Partnership;
and Trustee or Director of other investment companies
managed by the Investment Adviser.
PATRICIA P. MCCARTER, Trustee. Director and Secretary, the
McCarter Corp. (machine manufacturer); and Trustee or
Director of other investment companies managed by the
Investment Adviser.
STEVEN R. PRUCHANSKY, Trustee. Director and Treasurer, Mast
Holdings, Inc.; Director, First Signature Bank & Trust
Company (until August 1991); General Partner, Mast
-13-
<PAGE> 46
Realty Trust; President, Maxwell Building Corp. (until
1991); and Trustee or Director of other investment
companies managed by the Investment Adviser.
NORMAN H. SMITH, Trustee. Lieutenant General, USMC, Deputy Chief
of Staff for Manpower and Reserve Affairs, Headquarters
Marine Corps; Commanding General III Marine
Expeditionary Force/3rd Marine Division (retired 1991);
and Trustee or Director of other investment companies
managed by the Investment Adviser.
JOHN P. TOOLAN, Trustee. Director, The Smith Barney Muni Bond
Funds, The Smith Barney Tax-Free Money Fund, Inc.,
Vantage Money Market Funds (mutual funds), The
Inefficient-Market Fund, Inc. (closed-end investment
company) and Smith Barney Trust Company of Florida;
Chairman, Smith Barney Trust Company (retired December,
1991); Director, Smith Barney, Inc., Mutual Management
Company and Smith, Barney Advisers, Inc. (investment
advisers) (retired 1991); and Senior Executive Vice
President, Director and member of the Executive
Committee, Smith Barney, Harris Upham & Co.,
Incorporated (investment bankers) (until 1991); and
Trustee or Director of other investment companies
managed by the Investment Adviser.
*ROBERT G. FREEDMAN, Vice Chairman and Chief Investment Officer.
President and Chief Investment Officer, the Investment
Adviser.
*ANNE C. HODSDON, President. President and Chief Operations
Officer, the Investment Adviser; Executive Vice
President, the Investment Adviser (until December,
1994).
*JAMES B. LITTLE, Senior Vice President and Chief Financial
Officer. Senior Vice President, the Investment Adviser.
*THOMAS H. DROHAN, Senior Vice President and Secretary. Senior
Vice President and Secretary, the Investment Adviser.
*MICHAEL P. DICARLO, Senior Vice President. Senior Vice
President, the Investment Adviser.
*EDGAR LARSEN, Senior Vice President. Senior Vice President, the
Investment Adviser.
______________________
* An "interested person" of the Fund, as such term is defined
in the Investment company Act of 1940, as amended (the
"Investment Company Act").
-14-
<PAGE> 47
*B.J. WILLINGHAM, Senior Vice President. Senior Vice President,
the Investment Adviser. Formerly, Director and Chief
Investment Officer of Transamerica Fund Management
Company.
*JAMES J. STOKOWSKI, Vice President and Treasurer. Vice
President, the Investment Adviser.
*SUSAN S. NEWTON, Vice President and Compliance Officer. Vice
President and Assistant Secretary, the Investment
Adviser.
*JOHN A. MORIN, Vice President. Vice President, the Investment
Adviser.
*THOMAS J. PRESS, Vice President and Assistant Secretary. Vice
President and Assistant Secretary, the Investment
Adviser. Formerly, General Counsel and Secretary,
Transamerica Management Company; Secretary and
Treasurer, Transamerica Asset Management Group, Inc.;
and Secretary, Transamerica Funds Distributors, Inc.
All of the officers listed are officers or employees of the
Investment Adviser or affiliated companies. Some of the Trustees
and officers may also be officers and/or directors and/or trustees
of one or more of the other funds for which the Investment Adviser
serves as investment adviser.
As of April 6, 1995, there were 7,007,983 shares of the Fund
outstanding and officers and trustees of the Fund as a group
beneficially owned less than 1% of these outstanding shares. As
of such date, Continental Trust Company, Chicago, IL held of
record 866,725 Class B Shares representing 79% of the Fund's Class
B Shares. Such ownership represents separate interests of more
than 25% of the outstanding Class B Shares of the Fund resulting
in the presumption of "control" as defined under the 1940 Act and
has the likely result that such shareholder can materially affect
a positive or negative vote on any matters which require the vote
of all shareholders of Class B. At such date no other person
owned of record or beneficially as much as 5% of the outstanding
shares of the Fund. At such date, no person owned of record or
was known by the Fund to own beneficially as much as 5% of the
outstanding shares of the Fund.
As of December 22, 1994, the Trustees have established an
Advisory Board which acts to facilitate a smooth transition of
management over a two-year period (between Transamerica Fund
Management Company ("TFMC"), the prior investment adviser, and the
Investment Adviser). The members of the Advisory Board are
distinct from the Board of Trustees, do not serve the Fund in any
other capacity and are persons who have no power to determine what
securities are purchased or sold on behalf of the Fund. Each
member of the Advisory Board may be contacted at 101 Huntington
Avenue, Boston, Massachusetts 02199.
-15-
<PAGE> 48
Members of the Advisory Board and their respective principal
occupations during the past five years are as follows:
R. Trent Campbell, President, FMS, Inc. (financial and management
services); former Chairman of the Board, Mosher Steel
Company.
Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman
from Texas; co-founder, Houston Parents' League; former
board member of various civic and cultural organizations
in Houston, including the Houston Symphony, Museum of
Fine Arts and YWCA. Mrs. Bentsen is presently active in
various civic and cultural activities in the Washington,
D.C. area, including membership on the Area Board for
The March of Dimes and is a National Trustee for the
Botanic Gardens of Washington, D.C.
Thomas R. Powers, Formerly Chairman of the Board, President and
Chief Executive Officer, TFMC; Director, West Central
Advisory Board, Texas Commerce Bank; Trustee, Memorial
Hospital System; Chairman of the Board of Regents of
Baylor University; Member, Board of Governors, National
Association of Securities Dealers, Inc.; Formerly,
Chairman, Investment Company Institute; formerly,
President, Houston Chapter of Financial Executive
Institute.
Thomas B. McDade, Chairman and Director, TransTexas Gas Company;
Director, Houston Industries and Houston Lighting and
Power Company; Director, TransAmerican Companies
(natural gas producer and transportation); Member, Board
of Managers, Harris County Hospital District; Advisory
Director, Commercial State Bank, El Campo; Advisory
Director, First National Bank of Bryan; Advisory
Director, Sterling Bancshares; Former Director and Vice
Chairman, Texas Commerce Bancshares; and Vice Chairman,
Texas Commerce Bank.
COMPENSATION OF THE BOARD OF TRUSTEES AND ADVISORY BOARD.
The following table provides information regarding the
compensation paid by the Fund and the other investment companies
in the John Hancock Fund Complex to the Independent Trustees and
the Advisory Board members for their services. Mr. Boudreau, a
non-Independent Trustee, and each of the officers of the Fund are
interested persons of the Investment Adviser, are compensated by
the Investment Adviser and received no compensation from the Fund
for their services.
-16-
<PAGE> 49
<TABLE>
<CAPTION>
Total
Pension Compensation
or Retirement from all Funds
Aggregate Benefits Accrued in John Hancock
Compensation as Part of the Fund Complex
Trustees from the Fund Fund's Expenses to Trustees**
- -------- ------------- ---------------- ----------------
<S> <C> <C> <C>
James F. Carlin $ 0 $0 $ 60,450
William H. Cunningham $ 3,500* $0 $ 0
Charles L. Ladner $ 0 $0 $ 60,450
Leo E. Linbeck, Jr. $ 4,700* $0 $ 0
Patricia P. McCarter $ 0 $0 $ 60,200
Steven R. Pruchansky $ 0 $0 $ 62,450
Norman H. Smith $ 0 $0 $ 62,450
John P. Toolan $ 0 $0 $ 60,450
</TABLE>
* Compensation made pursuant to different compensation
arrangements then in effect.
** The total compensation paid by the John Hancock Fund Complex to
the Independent Trustees was $366,450 as of the calendar year
ended December 31, 1994. All Trustees/Directors except Messrs.
Cunningham and Linbeck are Trustees/Directors of 39 funds in the
John Hancock Fund Complex. Messrs. Cunningham and Linbeck are
Trustees of 21 funds. (The Fund was not part of the John Hancock
Fund Complex until December 22, 1994 and Messrs. Cunningham and
Linbeck were not trustees or directors of any funds in the John
Hancock Fund Complex prior to December 22, 1994.)
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex
from the Fund Fund's Express Advisory Board***
------------- ---------------- ------------------
<S> <C> <C> <C>
R. Trent Campbell $ 3,176 $ 54,000
Mrs. Lloyd Bentsen $ 3,176 $ 54,000
Thomas R. Powers $ 3,176 $ 54,000
Thomas B. McDade $ 3,176 $ 54,000
TOTAL $12,704 $216,000
</TABLE>
***Estimated for the Fund's current fiscal year ending
December 31, 1995. Advisory Board members receive compensation
from 17 Funds.
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Prospectus, the Fund receives its
investment advice from the Investment Adviser. Investors should
refer to the Prospectus for a description of certain information
-17-
<PAGE> 50
concerning the investment management contract. Each of the
Trustees and principal officers affiliated with the Fund who is
also an affiliated person of the Investment Adviser is named
above, together with the capacity in which such person is
affiliated with the Fund or the Investment Adviser.
The Investment Adviser, located at 101 Huntington Avenue,
Boston, Massachusetts 02199-7603, was organized in 1968 and has
more than $13 billion in assets under management in its capacity
as investment adviser to the Fund and the other mutual funds and
publicly traded investment companies in the John Hancock group of
funds having a combined total of over 1,000,000 shareholders. The
Investment Adviser is a wholly-owned subsidiary of The Berkeley
Financial Group, which is in turn a wholly-owned subsidiary of
John Hancock Subsidiaries, Inc., which is in turn a wholly-owned
subsidiary of John Hancock Mutual Life Insurance Company (the
"Life Company"), one of the nation's oldest and largest financial
services companies. With total assets under management of over
$80 billion, the Life Company is one of the ten largest life
insurance companies in the United States, and carries Standard &
Poor's and A.M. Best's highest ratings. Founded in 1862, the Life
Company has been serving clients for over 130 years.
The Fund has entered into an investment management contract
with the Investment Adviser. Under the investment management
contract, the Investment Adviser provides the Fund with (i) a
continuous investment program, consistent with the Fund's stated
investment objective and policies, (ii) supervision of all aspects
of the Fund's operations except those that are delegated to a
custodian, transfer agent or other agent and (iii) such executive,
administrative and clerical personnel, officers and equipment as
are necessary for the conduct of its business. See "Organization
and Management of the Fund" and "The Fund's Expenses" in the
Prospectus for a description of certain information concerning the
Fund's investment management contract. The Investment Adviser is
responsible for the management of the Fund's portfolio assets.
