SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_X__/
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Pre-Effective Amendment No. __ /____/
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Post-Effective Amendment No. ___ /____/
(Check appropriate box or boxes)
JOHN HANCOCK CAPITAL SERIES
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(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
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(Address of principal executive office) Zip Code
(617) 375-1702
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(Registrant's Telephone Number, including Area Code)
Susan S. Newton, Esq.
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199
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(Name and address of agent for service)
Title of Securities Being Registered: shares of beneficial interest of John
Hancock Capital Series.
Approximate Date of Proposed Public Offering: As soon as practicable after the
effectiveness of the registration statement.
No filing fee is required because an indefinite number of shares has previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. This Registration Statement relates to shares previously registered
on Form N-1A (File Nos. 2-29502 and 811-1677).
It is proposed that this filing will become effective on April 8, 2002
pursuant to Rule 488 under the Securities Act of 1933.
JHF LOGO
April 15, 2002
Dear Shareholder:
I am writing to ask for your vote on important matters concerning your
investment in John Hancock Core Growth Fund and/or John Hancock Core Value Fund.
You may be aware that in addition to Core Growth Fund and Core Value Fund, John
Hancock offers the John Hancock Core Equity Fund, which has a similar investment
process but invests across both growth and value style equities. The trustees of
your fund(s) are proposing the merger of Core Growth Fund and Core Value Fund
into Core Equity Fund. As a result of the merger of your fund(s), you will
receive shares of Core Equity Fund. The fund merger proposals have been
unanimously approved by each fund's board of trustees, who believe the mergers
will benefit you by increased diversification and economies of scale and the
potential for lower fund operating expenses. The proposed changes will also
allow your investments(s) to be part of a larger investment pool.
The proposed mergers are detailed in the enclosed proxy statement and summarized
in the questions and answers on the following page. I suggest you read both
thoroughly before voting.
Your Vote Makes a Difference!
No matter what the size your investment may be, your vote is critical. I urge
you to review the enclosed materials and to complete, sign and return the
enclosed proxy ballot to us immediately. Your prompt response will help avoid
the need for additional mailings at your fund's expense. For your convenience
you may vote:
|_| By mail - a postage paid envelope in enclosed
|_| By Phone - 1-800-225-5291
|_| By email - www.
|_| By Internet - www.jhfunds.com
|_| Select shareholder entryway and click on the proxy-voting link
If you have any questions or need additional information, please contact your
investment professional or call your Customer Service Representative at
1-800-225-5291, Monday through Friday between 8:00 a.m. and 5:30 p.m. Eastern
time. I thank you for your prompt vote on this matter.
Sincerely,
/s/Maureen R. Ford
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Maureen R. Ford
Chairman and Chief Executive Officer
Q: What are the changes being proposed?
A: Core Equity Fund has a larger asset base than Core Growth Fund and Core Value
Fund. In addition, Core Growth Fund and Core Value Fund's operating expenses are
both currently higher than Core Equity Fund's operating expenses. This expense
differential exists although the Adviser is currently subsidizing both Core
Growth Fund's and Core Value Fund's expenses. As a result of a merger with Core
Equity Fund, shareholders of Core Growth Fund and Core Value Fund should
experience lower overall expenses. Core Equity's larger asset level and broader
investment objective will also allow Core Growth Fund and Core Value Fund a
larger universe of investment opportunities from which to choose and may offer
greater opportunity for future growth.
Q: What are the benefits of merging Core Growth Fund and Core Value Fund into
Core Equity Fund ?
A: Your trustees firmly believe these mergers will eliminate the duplication of
the legal, administration and portfolio management responsibilities associated
with managing different mutual funds with the same investment style and process.
In addition your investments will benefit from being part of a larger pool of
assets and may result in lower expenses.
Q: Will this change affect the number of shares I currently have? Will there be
any tax implications?
A: While the market value of your shares will remain the same, the number of
shares you own in the Core Equity Fund will differ from those currently held in
your Fund(s). There are no tax implications (no Form 1099R will be generated).
Q: Will my contact information and service team change?
A: No. You will still be serviced through a dedicated Service team within John
Hancock Signature Services, the fund's transfer agent. You Client Relationship
Contact at John Hancock Funds will also remain the same.
Q: How do I vote?
A: In order to facilitate the proxy voting process you may vote using one of
four methods.
|_| By mail - a postage paid envelope in enclosed
|_| By Phone - 1-800-225-5291
|_| By email - www.
|_| By Internet: www.jhfunds.com
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Q: Does my vote make a difference?
A: Whether you are a large or small investor, your vote is important, and we
urge you to participate in this process. The board of trustees of your fund(s)
voted unanimously to recommend these changes, and your approval is needed to
implement the changes.