No person other than the Investment Adviser and its directors
and employees regularly furnishes advice to the Fund with respect
to the desirability of the Fund investing in, purchasing or
selling securities. The Investment Adviser may from time to time
receive statistical or other similar factual information, and
information regarding general economic factors and trends, from
the Life Company and its affiliates.
Under the terms of the investment management contract with
the Fund, the Investment Adviser provides the Fund with office
space, equipment and supplies and other facilities and personnel
required for the business of the Fund. The Investment Adviser
pays the compensation of all officers and employees of the Fund
and Trustees of the Fund affiliated with the Investment Adviser,
the office expenses of the Fund, including those of the Fund's
Treasurer and Secretary, and other expenses incurred by the
Investment Adviser in connection with the performance of its
-18-
<PAGE> 51
duties. All expenses which are not specifically paid by the
Investment Adviser and which are incurred in the operation of the
Fund including, but not limited to, (i) the fees of the Trustees
of the Fund who are not "interested persons," as such term is
defined in the 1940 Act (the "Independent Trustees"), (ii) the
fees of the members of the Fund's Advisory Board (described above)
and (iii) the continuous public offering of the shares of the Fund
are borne by the Fund.
As provided by the investment management contract, the Fund
pays the Investment Adviser an investment management fee, which is
accrued daily and paid monthly in arrears, equal on an annual
basis to a 0.625% of the Fund's average daily net asset value.
See "Organization and Management of the Fund" in the Prospectus.
The Investment Adviser may voluntarily and temporarily reduce
its advisory fee or make other arrangements to limit the Fund's
expenses to a specified percentage of average daily net assets.
The Investment Adviser retains the right to re-impose the advisory
fee and recover any other payments to the extent that, at the end
of any fiscal year, the Fund's annual expenses fall below this
limit.
In the event normal operating expenses of the Fund, exclusive
of certain expenses prescribed by state law, are in excess of any
state limit where the Fund is registered to sell shares of
beneficial interest, the fee payable to the Investment Adviser
will be reduced to the extent required by law. At this time, the
most restrictive limit on expenses imposed by a state requires
that expenses charged to the Fund in any fiscal year not exceed
2.5% of the first $30,000,000 of the Fund's average daily net
asset value, 2% of the next $70,000,000 and 1.5% of the remaining
average daily net asset value. When calculating the limit above,
the Fund may exclude interest, brokerage commissions and
extraordinary expenses.
Pursuant to the investment management contract, the
Investment Adviser is not liable to the Fund or its shareholders
for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which the
contract relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the
Investment Adviser in the performance of its duties or from
reckless disregard of the obligations and duties under the
applicable contract.
The investment management contract initially expires on
December 22, 1996 and will continue in effect from year to year
thereafter if approved annually by a vote of a majority of the
Trustees of the Fund who are not interested persons of one of the
parties to the contract, cast in person at a meeting called for
the purpose of voting on such approval, and by either a majority
of the Trustees or the holders of a majority of the Fund's
outstanding voting securities. The investment management contract
-19-
<PAGE> 52
may, on 60 days' written notice, be terminated at any time without
the payment of any penalty by the Fund by vote of a majority of
the outstanding voting securities of the Fund, by the Trustees or
by the Investment Adviser. The investment management contract
terminates automatically in the event of its assignment.
Securities held by the Fund may also be held by other funds
or investment advisory clients for which the Investment Adviser or
its affiliates provide investment advice. Because of different
investment objectives or other factors, a particular security may
be bought for one or more funds or clients when one or more are
selling the same security. If opportunities for purchase or sale
of securities by the Investment Adviser or for other funds or
clients for which the Investment Adviser renders investment advice
arise for consideration at or about the same time, transactions in
such securities will be made, insofar as feasible, for the
respective funds or clients in a manner deemed equitable to all of
them. To the extent that transactions on behalf of more than one
client of the Investment Adviser or its affiliates may increase
the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price.
Under the investment management contract, the Fund may use
the name "John Hancock" or any name derived from or similar to it
only as long as the investment management contract or any
extension, renewal or amendment thereof remains in effect. If the
Fund's investment management contract is no longer in effect, the
Fund (to the extent that it lawfully can) will cease to use such
name or any other name indicating that it is advised by or
otherwise connected with the Investment Adviser. In addition, the
Investment Adviser or the Life Company may grant the non-exclusive
right to use the name "John Hancock" or any similar name to any
other corporation or entity, including but not limited to any
investment company of which the Life Company or any subsidiary or
affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
For the fiscal years ended December 31, 1992, 1993 and 1994
advisory fees payable by the Fund to TFMC, the Fund's former
investment adviser, amounted to $558,156, $544,746 and $539,809,
respectively. For the period from December 22, 1994 to
December 31, 1994, advisory fees payable by the Fund were paid to
the Investment Adviser.
ADMINISTRATIVE SERVICES AGREEMENT. The Fund was a party to
an administrative services agreement with TFMC (the "Services
Agreement"), pursuant to which TFMC performed bookkeeping and
accounting services and functions, including preparing and
maintaining various accounting books, records and other documents
and keeping such general ledgers and portfolio accounts as are
reasonably necessary for the operation of the Fund. Other
administrative services included communications in response to
shareholder inquiries and certain printing expenses of various
financial reports. In addition, such staff and office space,
-20-
<PAGE> 53
facilities and equipment was provided as necessary to provide
administrative services to the Fund. The Services Agreement was
amended in connection with the appointment of the Investment
Adviser as adviser to the Fund to permit services under the
Agreement to be provided to the Fund by the Investment Adviser and
its affiliates. The Services Agreement was terminated during the
current fiscal year.
For the fiscal years ended December 31, 1992, 1993 and 1994,
the Fund paid to TFMC (pursuant to the Services Agreement)
$86,996, $113,187 and $115,878, respectively, of which $86,996,
$99,121 and $101,838, respectively, was paid to TFMC and $0,
$14,066 and $14,040, respectively, were paid for certain data
processing and pricing information services.
DISTRIBUTION CONTRACT
As discussed in the Prospectus, the Fund's shares are sold on
a continuous basis at the public offering price. The Distributor,
a wholly-owned subsidiary of the Investment Adviser, has the
exclusive right, pursuant to the Distribution Agreement dated
December 22, 1994 (the "Distribution Agreement"), to purchase
shares from the Fund at net asset value for resale to the public
or to broker-dealers at the public offering price. Upon notice to
all broker-dealers ("Selling Brokers") with whom it has sales
agreements, the Distributor may allow such Selling Brokers up to
the full applicable sales charge during periods specified in such
notice. During these periods, such Selling Brokers may be deemed
to be underwriters as that term is defined in the Securities Act
of 1933.
The Distribution Agreement was initially adopted by the
affirmative vote of the Fund's Board of Trustees including the
vote a majority of Trustees who are not parties to the agreement
or interested persons of any such party, cast in person at a
meeting called for such purpose. The Distribution Agreement shall
continue in effect until December 22, 1994 and from year to year
if approved by either the vote of the Fund's shareholders or the
Board of Trustees including the vote of a majority of Trustees who
are not parties to the agreement or interested persons of any such
party, cast in person at a meeting called for such purpose. The
Distribution Agreement may be terminated at any time, without
penalty, by either party upon sixty (60) days' written notice or
by a vote of a majority of the outstanding voting securities of
the Fund and terminates automatically in the case of an assignment
by the Distributor.
Total underwriting commissions for sales of the Fund's
Class A Shares for the fiscal years ended December 31, 1992, 1993
and 1994, respectively, were $570,463, $168,662 and $89,913,
respectively. Of such amounts $60,449, $17,932 and $8,567,
respectively, were retained by the Fund's former distributor,
Transamerica Fund Distributors, Inc. and the remainder was
-21-
<PAGE> 54
reallowed to dealers. For the period from December 22, 1994 to
December 31, 1994, underwriting commissions were paid to the
Distributor.
Distribution Plan. The Board of Trustees, including the
Independent Trustees of the Fund, approved new distribution plans
pursuant to Rule 12b-1 under the 1940 Act for Class A Shares
("Class A Plan") and Class B Shares ("Class B Plan"). Such Plans
were approved by a majority of the outstanding shares of each
respective class on December 16, 1994 and became effective on
December 22, 1994.
Under the Class A Plan, the distribution or service fee will
not exceed an annual rate of 0.25% of the average daily net asset
value of the Class A Shares of the Fund (determined in accordance
with such Fund's Prospectus as from time to time in effect). Any
expenses under the Class A Plan not reimbursed within 12 months of
being presented to the Fund for repayment are forfeited and not
carried over to future years. Under the Class B Plan, the
distribution or service fee to be paid by the Fund will not exceed
an annual rate of 1.00% of the average daily net assets of the
Class B Shares of the Fund (determined in accordance with such
Fund's prospectus as from time to time in effect); provided that
the portion of such fee used to cover Service Expenses (described
below) shall not exceed an annual rate of 0.25% of the average
daily net asset value of the Class B Shares of the Fund. Under
the Class B Plan, the fee covers the Distribution and Service
Expenses (described below) and interest expenses on unreimbursed
distribution expenses. In accordance with generally accepted
accounting principles, the Fund does not treat distribution fees
in excess of 0.75% of the Fund's net assets attributable to Class
B Shares as a liability of the Fund and does not reduce the
current net assets of Class B by such amount although the amount
may be payable in the future.
Under the Plans, expenditures shall be calculated and accrued
daily and paid monthly or at such other intervals as the Trustees
shall determine. The fee may be spent by the Distributor on
Distribution Expenses or Service Expenses. "Distribution
Expenses" include any activities or expenses primarily intended to
result in the sale of shares of the relevant class of the Fund,
including, but not limited to: (i) initial and ongoing sales
compensation payable out of such fee as such compensation is
received by the Distributor or by Selling Brokers, (ii) direct
out-of-pocket expenses incurred in connection with the
distribution of shares, including expenses related to printing of
prospectuses and reports; (iii) preparation, printing and
distribution of sales literature and advertising material; (iv) an
allocation of overhead and other branch office expenses of the
Distributor related to the distribution of Fund Shares
(v) distribution expenses that were incurred by the Fund's former
distributor and not recovered through payments under the Class A
or Class B former plans or through receipt of contingent deferred
sales charges; and (vi) in the event that any other investment
-22-
<PAGE> 55
company (the "Acquired Fund") sells all or substantially all of
its assets, merges or otherwise engages in a combination with the
Fund, distribution expenses originally incurred in connection with
the distribution of the Acquired Fund's shares. Service Expenses
under the Plans include payments made to, or on account of,
account executives of selected broker-dealers (including
affiliates of the Distributor) and others who furnish personal and
shareholder account maintenance services to shareholders of the
relevant class of the Fund.
During the fiscal year ended December 31, 1994, total
payments made by the Fund under the former Class A Rule 12b-1 plan
to the former distributor amounted to $193,470, and of such amount
$23,705, $44,492, $15,078, $99,050 and $11,145 represented
payments for (1) the cost of printing and distribution
prospectuses and financial reports to investors, (2) various sales
literature, (3) advertising expenses, (4) distribution and/or
administrative services and (5) service fees, respectively.
During the period from December 22, 1994 to December 31, 1994,
payment under the Class A Plan was made to the Distributor.
During the fiscal year ended December 31, 1994, total
payments made by the Fund under the former Class B Rule 12b-1 plan
to the former distributor amounted to $89,720 of which:
**(1) $22,615 represented service fees which were comprised of
$1,213 for distribution and/or administrative services
provided by the Fund's former distributor and $21,402
for service fees paid to broker/dealers.
(2) $67,105 represented as the total of distribution fees
paid to the former distributor which are comprised of:
a) $51,909 for dealer commission payments;
b) $12,977 for underwriting fees; and
c) $2,219 for interest or carrying charges.
For the fiscal year ended December 31, 1994, the former
distributor received $8,342 in contingent deferred sales charges
from redemption of the Fund's Class B shares. For the period from
December 22, 1994 to December 31, 1994, the Distributor received
fees under the Class B Plan and contingent deferred sales charges
from redemptions of Class B shares.
Each of the Plans provides that it will continue in effect
only so long as its continuance is approved at least annually by a
majority of both the Trustees and the Independent Trustees. Each
of the Plans provides that it may be terminated (a) at any time by
vote of a majority of the Trustees, a majority of the Independent
Trustees, or a majority of the respective Class' outstanding
voting securities or (b) by the Distributor on 60 days' notice in
writing to the Fund. Each of the Plans further provides that it
may not be amended to increase the maximum amount of the fees for
-23-
<PAGE> 56
the services described therein without the approval of a majority
of the outstanding shares of the class of the Fund which has
voting rights with respect to the Plan. Each of the Plans
provides that no material amendment to the Plan will, in any
event, be effective unless it is approved by a majority vote of
the Trustees and the Independent Trustees of the Fund. The
holders of Class A Shares and Class B Shares have exclusive voting
rights with respect to the Plan applicable to their respective
class of shares. The Board of Trustees, including the Trustees
who are not interested in the Fund and have no direct or indirect
interest in the Plans, has determined that, in their judgment,
there is a reasonable likelihood that the Plans will benefit the
holders of the applicable class of shares of the Fund.
Information regarding the services rendered under the Plans
and the Distribution Agreement and the amounts paid therefore by
the respective Class of the Fund are provided to, and reviewed by,
the Board of Trustees on a quarterly basis. In its quarterly
review, the Board of Trustees considers the continued
appropriateness of the Plans and the Distribution Agreement and
the level of compensation provided therein.
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of
the Fund's shares, the following procedures are utilized wherever
applicable. Debt investment securities are valued on the basis of
valuations furnished by a principal market maker or a pricing
service, both of which generally utilize electronic data
processing techniques to determine valuations for normal
institutional size trading units of debt securities without
exclusive reliance upon quoted prices. Equity securities traded
on a principal exchange or NASDAQ National Market Issues are
generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are
reported and other securities traded over-the-counter are
generally valued at the mean between the current closing bid and
asked prices.
Equity securities traded on a principal exchange or NASDAQ
National Market Issues are generally valued at last sale price on
the day of valuation. Securities in the aforementioned category
for which no sales are reported and other securities traded
over-the-counter are generally valued at the mean between the
current closing bid and asked prices.
Short-term debt investments which have a remaining maturity
of 60 days or less are generally valued at amortized cost which
approximates market value. If market quotations are not readily
available or if in the opinion of the Investment Adviser any
quotation or price is not representative of true market value, the
fair value of the security may be determined in good faith in
accordance with procedures approved by the Trustees.
-24-
<PAGE> 57
Any assets or liabilities expressed in terms of foreign
currencies are translated into U.S. dollars by the custodian bank
based on London currency exchange quotations as of 5:00 p.m.,
London time (12:00 noon, New York time) on the date of any
determination of a Fund's NAV.
A Fund will not price its securities on the following
national holidays: New Year's Day; Presidents' Day; Good Friday;
Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and
Christmas Day. On any day an international market is closed and
the New York Stock Exchange is open, any foreign securities will
be valued at the prior day's close with the current day's exchange
rate. Trading of foreign securities may take place on Saturdays
and U.S. business holidays on which a Fund's NAV is not
calculated. Consequently, a Fund's portfolio securities may trade
and the NAV of the Fund's redeemable securities may be
significantly affected on days when a shareholder has no access to
the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A Shares
of the Fund are described in the Fund's Class A and Class B
Prospectus. Methods of obtaining reduced sales charges referred
to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of
Class A Shares, the investor is entitled to cumulate current
purchases with the greater of the current value (at offering
price) of the Class A Shares of the Fund, or if Investor Services
is notified by the investor's dealer or the investor at the time
of the purchase, the cost of the Class A Shares owned.
COMBINED PURCHASES. In calculating the sales charge
applicable to purchases of Class A Shares made at one time, the
purchases will be combined if made by (a) an individual, his or
her spouse and their children under the age of 21 purchasing
securities for his or her own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary
account and (c) certain groups of four or more individuals making
use of salary deductions or similar group methods of payment whose
funds are combined for the purchase of mutual fund shares.
Further information about combined purchases, including certain
restrictions on combined group purchases, is available from
Investor Services or a Selling Broker's representative.
WITHOUT SALES CHARGE. As described in the Class A and
Class B Prospectus, Class A Shares of the Fund may be sold without
a sales charge to certain persons described in the Prospectus.
ACCUMULATION PRIVELEGE. 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
-25-
<PAGE> 58
purchase price or value of the Class A Shares already held by such
person.
COMBINATION PRIVELEGE. Reduced sales charges (according to
the schedule set forth in the Class A and Class B Prospectus) also
are available to an investor based on the aggregate amount of his
concurrent and prior investments in Class A Shares of the Fund and
shares of all other John Hancock funds which carry a sales charge.
LETTER OF INTENTION. The reduced sales loads are also
applicable to investments made over a specified period pursuant to
a Letter of Intention ("LOI"), which should be read carefully
prior to its execution by an investor. The Fund offers two
options regarding the specified period for making investments
under the LOI. All investors have the option of making their
investments over a period of thirteen (13) months. Investors who
are using the Fund as a funding medium for a qualified retirement
plan, however, may opt to make the necessary investments called
for by the LOI over a forty-eight (48) month period. These
qualified retirement plans include IRA's, SEP, SARSEP, TSA, 401(k)
plans, TSA plans and 457 plans. Such an investment (including
accumulations and combinations) must aggregate $50,000 or more
invested during the specified period from the date of the LOI or
from a date within ninety (90) days prior thereto, upon written
request to Investor Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate
amount intended to be invested had been invested immediately. If
such aggregate amount is not actually invested, the difference in
the sales charge actually paid and the sales charge payable had
the LOI not been in effect is due from the investor. However, for
the purchases actually made with the specified period (either 13
or 48 months), the sales charge applicable will not be higher than
that which would have been applied (including accumulations and
combinations) had the LOI been for the amount actually invested.
The LOI authorizes Investor Services to hold in escrow
sufficient Class A shares (approximately 5% of the aggregate) to
make up any difference in sales charges on the amount intended to
be invested and the amount actually invested, until such
investment is completed within the specified period, at which time
the escrow shares will be released. If the total investment
specified in the LO is not completed, the Class A shares held in
escrow may be redeemed and the proceeds used as required to pay
such sales charge as may be due. By signing the LOI, the investor
authorizes Investor Services to act as his attorney-in-fact to
redeem any escrowed shares and as just 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.
-26-
<PAGE> 59
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset
value per share without the imposition of a sales charge so that
the Fund will receive the full amount of the purchase payment.
CONTINGENT DEFERRED SALES CHARGE. Class B Shares which are
redeemed within six years of purchase will be subject to a
contingent deferred sales charge ("CDSC") at the rates set forth
in the Class A and Class B Prospectus as a percentage of the
dollar amount subject to the CDSC. The charge will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the Class B Shares being redeemed.
Accordingly, no CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B Shares
derived from reinvestment of dividends or capital gains
distributions.
The amount of the CDSC, if any, will vary depending on the
number of years from the time of payment for the purchase of
Class B Shares until the time of redemption of such shares.
Solely for purposes of determining the number of years from the
time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on
the last day of the month.
Proceeds from the CDSC are paid to the Distributor and are
used in whole or in part by the Distributor to defray its expenses
related to providing distribution-related services to the Fund in
connection with the sale of the Class B Shares, such as the
payment of compensation to select Selling Brokers for selling
Class B Shares. The combination of the CDSC and the distribution
and service fees facilitates the ability of the Fund to sell the
Class B Shares without a sales charge being deducted at the time
of the purchase. See the Class A and Class B Prospectus for
additional information regarding the CDSC.
SPECIAL REDEMPTIONS
Although it is the Fund's present policy to make payment of
redemption proceeds in cash, if the Board of Trustees determines
that a material adverse effect would otherwise be experienced by
remaining investors, redemption proceeds may be paid in whole or
in part by a distribution in kind of securities from the Fund in
conformity with rules of the Securities and Exchange Commission,
valuing such securities in the same manner they are valued in
determining NAV, and selecting the securities in such manner as
the Board may deem fair and equitable. If such a distribution
occurs, investors receiving securities and selling them before
their maturity could receive less than the redemption value of
such securities and, in addition, could incur certain transaction
costs. Such a redemption is not as liquid as a redemption paid in
cash or federal funds. The Fund has elected to be governed by
-27-
<PAGE> 60
Rule 18f-1 under the 1940 Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90
day period for any one account.
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE. As described more fully in the
Prospectus, the Fund permits exchanges of shares of any class of
the Fund for shares of the same class in any other John Hancock
fund offering that class.
SYSTEMATIC WITHDRAWAL PLAN. As described briefly in the
Class A and Class B Prospectus, the Fund permits the establishment
of a Systematic Withdrawal Plan. Payments under this plan
represent proceeds arising from the redemption of Fund shares.