JOHN HANCOCK CORE GROWTH FUND
JOHN HANCOCK CORE VALUE FUND
(each a "fund," and each a series of John Hancock Institutional Series Trust)
101 Huntington Avenue
Boston, MA 02199
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
SCHEDULED FOR MAY 29, 2002
This is the formal agenda for each fund's shareholder meeting. It tells you what
matters will be voted on and the time and place of the meeting, in case you want
to attend in person.
To the shareholders of each fund:
A joint shareholder meeting for your fund(s) will be held at 101 Huntington
Avenue, Boston, Massachusetts on Wednesday, May 29, 2002 at 9:00 a.m., Eastern
Time, to consider the following:
1. A proposal to approve an Agreement and Plan of Reorganization between John
Hancock Core Growth Fund ("Core Growth Fund") and John Hancock Core Equity
Fund ("Core Equity Fund"). Under this Agreement, your fund would transfer
all of its assets to Core Equity Fund in exchange for shares of Core
Equity Fund. These shares would be distributed proportionately to you and
the other shareholders of Core Growth Fund. Core Equity Fund would also
assume Core Growth Fund's liabilities. Core Growth Fund's board of
trustees recommends that you vote FOR this proposal.
2. A proposal to approve an Agreement and Plan of Reorganization between John
Hancock Core Value Fund ("Core Value Fund") and John Hancock Core Equity
Fund ("Core Equity Fund"). Under this Agreement, your fund would transfer
all of its assets to Core Equity Fund in exchange for shares of Core
Equity Fund. These shares would be distributed proportionately to you and
the other shareholders of Core Value Fund. Core Equity Fund would also
assume Core Value Fund's liabilities. Core Value Fund's board of trustees
recommends that you vote FOR this proposal.
3. Any other business that may properly come before the meeting.
Shareholders of record as of the close of business on March 15, 2002 are
entitled to vote at the meeting and any related follow-up meetings.
Whether or not you expect to attend the meeting, please complete and return the
enclosed proxy card. If shareholders do not return their proxies in sufficient
numbers, your fund will incur the cost of extra solicitations, which is
indirectly borne by shareholders.
By order of the board of trustees,
Susan S. Newton
Secretary
April 15, 2002
PROXY STATEMENT OF
JOHN HANCOCK CORE GROWTH FUND
JOHN HANCOCK CORE VALUE FUND
(each an "Acquired Fund" or "your fund" and each a series of John Hancock
Institutional Series Trust)
101 Huntington Avenue
Boston, MA 02199
PROSPECTUS FOR
JOHN HANCOCK CORE EQUITY FUND
(the "Acquiring Fund" and a series of John Hancock Capital Series)
101 Huntington Avenue
Boston, MA 02199
This proxy statement and prospectus contains the information shareholders should
know before voting on the proposed reorganizations. Please read it carefully and
retain it for future reference.
How Each Reorganization Will Work
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Acquired Fund Acquiring Fund Shareholders Entitled to Vote
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Proposal 1 Core Growth Fund Core Equity Fund Core Growth Fund shareholders
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Proposal 2 Core Value Fund Core Equity Fund Core Value Fund shareholders
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o Each Acquired Fund will transfer all of its assets to the Acquiring Fund.
The Acquiring Fund will assume the Acquired Fund's liabilities.
o The Acquiring Fund will issue Class A shares to each Acquired Fund in an
amount equal to the value of each Acquired Fund's net assets attributable
to its Class A shares. These shares will be distributed to each Acquired
Fund's Class A shareholders in proportion to their holdings on the
reorganization date.
o The Acquiring Fund will issue Class B shares to each Acquired Fund in an
amount equal to the value of each Acquired Fund's net assets attributable
to its Class B shares. These shares will be distributed to each Acquired
Fund's Class B shareholders in proportion to their holdings on the
reorganization date.
o The Acquiring Fund will issue Class C shares to each Acquired Fund in an
amount equal to the value of each Acquired Fund's net assets attributable
to its Class C shares. These shares will be distributed to each Acquired
Fund's Class C shareholders in proportion to their holdings on the
reorganization date.
o The Acquiring Fund will issue Class I shares to each Acquired Fund in an
amount equal to the value of each Acquired Fund's net assets attributable
to its Class I shares. These shares will be distributed to each Acquired
Fund's Class I shareholders in proportion to their holdings on the
reorganization date.
o Each Acquired Fund will be terminated and fund shareholders will become
shareholders of the Acquiring Fund.
o Each reorganization will be tax-free to shareholders.