Since the redemption price of Fund shares may be more or less than
the shareholder's cost, depending upon the market value of the
securities owned by the Fund at the time of redemption, the
distribution of cash pursuant to this plan may result in
realization of gain or loss for purposes of Federal, state and
local income taxes. The maintenance of a Systematic Withdrawal
Plan concurrently with purchases of additional Class A or Class B
Shares of the Fund could be disadvantageous to a shareholder
because of the initial sales charge payable on such purchases of
Class A Shares and the CDSC imposed on redemptions of Class B
Shares and because redemptions are taxable events. Therefore, a
shareholder should not purchase Fund shares at the same time as a
Systematic Withdrawal Plan is in effect. The Fund reserves the
right to modify or discontinue the Systematic Withdrawal Plan of
any shareholder on 30 days' prior written notice to such
shareholder, or to discontinue the availability of such plan in
the future. The shareholder may terminate the plan at any time by
giving proper notice to Investor Services.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM ("MAAP"). This
program is explained fully in the Fund's Class A and Class B
Prospectus and the Account Privileges Application. The program,
as it relates to automatic investment checks, is subject to the
following conditions;
The investments will be drawn on or about the day of the
month indicated.
The privilege of making investments through the Monthly
Automatic Accumulation Program may be revoked by Investor Services
without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to
notify the shareholder as to the non-payment of any check.
The program may be discontinued by the shareholder either by
calling Investor Services or upon written notice to Investor
-28-
<PAGE> 61
Services which is received at least five (5) business days prior
to the due date of any investment.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Fund
shares may, within 120 days after the date of redemption, reinvest
without payment of a sales charge any part of the redemption
proceeds in shares of the same class of the Fund or another John
Hancock mutual fund, subject to the minimum investment limit in
that fund. The proceeds from the redemption of Class A Shares may
be reinvested at net asset value without paying a sales charge in
Class A Shares of the Fund or in Class A Shares of another John
Hancock mutual fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from that redemption at net
asset value in additional shares of the class from which the
redemption was made. The shareholder's account will be credited
with the amount of any CDSC charged upon the prior redemption and
the new shares will continue to be subject to the CDSC. The
holding period of the shares acquired through reinvestment will,
for purposes of computing the CDSC payable upon a subsequent
redemption, include the holding period of the redeemed shares.
The Fund may modify or terminate the reinvestment privilege at any
time.
A redemption or exchange of Fund shares is a taxable
transaction for Federal income tax purposes even if the
reinvestment privilege is exercised, and any gain or loss realized
by a shareholder on the redemption or other disposition of Fund
shares will be treated for tax purposes as described under the
caption "Tax Status."
DESCRIPTION OF THE FUND'S SHARES
SHARES OF THE FUND. Ownership of the Fund is represented by
transferable shares of beneficial interest. The Declaration of
Trust permits the Trustees to create an unlimited number of series
and classes of shares of the Fund and, with respect to each series
and class, to issue an unlimited number of full or fractional
shares and to divide or combine the shares into a greater or
lesser number of shares without thereby changing the proportionate
beneficial interests of the Fund.
Each share of each series or class of the Fund represents an
equal proportionate interest with each other in that series or
class, none having priority or preference over other shares of the
same series or class. The interest of investors in the various
series or classes of the Fund is separate and distinct. All
consideration received for the sales of shares of a particular
series or class of the Fund, all assets in which such
consideration is invested and all income, earnings and profits
derived from such investments will be allocated to and belong to
that series or class. As such, each such share is entitled to
dividends and distributions out of the net income belonging to
that series or class as declared by the Board of Trustees. Shares
-29-
<PAGE> 62
of the Fund have a par value of $0.01 per share. The assets of
each series are segregated on the Fund's books and are charged
with the liabilities of that series and with a share of the Fund's
general liabilities. The Board of Trustees determines those
assets and liabilities deemed to be general assets or liabilities
of the Fund, and these items are allocated among each series in
proportion to the relative total net assets of each series. In
the unlikely event that the liabilities allocable to a series
exceed the assets of that series, all or a portion of such
liabilities may have to be borne by the other series.
Pursuant to the Declaration of Trust, the Trustees may
authorize the creation of additional series of shares (the
proceeds of which would be invested in separate, independently
managed portfolios) and additional classes within any series
(which would be used to distinguish among the rights of different
categories of shareholders, as might be required by future
regulations or other unforeseen circumstances). As of the date of
this Statement of Additional Information, the Trustees have
authorized the issuance of two classes of shares of the Fund
designated as Class A and Class B. Class A and Class B Shares of
the Fund represent an equal proportionate interest in the
aggregate net asset values attributable to that class of the Fund.
Holders of Class A Shares and Class B Shares each have certain
exclusive voting rights on matters relating to the Class A Plan
and the Class B Plan, respectively. The different classes of the
Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights
of any class of shares.
Dividends paid by the Fund, if any, with respect to each
class of shares will be calculated in the same manner, at the same
time and on the same day and will be in the same amount, except
for differences caused by the fact that (i) Class B Shares will
pay higher distribution and service fees than Class A Shares and
(ii) each of Class A Shares and Class B Shares will bear any class
expenses properly allocable to such class of shares, subject to
the conditions set forth in a private letter ruling that the Fund
has received from the Internal Revenue Service relating to its
multiple-class structure. Similarly, the net asset value per
share may vary depending whether Class A Shares or Class B Shares
are purchased.
VOTING RIGHTS. Shareholders are entitled to a full vote for
each full share held. The Trustees themselves have the power to
alter the number and the terms of office of Trustees, and they may
at any time lengthen their own terms or make their terms of
unlimited duration (subject to certain removal procedures) and
appoint their own successors, provided that at all times at least
a majority of the Trustees have been elected by shareholders. The
voting rights of shareholders are not cumulative, so that holders
of more than 50 percent of the shares voting can, if they choose,
elect all Trustees being selected, while the holders of the
remaining shares would be unable to elect any Trustees. Although
-30-
<PAGE> 63
the Fund need not hold annual meetings of shareholders, the
trustees may call special meetings of shareholders for action by
shareholder vote as may be required by the 1940 Act or the
Declaration of Trust. Also, a shareholder's meeting must be
called if so requested in writing by the holders of record of 10%
or more of the outstanding shares of the Fund. In addition, the
Trustees may be removed by the action of the holders of record of
two-thirds or more of the outstanding shares.
SHAREHOLDER LIABILITY. The Declaration of Trust provides
that no Trustee, officer, employee or agent of the Fund is liable
to the Fund or to a shareholder, nor is any Trustee, officer,
employee or agent liable to any third persons in connection with
the affairs of the Fund, except as such liability may arise from
his or its own bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties. It also provides that all third
persons shall look solely to the Fund's property for satisfaction
of claims arising in connection with the affairs of the Fund.
With the exceptions stated, the Declaration of Trust provides that
a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs
of the Fund.
As a Massachusetts business trust, the Fund is not required
to issue share certificates. The Fund shall continue without
limitation of time subject to the provisions in the Declaration of
Trust concerning termination by action of the shareholders.
REPORTS TO SHAREHOLDERS. Shareholders of the Fund will
receive annual and semi-annual reports showing diversification of
investments, securities owned and other information regarding the
Fund's activities. The financial statements of the Fund are
audited at least once a year by the Fund's independent auditors.
REGISTRATION STATEMENT. This Statement of Additional
Information and the Prospectus do not contain all of the
information set forth in the Fund's Registration Statement filed
with the Securities and Exchange Commission. The complete
Registration Statement may be obtained from the Securities and
Exchange Commission upon payment of the fee prescribed by the
rules and regulations of the Commission.
TAX STATUS
The Fund has qualified and elected to be treated as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to
continue to so qualify in the future. As such and by complying
with the applicable provisions of the Code regarding the sources
of its income, the timing of its distributions, and the
diversification of its assets, the Fund will not be subject to
Federal income tax on taxable income (including net short-term and
long-term capital gains which is distributed to shareholders at
-31-
<PAGE> 64
least annually in accordance with the timing requirements of the
Code.
The Fund will be subject to a 4% non-deductible Federal
excise tax on certain amounts not distributed (and not treated as
having been distributed) on a timely basis in accordance with
annual minimum distribution requirements. The Fund intends under
normal circumstances to avoid liability for such tax by satisfying
such distribution requirements.
Distributions from the Fund's current or accumulated earnings
and profits ("E&P"), as computed for Federal income tax purposes,
will be taxable as described in the Fund's Prospectus whether
taken in shares or in cash. Distributions, if any, in excess of
E&P will constitute a return of capital, which will first reduce
an investor's tax basis in Fund shares and thereafter (after such
basis is reduced to zero) will generally give rise to capital
gains for shareholders who hold their shares as capital assets.
Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for Federal income tax
purposes in each share so received equal to the amount of cash
they would have received had they elected to receive the
distributions in cash, divided by the number of shares received.
If the Fund acquires stock in certain non-U.S. corporations
that receive at least 75% of their annual gross income from
passive sources (such as interest, dividends, rents, royalties or
capital gain) or hold at least 50% of their assets in investments
producing such passive income ("passive foreign investment
companies"), the Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received
from such companies or gain from the sale of stock in such
companies, even if all income or gain actually received by the
Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or
deduction for such a tax. Certain elections may, if available,
ameliorate these adverse tax consequences, but any such election
would require the Fund to recognize taxable income or gain without
the concurrent receipt of cash. The Fund may limit and/or manage
its holdings in passive foreign investment companies to minimize
its tax liability or maximize its return from these investments.
Foreign exchange gains and losses realized by the Fund in
connection with certain transactions involving foreign currency
denominated debt securities, foreign currency forward contracts,
foreign currencies, or payables or receivables denominated in a
foreign currency are subject to Section 988 of the Code, which
generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character
of distributions to shareholders. Any such transactions that are
not directly related to the Fund's investment in stock or
securities may increase the amount of gain it is deemed to
recognize from the sale of certain investments held for less than
three months, which gain is limited under the Code to less than
-32-
<PAGE> 65
30% of its annual gross income, and could under future Treasury
regulations produce income not among the types of "qualifying
income" from which the Fund must derive at least 90% of its annual
gross income.
The Fund may be subject to withholding and other taxes
imposed by foreign countries with respect to its investments in
foreign securities. Tax conventions between certain countries and
the U.S. may reduce or eliminate such taxes. It is possible, but
not generally anticipated, that investors may be entitled to claim
U.S. foreign tax credits with respect to such taxes, subject to
certain provisions and limitations contained in the Code.
Specifically, in the unusual event that more than 50% of the value
of the Fund's total assets at the close of any taxable year
consists of stock or securities of foreign corporations, the Fund
may file an election with the Internal Revenue Service pursuant to
which shareholders of the Fund will be required to (i) include in
ordinary gross income (in addition to taxable dividends actually
received) their pro rata shares of foreign income taxes paid by
the Fund even though not actually received by them, and (ii) treat
such respective pro rata portions as foreign income taxes paid by
them.
If the Fund makes this election, shareholders may then deduct
such pro rata portions of foreign income taxes in computing their
taxable incomes, or, alternatively, use them as foreign tax
credits, subject to applicable limitations, against their U.S.
Federal income taxes. Shareholders who do not itemize deductions
for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of foreign income taxes paid by the
Fund, although such shareholders will be required to include their
share of such taxes in gross income. Shareholders who claim a
foreign tax credit for such foreign taxes may be required to treat
a portion of dividends received from the Fund as a separate
category of income for purposes of computing the limitations on
the foreign tax credit. Tax-exempt shareholders will ordinarily
not benefit from this election. Each year, if any, that the Fund
files the election described above, its shareholders will be
notified of the amount of (i) each shareholder's pro rata share of
foreign income taxes paid by the Fund and (ii) the portion of Fund
dividends which represents income from each foreign country.
The amount of the Fund's net short-term and long-term capital
gains, if any, in any given year will vary depending upon the
Adviser's current investment strategy and whether the Adviser
believes it to be in the best interest of the Fund to dispose of
portfolio securities or enter into options or futures transactions
that will generate capital gains. At the time of an investor's
purchase of Fund shares, a portion of the purchase price is often
attributable to realized or unrealized appreciation in the Fund's
portfolio or, to undistributed taxable income of the Fund.
Consequently, subsequent distributions from such appreciation or
income may be taxable to such investor even if the net asset value
of the investor's shares is, as a result of the distributions,
-33-
<PAGE> 66
reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the
purchase price.
Upon a redemption of shares of the Fund (including by
exercise of the exchange privilege) a shareholder may realize a
taxable gain or loss depending upon his basis in his shares. Such
gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be
long-term or short-term, depending upon the shareholder's tax
holding period for the shares. A sales charge paid in purchasing
Class A shares of the Fund cannot be taken into account for
purposes of determining gain or loss on the redemption or exchange
of such shares within 90 days after their purchase to the extent
shares of the Fund or another John Hancock Fund are subsequently
acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. Such disregarded load will
result in an increase in the shareholder's tax basis in the shares
subsequently acquired. Also, any loss realized on a redemption or
exchange will be disallowed to the extent the shares disposed of
are replaced with other shares of the Fund within a period of 61
days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to an election to reinvest
dividends in additional shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized upon the redemption of shares with a tax holding
period of six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions
of long-term capital gain with respect to such shares.
Although its present intention is to distribute all net
short-term and long-term capital gains, if any, the Fund reserves
the right to retain and reinvest all or any portion of its "net
capital gain," which is the excess, as computed for Federal income
tax purposes, of net long-term capital gain over net short-term
capital loss in any year. The Fund will not in any event
distribute net long-term capital gain realized in any year to the
extent that a capital loss is carried forward from prior years
against such gain. To the extent such excess was retained and not
exhausted by the carry forward of prior years' capital losses, it
would be subject to Federal income tax in the hands of the Fund.
Each shareholder would be treated for Federal income tax purposes
as if the Fund had distributed to him on the last day of its
taxable year his pro rata share of such excess, and he had paid
his pro rata share of the taxes paid by the Fund and reinvested
the remainder in the Fund. Accordingly, each shareholder would
(a) include his pro rata share of such excess as long-term capital
gain income in his return for his taxable year in which the last
day of the Fund's taxable year falls, (b) be entitled either to a
tax credit on his return for, or to a refund of, his pro rata
share of the taxes paid by the Fund, and (c) be entitled to
increase the adjusted tax basis for his shares in the Fund by the
difference between his pro rata share of such excess and his pro
rata share of such taxes.
-34-
<PAGE> 67
For Federal income tax purposes, the Fund is permitted to
carry forward a net capital loss in any year to offset its capital
gains, if any, during the eight years following the year of the
loss. To the extent subsequent capital gains are offset by such
losses, they would not result in Federal income tax liability to
the Fund and, as noted above, would not be distributed as such to
shareholders. The Fund has $7,349,795 of capital loss carry
forwards, which expire in 2002, available to offset future capital
gains.
For purposes of the dividends received deduction available to
corporation, dividends received by the Fund from U.S. domestic
corporations in respect of the stock of such corporations held by
the Fund, for U.S. Federal income tax purposes, for at least 46
days (91 days in the case of certain preferred stock) and
distributed and designated by the Fund may be treated as
qualifying dividends. Corporate shareholders must meet the
minimum holding period requirement stated above (46 or 91 days)
with respect to their shares of the Fund in order to qualify for
the deduction and, if they borrow to acquire such shares, may be
denied a portion of the dividends received deduction. The entire
qualifying dividend, including the otherwise deductible amount,
will be included in determining the excess (if any) of a corporate
shareholder's adjusted current earnings over its alternative
minimum taxable income, which may increase its alternative minimum
tax liability. Additionally, any corporate shareholder should
consult its tax adviser regarding the possibility that its basis
in its shares may be reduced, for Federal income tax purposes, by
reason of "extraordinary dividends" received with respect to the
shares, for the purpose of computing its gain or loss on
redemption or other disposition of the shares.
If the Fund invests in certain PIKS, zero coupon securities
or certain increasing rate securities (and, in general, any other
securities with original issue discount or with market discount if
the Fund elects to include accrued market discount in income
currently), the Fund must accrue income on such investments prior
to the receipt of the corresponding cash payments. However, the
Fund must distribute, at least annually, all or substantially all
of its net income, including such accrued income, to shareholders
to qualify as a regulated investment company under the Code and
avoid Federal income and excise taxes. Therefore, the Fund may
have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash, or may have to leverage itself by
borrowing the cash, to satisfy distribution requirements.
Different tax treatment, including penalties on certain
excess contributions and deferrals, certain pre-retirement and
post-retirement distributions and certain prohibited transactions,
is accorded to accounts maintained as qualified retirement plans.
Shareholders should consult their tax advisers for more
information.
-35-
<PAGE> 68
Limitations imposed by the Code on regulated investment
companies like the Fund may restrict the Fund's ability to enter
into futures, options and foreign currency forward transactions.
Certain options, futures and foreign currency forward
transactions undertaken by the Fund may cause the Fund to
recognize gains or losses from marking to market even though its
positions have not been sold or terminated and affect the
character as long-term or short-term (or, in the case of certain
currency forwards, as ordinary income or loss) and timing of some
capital gains and losses realized by the Fund. Also, certain of
the Fund's losses on its transactions involving options or futures
contracts and/or offsetting portfolio positions may be deferred
rather than being taken into account currently in calculating the
Fund's income and/or gains. These transactions may therefore
affect the amount, timing and character of the Fund's
distributions to shareholders. Certain of the applicable tax
rules may be modified if the Fund is eligible and chooses to make
one or more of certain tax elections that may be available. The
Fund will take into account the special tax rules (including
consideration of available elections) applicable to options,
futures or forward contracts in order to minimize any potential
adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal
income tax law as applicable to U.S. persons (i.e., U.S. citizens
or residents and U.S. domestic corporations, partnerships, trusts
or estates) subject to tax under such law. The discussion does
not address special tax rules applicable to certain classes of
investors, such as tax-exempt entities, insurance companies, and
financial institutions. Dividends, capital gain distributions,
and ownership of or gains realized on the redemption (including an
exchange) of Fund shares may also be subject to state and local
taxes. Shareholders should consult their own tax advisers as to
the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their
particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business
with which their investment in the Fund is effectively connected
will be subject to U.S. Federal income tax treatment that is
different from that described above. These investors may be
subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts
treated as ordinary dividends from the Fund and, unless an
effective IRS Form W-8 or authorized substitute is on file, to 31%
backup withholding on certain other payments from the Fund.
Non-U.S. investors should consult their tax advisers regarding
such treatment and the application of foreign taxes to an
investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or
franchise taxes. Provided that the Fund qualifies as a regulated
-36-
<PAGE> 69
investment company under the Code, it will also not be required to
pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
As of December 31, 1994 the average annual total returns of
the Class A Shares of the Fund for the one year period, five year
period and life of the Fund were (16.42)%, 3.91% and 13.76%,
respectively. As of December 31, 1994, the average annual returns
for the Fund's Class B Shares for the one year period and since
inception were (16.88)% and (3.80)%, respectively.
The Fund's total return is computed by finding the average
annual compounded rate of return over the 1-year, 5-year, and
10-year periods that would equate the initial amount invested to
the ending redeemable value according to the following formula:
P(1+T)n = ERV
Where:
<TABLE>
<S> <C>
P= a hypothetical initial investment of $1,000.
T= average annual total return
n= number of years
ERV= ending redeemable value of a hypothetical $1,000
investment made at the beginning of the 1-year and
life-of-fund periods.
</TABLE>
In the case of Class A Shares or Class B Shares, this
calculation assumes the maximum sales charge is included in the
initial investment or the CDSC is applied at the end of the
period. This calculation also assumes that all dividends and
distributions are reinvested at net asset value on the
reinvestment dates during the period. The "distribution rate" is
determined by annualizing the result of dividing the declared
dividends of the Fund during the period stated by the maximum
offering price or net asset value at the end of the period.
In addition to average annual total returns, the Fund may
quote unaveraged or cumulative total returns reflecting the simple
change in value of an investment over a stated period. Cumulative
total returns may be quoted as a percentage or as a dollar amount,
and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period.
Total returns may be quoted with or without taking the Fund's
maximum sales charge on Class A Shares or the CDSC on Class B
Shares into account. Excluding the Fund's sales charge on Class A
Shares and the CDSC on Class B Shares from a total return
calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the
Fund's yield and total return will be compared to indices of
mutual funds and bank deposit vehicles such as Lipper Analytical
-37-
<PAGE> 70
Systems, Ibottson and Associates, CDA Weisenberger and F.C.
Towers. The Russell and Wilshire Indices are also used for
comparison purposes.
Performance rankings and ratings reported periodically in
national financial publications such as MONEY Magazine, FORBES,
BUSINESS WEEK, THE WALLSTREET JOURNAL, MICROPAL, INC.,
MORNINGSTAR, STANGER'S and BARRON'S, etc. will also be utilized.
The Fund's promotional and sales literature may make reference to
the Fund's "beta." Beta is a reflection of the market-related
risk of the Fund by showing how responsive the Fund is to the
market.
The performance of the Fund is not fixed or guaranteed.
Performance quotations should not be considered to be
representations of performance of the Fund for any period in the
future. The performance of the Fund is a function of many factors
including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of
portfolio securities; sales and redemptions of shares of
beneficial interest; and changes in operating expenses are all
examples of items that can increase or decrease the Fund's
performance.