Shares of the Acquiring Fund are not deposits or obligations of, or guaranteed
or endorsed by, any bank or other depository institution. These shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency.
Shares of the Acquiring Fund have not been approved or disapproved by the
Securities and Exchange Commission. The Securities and Exchange Commission has
not passed upon the accuracy or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
2
Why Each Acquired Fund's Trustees are Recommending the Reorganizations
The Acquired Funds' trustees believe that reorganizing each fund into a larger
fund with similar investment policies will enable the shareholders of the funds
to benefit from increased diversification, the ability to achieve better net
prices on securities trades and economies of scale that may contribute to a
lower expense ratio. Therefore, the trustees recommend that Acquired Fund
shareholders vote FOR the reorganization.
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Where to Get More Information
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Class A, B and C prospectus of Core Equity Fund (the In the same envelope as this proxy statement and prospectus.
"Acquiring Fund") dated March 1, 2002. Class I Incorporated by reference into this proxy statement and
prospectus of the Acquiring Fund dated March 1, 2002. prospectus.
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The Acquiring Fund's annual report to shareholders
dated December 31, 2001.
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Class A, B and C prospectus for the Aquired Funds On file with the Securities and Exchange Commission ("SEC") and
dated March 1, 2002. Class I prospectus for the available at no charge by calling 1-800-225-5291. Incorporated by
Acquired Funds dated July 2, 2001. The Acquired Funds' reference into this proxy statement and prospectus.
annual and semiannual reports to shareholders.
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A statement of additional information dated April 15,
2002. It contains additional information about the
Acquired Funds and the Acquiring Fund.
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To ask questions about this proxy statement and Call our toll-free telephone number: 1-800-225-5291
prospectus.
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The date of this proxy statement and prospectus is April 15, 2002.
TABLE OF CONTENTS
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Page
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INTRODUCTION...............................................................
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PROPOSAL 1 - CORE GROWTH FUND..............................................
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Summary...............................................................
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Investment risks......................................................
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Proposal To Approve The Agreement And Plan Of Reorganization..........
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PROPOSAL 2 - CORE VALUE FUND...............................................
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Summary...............................................................
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Investment risks......................................................
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Proposal To Approve The Agreement And Plan Of Reorganization..........
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FURTHER INFORMATION ON EACH REORGANIZATION.................................
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CAPITALIZATION.............................................................
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ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES.........................
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BOARDS' EVALUATION AND RECOMMENDATION......................................
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VOTING RIGHTS AND REQUIRED VOTE............................................
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INFORMATION CONCERNING THE MEETING.........................................
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OWNERSHIP OF SHARES OF THE FUNDS...........................................
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EXPERTS....................................................................
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AVAILABLE INFORMATION......................................................
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EXHIBIT A - FORM OF AGREEMENT AND PLAN OF REORGANIZATION
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3
INTRODUCTION
This proxy statement and prospectus is being used by the Acquired Funds' board
of trustees to solicit proxies to be voted at a special meeting of each Acquired
Fund's shareholders. This meeting will be held at 101 Huntington Avenue, Boston,
Massachusetts on Wednesday, May 29, 2002 at 9:00 a.m., Eastern Time. The purpose
of the meeting is to consider proposals to approve Agreements and Plans of
Reorganization providing for the reorganization of the Acquired Funds into the
Acquiring Fund. This proxy statement and prospectus is being mailed to your
fund's shareholders on or about April 15, 2002.
For each proposal, this proxy statement and prospectus includes information that
is specific to that proposal, including a summary of more complete information
appearing later in the proxy statement. In addition, the information beginning
on page ___ is relevant to all proposals. Please read the sections of the proxy
statement related specifically to your fund(s), as well as the information
relevant to all proposals, carefully, as well as Exhibit A and the enclosed
materials.
Who is Eligible to Vote?
Shareholders of record on March 15, 2002 are entitled to attend and vote at the
meeting or any adjourned meeting. Each share is entitled to one vote. Shares
represented by properly executed proxies, unless revoked before or at the
meeting, will be voted according to shareholders' instructions. If you sign a
proxy but do not fill in a vote, your shares will be voted to approve the
Agreement and Plan of Reorganization. If any other business comes before the
meeting, your shares will be voted at the discretion of the persons named as
proxies.
PROPOSAL 1
APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION BETWEEN CORE GROWTH FUND AND
CORE EQUITY FUND
A proposal to approve an Agreement and Plan of Reorganization between Core
Growth Fund and Core Equity Fund. Under this Agreement, Core Growth Fund would
transfer all of its assets to Core Equity Fund in exchange for shares of Core
Equity Fund. These shares would be distributed proportionately to the
shareholders of Core Growth Fund. Core Equity Fund would also assume Core Growth
Fund's liabilities. Core Growth Fund's Board of Trustees recommends that
shareholders vote FOR this proposal.