ADDITIONAL PERFORMANCE INFORMATION. The Fund may use
comparative performance information from certain industry research
materials and/or published in various periodicals. The
characteristics of the investments in such comparisons may be
different from those investments of the Fund's portfolio. In
addition, the formula used to calculate the performance statistics
of such investments may not be identical to the formula used by
the Fund to calculate its performance figures. From time to time,
advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived by an
investment in the Fund. Such advertisements or information may
include symbols, headlines or other material which highlight or
summarize the information discussed in more detail in the
communication.
The following publications, indexes, averages and investments
which may be used in advertisements or information concerning the
Fund for dissemination to investors or shareholders, include, but
are not limited, to:
a) Dow Jones Composite Average or its component averages
- an unmanaged index composed of 30 blue-chip industrial
corporation stocks (Dow Jones Industrial Average), 15
utilities company stocks (Dow Jones Utilities Average), and
20 transportation company stocks. Comparisons of performance
assume reinvestment of dividends.
b) Standard & Poor's 500 Stock Index or its component
indices - an unmanaged index composed of 400 industrial
stocks, 40 financial stocks, 40 utilities stocks, and 20
-38-
<PAGE> 71
transportation stocks. Comparisons of performance assume
reinvestment of dividends.
c) The New York Stock Exchange composite or component
indices - unmanaged indices of all industrial, utilities,
transportation, and finance stocks listed on the New York
Stock Exchange.
d) Wilshire 5000 Equity Index - represents the return on
the market value of all common equity securities of which
daily pricing is available. Comparisons of performance
assume reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis, Lipper -
Fixed Income Analysis, and Lipper Mutual Fund indices -
measure total return and average current yield for the mutual
fund industry. Ranks individual mutual fund performance over
specified time periods assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment
Technologies, Inc. - analyzes price, current yield, risk,
total return, and average rate of return (average annual
compounded growth rate) over specified time periods for the
mutual fund industry.
g) Mutual Fund Source Book and other similar rating
publications by Morningstar, Inc. - independent performance
monitor of equity and fixed income mutual funds. Morningstar
ratings (ranging from one star for lowest and five stars for
highest) are based on analysis of a fund's ratio, i.e., price
yield, risk (volatility) and total return, including all
loads and fees, compared with similar funds for three-, five-
and ten-year periods.
h) Financial publications: Barrons, Business Week,
Personal Finance, Financial World, Forbes, Fortune, "The Wall
Street Journal", "New York Times", Weisenberger Investment
Companies Service, Institutional Investor, and Money - rate
fund performance over specified time periods and provide
other relative performance or industry information.
i) Consumer Price Index (or Cost of Living Index),
published by the U. S. Bureau of Labor Statistics - a
statistical measure of change, over time, in the price of
goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by
Ibbotson Associates - historical measure of yield, price, and
total return for common and small company stock, long-term
government bonds, Treasure bills, and inflation.
k) Savings and Loan Historical Interest Rates - as
published in the U. S. Savings & Loan League Fact Book.
-39-
<PAGE> 72
l) Salomon Brothers Broad Bond Index or its component
indices - The Broad Index measures yield, price and total
return for Treasury, Agency, Corporate, and Mortgage bonds.
m) Salomon Brothers Composite High Yield Index or its
component indices - The High Yield Index measures yield,
price and total return for Long-Term High-Yield Index,
Intermediate-Term High-Yield index and Long-Term Utility
High-Yield Index.
n) Shearson Lehman Brothers Aggregate Bond index or its
component indices (including Municipal Bond Index) - The
Aggregate Bond Index measures yield, price and total return
for Treasury, Agency, Corporate, Mortgage, and Yankee bonds.
o) Standard & Poor's Bond Indices - measure yield and price
of Corporate, Municipal, and government bonds.
p) Other taxable investments, including certificates of
deposit (CDs), money market deposit accounts (MMDAs),
checking accounts, savings accounts, money market mutual
funds, and repurchase agreements.
q) Historical data supplied by the research departments of
Shearson Lehman Hutton, First Boston Corporation, Morgan
Stanley, Salomon Brothers, Merrill Lynch, and Donaldson
Lufkin and Jenrette.
r) Donoghues's Money Fund Report - industry averages for
7-day annualized and compounded yields of taxable, tax-free
and government money funds.
s) Russell 2000 (small capitalization stock index), Bond
Buyer 25 Revenue Bond Index and other indices as may from
time to time become available.
t) The Value Line Mutual Fund Survey, published by Value
Line, assigns rankings of 1 (best) to 5 (worst) in terms of
risk adjusted performance covering more than 2,000 equity and
fixed income mutual funds.
From time to time, in reports and promotional literature, the
Fund's performance will be compared to other mutual funds and
investment vehicles such as F.C. Towers.
In addition, advertisements and sales materials may from time
to time, contain hypothetical performance examples for purposes of
illustrating reinvestment (or "compounding") of dividends at fixed
rates of return or tax advantages to be derived from deferring
payment of federal (and state) income taxes (at maximum rates) as
compared to taxable investments assuming fixed rates of return.
Illustrations may also include (1) hypothetical investments in
various retirement plans, such as IRAs, made by investors of
-40-
<PAGE> 73
various ages or (2) comparisons to retirement plans funded by
annuity or bank products.
In assessing such comparisons, an investor should consider
the following factors:
a) It is generally either not possible or not practicable
to invest in an average or index of certain investments.
b) Certificates of deposit issued by banks and other
depository institutions represent an alternative income
producing product. Certificates of deposit may offer fixed
or variable interest rates and principal is guaranteed and
may be insured. Withdrawal of deposits prior to maturity
will normally be subject to a penalty. Rates offered by
banks and other depository institutions are subject to change
at any time specified by the issuing institution.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio
securities and the allocation of brokerage commissions are made by
the Investment Adviser and officers of the Fund pursuant to
recommendations made by an investment committee of the Investment
Adviser, which consists of officers and directors of the
Investment Adviser and affiliates and officers and Trustees who
are interested persons of the Fund. Orders for purchases and
sales of securities are placed in a manner which, in the opinion
of the Investment Adviser, will offer the best price and market
for the execution of each such transaction. Purchases from
underwriters of portfolio securities may include a commission or
commissions paid by the issuer and transactions with dealers
serving as market makers reflect a "spread." Investments in debt
securities are generally traded on a net basis through dealers
acting for their own account as principals and not as brokers; no
brokerage commissions are payable on such transactions.
The Fund's primary policy is to execute all purchases and
sales of portfolio instruments at the most favorable prices
consistent with best execution, considering all of the costs of
the transaction including brokerage commissions. This policy
governs the selection of brokers and dealers and the market in
which a transaction is executed. Consistent with the foregoing
primary policy, the Rules of Fair Practice of the NASD and other
policies that the Trustees may determine, the Investment Adviser
may consider sales of shares of the Fund as a factor in the
selection of broker-dealers to execute the Fund's portfolio
transactions.
To the extent consistent with the foregoing, the Fund will be
governed in the selection of brokers and dealers, and the
negotiation of brokerage commission rates and dealer spreads, by
the reliability and quality of the services, including primarily
-41-
<PAGE> 74
the availability and value of research information and to a lesser
extent statistical assistance furnished to the Investment Adviser
of the Fund, and their value and expected contribution to the
performance of the Fund. It is not possible to place a dollar
value on information and services to be received from brokers and
dealers, since it is only supplementary to the research efforts of
the Investment Adviser. The receipt of research information is
not expected to reduce significantly the expenses of the
Investment Adviser. The research information and statistical
assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Investment Adviser, and
conversely, brokerage commissions and spreads paid by other
advisory clients of the Investment Adviser may result in research
information and statistical assistance beneficial to the Fund.
The Fund will make no commitments to allocate portfolio
transactions upon any prescribed basis. While the Fund's officers
will be primarily responsible for the allocation of the Fund's
brokerage business, their policies and practices in this regard
must be consistent with the foregoing and will at all times be
subject to review by the Trustees. For the fiscal years ended
December 31, 1994, 1993 and 1992, the aggregate brokerage
commissions paid by the Fund on portfolio transactions were
$784,456, $367,354, and $103,742, respectively.
As permitted by Section 28(e) of the Securities Exchange Act
of 1934, the Fund may pay to a broker which provides brokerage and
research services to the Fund an amount of disclosed commission in
excess of the commission which another broker would have charged
for effecting that transaction. This practice is subject to a
good faith determination by the Trustees that the price is
reasonable in light of the services provided and to policies that
the Trustees may adopt from time to time. During the fiscal year
ended December 31, 1994, the Fund did not pay commissions as
compensation to any brokers for research services such as
industry, economic and company reviews and evaluations of
securities.
The Investment Adviser's indirect parent, the Life Company,
is the indirect sole shareholder of John Hancock Freedom
Securities Corporation and its subsidiaries, three of which,
Tucker Anthony Incorporated ("Tucker Anthony") John Hancock
Distributors, Inc. ("John Hancock Distributors") and Sutro &
Company, Inc. ("Sutro"), are broker-dealers ("Affiliated
Brokers"). Pursuant to procedures determined by the Trustees and
consistent with the above policy of obtaining best net results,
the Fund may execute portfolio transactions with or through Tucker
Anthony, Sutro or John Hancock Distributors. During the year
ended December 31, 1994, the Fund did not execute any portfolio
transactions with then affiliated brokers.
Any of the Affiliated Brokers may act as broker for the Fund
on exchange transactions, subject, however, to the general policy
of the Fund set forth above and the procedures adopted by the
Trustees pursuant to the 1940 Act. Commissions paid to an
-42-
<PAGE> 75
Affiliated Broker must be at least as favorable as those which the
Trustees believe to be contemporaneously charged by other brokers
in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be
placed with an Affiliated Broker if the Fund would have to pay a
commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other
most favored, but unaffiliated, customers, except for accounts for
which the Affiliated Broker acts as a clearing broker for another
brokerage firm, and any customers of the Affiliated Broker not
comparable to the Fund as determined by a majority of the Trustees
who are not interested persons (as defined in the 1940 Act) of the
Fund, the Investment Adviser or the Affiliated Brokers. Because
the Investment Adviser, which is affiliated with the Affiliated
Brokers, has, as an investment adviser to the Fund, the obligation
to provide investment management services, which includes elements
of research and related investment skills, such research and
related skills will not be used by the Affiliated Brokers as a
basis for negotiating commissions at a rate higher than that
determined in accordance with the above criteria. The Fund will
not effect principal transactions with Affiliated Brokers.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116,
Boston, MA 02205-9116, a wholly owned indirect subsidiary of the
Life Company, is the transfer and dividend paying agent for the
Fund. The Fund pays Investor Services a monthly transfer agent
fee of $19 per account for the Class A Shares and $22.50 per
account for the Class B Shares, plus out-of-pocket expenses.
CUSTODY OF PORTFOLIO
Investor Bank & Trust Company ("IBT") 24 Federal Street,
Boston, Massachusetts, serves as custodian of the cash and
investment securities of the Fund. IBT is also responsible for,
among other things, receipt and delivery of the Fund's investment
securities in accordance with procedures and conditions specified
in the custody agreement.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston,
Massachusetts 02116, has been selected as the independent auditors
of the Fund. The financial statements of the Fund included in the
Prospectus and this Statement of Additional Information have been
audited by Ernst & Young LLP for the periods indicated in their
report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
-43-
<PAGE> 76
FINANCIAL STATEMENTS
-44-
<PAGE> 77
This illustrates the benefits of a mutual fund. Mutual funds are an
excellent way to diversify because they invest your assets in a large number of
securities.
REINVEST YOUR EARNINGS
Do you really need any income generated by your investment?
If not, put the income "back to work" -- immediately and automatically.
Most mutual funds allow you to reinvest dividends or capital gains
distributions automatically. When you reinvest, you buy additional shares.
These shares, in turn, can generate more income or capital gains. You increase
the opportunity for greater return when you reinvest. The chart at right
demonstrates the power of compounding through reinvestment with the added
benefit of a regular investment program.
KEEP A LONG-TERM PERSPECTIVE
In investing, patience can be a real virtue.
Remember, over the short term, financial markets rise and fall in response
to a number of factors. Attempting to "time" these market moves for quick gains
is extremely difficult. It's also risky. That's why many successful investors
take the long-term approach to reach their financial goals. The longer you stay
with an investment, riding out market fluctuations, the greater your
opportunity to reduce risk and achieve higher returns.
Page 15
Boxed line chart with heading "The Power Of Compounding" that illustrates the
growth of a hypothetical $10,000 initial investment and subsequent monthly
investments of $200 over a 30-year period at 6%, 8% and 10% fixed rates of
return. The chart is scaled in $100,000 increments from $0 to $700,000 on the
left. The chart is scaled at the bottom in five year increments from 1 to 30.
The first line represents the value of the investment at a 6% annual rate that
is equal to $260,929 in the thirtieth year. The second represents the value of
the investment at an 8% annual rate that is equal to $407,229 in the thirtieth
year. The third represents the value of the investment at a 10% annual rate
that is equal to $650,272 in the thirtieth year. Footnote below states: "This
table shows the effects of compounding monthly at different interest rates
over various time periods, assuming an initial investment of $10,000 and
subsequent investments of $200 on the same day each month. This table is for
illustrative purposes only and should not be construed as an indication of the
performance of a specific investment or the availability of any rate of return
over any specific time period."
6
<PAGE> 78
STATEMENT OF NET ASSETS
December 31, 1994
<TABLE>
<CAPTION>
COMPANY SHARES VALUE
- ------- -------- ---------
<S> <C> <C>
COMMON STOCKS-92.68%
- -------------------
COMPUTERS AND OFFICE
EQUIPMENT-22.07%
Corel Corp.*................................. 170,000 $ 2,348,125
EMC Corp.*................................... 140,000 3,027,500
LEGENT Co.*.................................. 50,000 1,437,500
Paychex, Inc. ............................... 70,000 2,835,000
Silicon Graphics, Inc.*...................... 110,000 3,396,250
Sterling Software, Inc.*..................... 80,000 2,940,000
Sun Microsystems Inc.*....................... 40,000 1,420,000
SyBase Inc.*................................. 25,000 1,300,000
VMARK Software Inc.*......................... 25,000 443,750
-----------
19,148,125
CONSUMER CYCLICALS-3.97%
Men's Wearhouse Inc.*........................ 70,000 1,575,000
Rite Aid Corp................................ 80,000 1,870,000
-----------
3,445,000
CONSUMER GOODS &
SERVICES-9.20%
Landry's Seafood
Restaurants Inc.*.......................... 40,000 1,135,000
Marriott International Inc................... 120,000 3,375,000
Outback Steakhouse Inc.*..................... 60,000 1,410,000
Sysco Corp................................... 80,000 2,060,000
-----------
7,980,000
ENERGY-4.45%
Enron Oil & Gas Co........................... 60,000 1,125,000
Noble Drilling Corp.*........................ 75,000 440,625
Phillips Petroleum Co........................ 70,000 2,292,500
-----------
3,858,125
HEALTH CARE-19.07%
Columbia/HCA
Healthcare Corp.............................. 75,000 2,737,500
Envoy Corp.*................................. 60,000 1,230,000
Humana Inc.*................................. 90,000 2,036,250
Manor Care, Inc.............................. 120,000 3,285,000
Merck & Co., Inc............................. 75,000 2,859,375
Schering-Plough Corp......................... 35,000 2,590,000
United Healthcare Corp....................... 40,000 1,805,000
-----------
16,543,125
INDUSTRIAL-10.60%
Allwaste Inc.*............................... 200,000 1,125,000
Cognex Corp.*................................ 40,000 1,030,000
Eastman Chemical Co.......................... 50,000 2,525,000
Federal Paper Board Co., Inc................. 95,000 2,755,000
Union Carbide Corp........................... 60,000 1,762,500
-----------
9,197,500
MEDIA & LEISURE-4.03%
Brassie Golf Corp.*.......................... 315,000 1,023,750
Harcourt General Inc......................... 70,000 2,467,500
-----------
3,491,250
TECHNOLOGY- RELATED - 14.23%
E-Systems Inc. .............................. 20,000 832,500
Lithium Technology Corp.*.................... 2,611,890 365,664
Millipore Corp. ............................. 40,000 1,935,000
Molex, Inc. ................................. 75,000 2,587,500
Motorola, Inc. .............................. 50,000 2,893,750
Tektronix, Inc. ............................. 50,000 1,712,500
Thomas & Betts Corp. ........................ 30,000 2,013,750
-----------
12,340,664
TELECOMMUNICATIONS - 5.06%
Ericsson (L.M.) Telephone, Co. Class B....... 50,000 2,756,250
Tele-Communications, Inc. Class A*.......... 75,000 1,631,250
-----------
4,387,500
-----------
TOTAL COMMON STOCKS
(Cost $77,128,322)........................... 80,391,289
</TABLE>
7
<PAGE> 79
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ---------- -----------
<S> <C> <C>
SHORT-TERM
OBLIGATIONS--11.92%
COMMERCIAL PAPER--8.64%
CONSUMER CYCLICALS--2.30%
Warner Lambert Co.
5.900% due 01/03/95........................ $2,000,000 1,999,344
CONSUMER GOODS &
SERVICES--4.61%
McDonald's Corp.
5.800% due 01/05/95........................ 4,000,000 3,997,422
TELECOMMUNICATIONS--1.73%
American Telephone &
Telegraph Co.
5.850% due 01/09/95...................... 1,500,000 1,498,050
-----------
TOTAL COMMERCIAL PAPER
(Cost $7,494,816)............................ 7,494,816
REPURCHASE
AGREEMENT--3.28%
Lehman Brothers 5.500% due
01/03/95 (dated 12/30/94).
Collateralized by
$2,910,755 value, U.S.
Treasury Bonds 8.125%
due 08/15/21. (Repurchase
proceeds $2,850,741)
(Cost $2,849,871)............................ 2,849,000 2,849,871
-----------
TOTAL SHORT-TERM
OBLIGATIONS
(Cost $10,344,687)........................... 10,344,687
-----------
TOTAL INVESTMENTS--104.60%
(Cost $87,473,009)........................... 90,735,976
CASH AND OTHER ASSETS,
LESS LIABILITIES--(4.60)%.................... (3,994,365)
-----------
NET ASSETS, at value,
equivalent to $10.93 per
share for 6,411,229 Class A
Shares ($.01 par value)
outstanding and $10.80 per
share for 1,542,392 Class B
Shares ($.01 par value)
outstanding-- 100.00%...................... $86,741,611
===========
*Non-income producing.
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 80
STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Dividends ...................... $ 1,062,137
Interest ....................... 186,714
-----------
1,248,851
EXPENSES
Management fees ................ $539,809
Transfer agent fees ............ 323,567
Distribution expenses
(see Note D) ................. 283,190
Administrative service fees .... 115,878
Custodian fees ................. 49,605
Audit and legal fees ........... 38,998
Shareholder reports ............ 28,222
Registration fees .............. 24,313
Trustees' fees and expenses .... 23,216
Miscellaneous .................. 12,386 1,439,184
-------- -----------
NET INVESTMENT LOSS .......... (190,333)
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain on
investments .................. 2,453,497
Net change in unrealized
appreciation of investments .. (12,203,891)
------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS .......... (9,750,394)
------------
DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS .... $ (9,940,727)
============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<Captions>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment loss ........... $ (190,333) $ (804,875)
Net realized gain on
investments ................. 2,453,497 919,090
Net change in unrealized
appreciation of
investments ................. (12,203,891) 4,715,305
------------ ------------
Increase (decrease) in net
assets resulting from
operations .................. (9,940,727) 4,829,520
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net realized gain on
investments-
Class A ...................... (1,798,987) -
Class B ...................... (429,429) -
------------ ------------
Total distributions to
shareholders ................ (2,228,416) -
SHARE TRANSACTIONS
Increase (decrease) in
shares outstanding .......... 12,917,743 (13,697,388)
------------ ------------
Increase (decrease) in
net assets .................. 748,600 (8,867,868)
NET ASSETS
Beginning of year ............. 85,993,011 94,860,879
------------ ------------
End of year ................... $ 86,741,611 $ 85,993,011
============ ============
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 81
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A Shares Class B Shares
------------------------------------------- ------------------------------
Year Period From
Year Ended December 31 Ended June 30, 1993
------------------------------------------- December 31, to December 31,
1994(1) 1993 1992 1991 1990(2) 1994(1) 1993(3)
------- ------- ------- ------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share income and capital changes
for a share outstanding during
each period:(4)
Net asset value, beginning of period...... $ 12.66 $ 11.90 $ 11.47 $ 9.82 $ 10.65 $ 12.59 $11.28
INCOME FROM INVESTMENT OPERATIONS
Net investment loss....................... (0.02) (0.11) (0.14) (0.13) (0.09) (0.09) (0.07)
Net realized and unrealized gain (loss)
on investments.......................... (1.42) 0.87 0.76 3.73 (0.60) (1.41) 1.38
------- ------- ------- ------- ------- ------- ------
Total from Investment Operations........ (1.44) 0.76 0.62 3.60 (0.69) (1.50) 1.31
LESS DISTRIBUTIONS
Dividends from net investment income...... -- -- -- -- (0.01) -- --
Distributions from realized gains......... (0.29) -- (0.19) (1.95) (0.13) (0.29) --
------- ------- ------- ------- ------- ------- ------
Total Distributions..................... (0.29) -- (0.19) (1.95) (0.14) (0.29) --
------- ------- ------- ------- ------- ------- ------
Net asset value, end of period............ $ 10.93 $ 12.66 $ 11.90 $ 11.47 $ 9.82 $ 10.80 $12.59
======= ======= ======= ======= ======= ======= ======
TOTAL RETURN(5)........................... (11.34)% 6.39% 5.48% 38.00% (6.37)% (11.88)% 11.61%
======= ======= ======= ======= ======= ======= ======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net assets... 1.59% 1.46% 1.41% 1.68% 1.54% 2.34% 1.06%
Ratio of net investment loss to average
net assets.............................. (0.14)% (0.92)% (1.20)% (1.04)% (0.82)% (0.89)% (0.54)%
Portfolio turnover........................ 290% 159% 70% 139% 152% 290% 159%
Net Assets, end of period (in thousands).. $70,090 $85,553 $94,861 $89,008 $56,794 $16,652 $ 440
======= ======= ======= ======= ======= ======= ======
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc. became the Investment
Adviser. Prior to this date, Transamerica Fund Management Company was the
Investment Adviser.
(2) Per share information has been adjusted retroactively for the 2 for 1
stock split to shareholders of record on September 10, 1990.
(3) Financial highlights, including total return, have not been annualized.
Portfolio turnover is for the year ended December 31, 1993.
(4) Per share information has been calculated using the average number of
shares outstanding.
(5) Total return does not include the effect of the initial sales charge for
Class A Shares nor the contingent deferred sales charge for Class B Shares.
See Notes to Financial Statements.
10
<PAGE> 82
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
John Hancock Capital Growth Fund (the ``Fund''), formerly Transamerica
Capital Growth Fund, is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended. On December
16, 1994, the shareholders of each of the mutual funds managed by Transamerica
Fund Management Company (TFMC) voted to approve new Investment Advisory
contracts with John Hancock Advisers, Inc. Each such approval was subject to
the acquisition of TFMC by The Berkeley Financial Group (known beginning
January 1, 1995 as John Hancock Funds), the parent company of John Hancock
Advisers, Inc. The acquisition became effective on December 22, 1994. The
Fund's name change was also effective on this date.
The Fund offers two classes of shares to the public. Class A Shares are
subject to an initial sales charge of up to 5.75% and a 12b-1 distribution
plan. Class B Shares are subject to a contingent deferred sales charge and a
separate 12b-1 distribution plan. The following is a summary of significant
accounting policies consistently followed by the Fund.
(1) Securities traded on stock exchanges or in the over-the-counter
market are valued at the last sale price on the primary exchange or market on
which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the mean between the most
recent closing bid and asked prices. Securities for which market quotations are
not readily available are valued at a fair value as determined in good faith by
the Fund's Board of Trustees. Short-term investments are valued at amortized
cost (original cost plus amortized discount or accrued interest).
(2) Security transactions are accounted for on the trade date. Dividend
income is recorded on the ex-dividend date for both financial reporting and
federal income tax purposes. Interest income on investments is accrued daily.
Realized gains and losses from security transactions are determined on the
basis of identified cost for both financial reporting and federal income tax
purposes.
(3) No provision for federal income taxes has been made since it is the
Fund's intention to distribute all of its taxable income and profits to its
shareholders and to comply with the requirements applicable to regulated
investment companies and the minimum distribution requirements of the Internal
Revenue Code.
(4) The Fund reports custodian fees net of credits and charges
resulting from cash positions in the custodial accounts greater than or less
than the amounts required to settle portfolio transactions. For the year ended
December 31, 1994, these amounts were $4,810 and $14,037, respectively.
(5) Dividends and other distributions are recorded by the Fund on the
ex-dividend date and may be reinvested at net asset value. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
Distributions payable to shareholders at December 31, 1994 were $232,814.
(6) On a daily basis, income, unrealized and realized gains and losses,
and expenses which are not class specific are allocated to each class based on
their respective relative net assets. Class specific expenses, such as
distribution expenses, are applied to the class to which they are attributed.
NOTE B - MANAGEMENT FEE AND OTHER
TRANSACTIONS WITH AFFILIATES
From January 1, 1994 through December 21, 1994, TFMC acted as the Investment
Adviser to the Fund. On December 22, 1994, John Hancock Advisers, Inc., a
wholly-owned subsidiary of John Hancock Funds, became the Investment Adviser
following the approval of the Fund's shareholders. Throughout these financial
statement notes, TFMC and John Hancock Advisers, Inc. are referred to
collectively as the ``Investment Adviser'', as each acted in this capacity
during the time periods noted above. TFMC was, prior to December 22, 1994, a
subsidiary of Transamerica Corporation.
The Fund's management fee is payable monthly and is calculated based on
the monthly average daily net assets of the Fund at an annual rate of 0.625%.
At December 31, 1994, the management fee payable to the Investment Adviser was
$43,133.
The Investment Adviser also provided administrative services to the
Fund pursuant to an administrative service agreement. During the year ended
December 31, 1994, the Fund paid or accrued $101,838 to the Investment Adviser
for these services, of which $17,669 was payable at December 31, 1994.
During the year ended December 31, 1994, Transamerica Fund
Distributors, Inc., an affiliate of TFMC and principal underwriter of the Fund
through December 22,
11
<PAGE> 83
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE B (Continued)
1994 and John Hancock Funds, Inc., an affiliate of John Hancock Advisers,
Inc. and principal underwriter since December 22, 1994, retained $8,567 as
their portion of the commissions charged on sales of Class A Shares of the
Fund. Throughout these financial statement notes, Transamerica Fund
Distributors, Inc. and John Hancock Funds, Inc. are referred to collectively as
the "Distributor", as each acted in this capacity during the time periods noted
above. At December 31, 1994, receivables from and payables to the Distributor
for Fund share transactions were $22,505 and $37,968, respectively.
The Fund paid no compensation directly to any officer. Certain officers
of the Fund are affiliated with the Investment Adviser.
During the year ended December 31, 1994, the Fund paid legal fees of
$12,034 to Baker & Botts. A partner with Baker & Botts was an officer of the
Fund until December 22, 1994.
NOTE C - COST, PURCHASES AND SALES OF
INVESTMENT SECURITIES
During the year ended December 31, 1994, purchases and sales of securities,
other than short-term obligations, aggregated $248,472,504 and $243,300,663,
respectively. At December 31, 1994, receivables from and payables to brokers
for securities sold and purchased were $1,859,500 and $5,583,708,
respectively.
The identified cost of total investments owned is the same for both
financial reporting and federal income tax purposes. At December 31, 1994, the
gross unrealized appreciation and gross unrealized depreciation of investments
for federal income tax purposes were $5,197,025 and $1,934,058, respectively.
NOTE D - PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is
authorized under separate distribution plans to finance activities
related to the distribution of its Class A and Class B Shares (the ``Class A
Plan'' and the ``Class B Plan,'' respectively). The distribution plans,
together with the initial sales charge on Class A Shares and the contingent
deferred sales charge on Class B Shares, comply with the regulations covering
maximum sales charges assessed by mutual funds distributed through securities
dealers that are NASD members.
The Class A Plan and the Class B Plan permit each class to make
payments to the Distributor up to 0.25% annually of average daily net assets
for certain distribution costs such as service fees paid to dealers, production
and distribution of prospectuses to prospective investors, services provided to
new and existing shareholders and other distribution related activities. During
the year ended December 31, 1994, Class A and Class B made payments to the
Distributor of $193,470 or 0.25% and $22,615 or 0.25%, respectively, related to
these activities.
The Class B Plan also permits Class B to reimburse the Distributor up
to 0.75% annually of average daily net assets for costs related to compensation
paid to securities dealers, in place of an initial sales charge to investors,
on the sale of Class B Shares. These costs are based upon a commission payment
charge of 5% of the value of Class B Shares sold (excluding shares acquired
through reinvestment), reduced by the amount of contingent deferred sales
charges (CDSC) that have been received by the Distributor on redemptions of
Class B Shares. These costs also include a charge of interest (carrying charge)
at an annual rate of 1% over the prevailing prime rate to the extent cumulative
commission payment charges, plus any previous carrying charges, less CDSC
received by the Distributor, have not been paid in full by the Fund. For the
year ended December 31, 1994, Class B reimbursed the Distributor $67,105 or
0.75% for such costs. For the year ended December 31, 1994, the Distributor
received $8,342 in CDSC.
At December 31, 1994, Class A had $74,119 and Class B had $17,603
payable to the Distributor pursuant to the above distribution plans.
12
<PAGE> 84
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE E - SHARE AND RELATED TRANSACTIONS
A summary of share transactions follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1994 1993(1)
----------------------- -----------------------
Shares Dollars Shares Dollars
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold - Class A........................................... 3,163,337 $ 37,415,876 2,167,638 $ 25,193,278
Shares sold - Class B........................................... 2,312,014 27,133,045 36,251 449,933
Shares issued in reinvestment of distributions - Class A........ 150,788 1,640,574 -- --
Shares issued in reinvestment of distributions - Class B........ 33,057 355,028 -- --
Shares redeemed - Class A....................................... (3,660,949) (43,573,191) (3,377,746) (39,325,285)
Shares redeemed - Class B....................................... (837,605) (10,053,589) (1,325) (15,314)
--------- ------------ ---------- ------------
Net increase (decrease) in shares outstanding................... 1,160,642 $ 12,917,743 (1,175,182) $(13,697,388)
========= ============ ========== ============
</TABLE>
___________
(1) Class B Share transactions are for the period June 30, 1993 to
December 31, 1993.
The components of net assets at December 31, 1994, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Capital paid-in (unlimited number of shares authorized)................... $83,428,097
Accumulated net realized gain on investments.............................. 50,547
Net unrealized appreciation of investments................................ 3,262,967
-----------
Net Assets................................................................ $86,741,611
===========
</TABLE>
13
<PAGE> 85
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Trustees
John Hancock Capital Growth Fund
We have audited the accompanying statement of net assets of John Hancock
Capital Growth Fund, formerly Transamerica Capital Growth Fund, as of
December 31, 1994, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of John Hancock Capital Growth Fund at December 31, 1994, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights
for each of the indicated periods, in conformity with generally accepted
accounting principles.
Houston, Texas
February 3, 1995
14