SUMMARY
Comparison of Core Growth Fund to Core Equity Fund
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Core Growth Fund Core Equity Fund
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Business A diversified series of John Hancock A diversified series of John Hancock Capital
Institutional Series Trust. The Trust is an Series, an open-end investment management
open-end investment management company organized company organized as a Massachusetts Business
as a Massachusetts Business Trust. Trust.
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Net assets as of $48.2 million $662.8 million
December 31, 2001
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Investment adviser, Investment Adviser: Investment Adviser:
subadviser and portfolio John Hancock Advisers, LLC John Hancock Advisers, LLC
managers
Subadviser: Subadviser:
Independence Investment LLC Independence Investment LLC
-A subsidiary of John Hancock Financial -A subsidiary of John Hancock Financial
Services, Inc. Services, Inc.
-Founded in 1982 -Founded in 1982
-Supervised by the adviser -Supervised by the adviser
Portfolio Managers: Portfolio Managers:
-Team responsible for day-to-day investment -Team responsible for day-to-day investment
management management
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4
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Investment objective The fund seeks capital appreciation. This The fund seeks above-average total return
objective can be changed without shareholder (capital appreciation plus income).
approval.
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Primary Investments The fund invests in a diversified portfolio of The fund normally invests at least 80% of its
primarily large-capitalization stocks and assets in a diversified portfolio of equity
emphasizes stocks of companies with relatively securities which are primarily large
high potential long-term earnings growth. The capitalization stocks. Equity securities
fund's risk profile is substantially similar to include common and preferred stocks and their
that of the Russell 1000 Growth Index. In normal equivalents. The portfolio's risk profile is
market conditions, the fund is almost entirely similar to that of the S&P 500 Index. Under
invested in stocks. normal circumstances, the fund is almost
entirely invested in stocks.
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Foreign Securities Each fund may invest in foreign securities that are U.S. dollar-denominated.
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Diversification The fund is diversified and, with respect to 75% The fund is diversified and cannot invest more
of total assets, cannot invest more than 5% of than 5% of total assets in securities of a
total assets in securities of a single issuer. single issuer.
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Derivatives Each fund may make limited use of certain derivatives (investments whose value is based on indexes
or securities).
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Temporary defensive In abnormal market conditions, the fund may In abnormal circumstances, the fund may
positions temporarily invest extensively in temporarily invest more than 20% of its assets
investment-grade short-term securities. In these in investment-grade short-term securities. In
and other cases, the fund might not achieve its these and other cases, the fund might not
goal. achieve its goal.
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CLASSES OF SHARES
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Core Growth Fund Core Equity Fund
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Class A sales charges The Class A shares of both funds have the same characteristics and fee
and 12b-1 fees: structure.
o Class A shares are offered with front-end sales charges ranging from
2% to 5% of the fund's offering price, depending on the amount
invested.
o Class A shares are subject to a 12b-1 distribution fee equal to
0.30% annually of average net assets.
o There is no front-end sales charge for investments of $1 million or
more, but there is a contingent deferred sales charge ranging from
0.25% to 1.00% on shares sold within one year of purchase.
o Investors can combine multiple purchases of Class A shares to take
advantage of breakpoints in the sales charge schedule.
o Sales charges are waived for the categories of investors listed in
the funds' prospectuses.
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5
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Class B sales charges The Class B shares of both funds have the same characteristics and fee
and 12b-1 fees: structure.
o Class B shares are offered without a front-end sales charge, but are
subject to a contingent deferred sales charge (CDSC) if sold within
six years after purchase. The CDSC ranges from 1.00% to 5.00%
depending on how long the shares are held. No CDSC is imposed on
shares held more than six years.
o Class B shares are subject to 12b-1 distribution and service fees
equal to 1.00% annually of average net assets.
o CDSCs are waived for the categories of investors listed in the
funds' prospectus.
o Class B shares automatically convert to Class A shares after eight
years.
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Class C sales charges The Class C shares of both funds have the same characteristics and fee
and 12b-1 fees: structure.
o Class C shares are offered with a front-end sales charge equal to
1.00% of the fund's offering price.
o Class C shares are subject to a contingent deferred sales charge of
1.00% on shares sold within one year of purchase.
o Class C shares are subject to 12b-1 distribution and service fees
equal to 1.00% annually of average net assets.
o No automatic conversion to Class A shares, so annual expenses
continue at the Class C level throughout the life of the investment.
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Class I sales charges The Class I shares of both funds have the same characteristics and fee
and 12b-1 fees structure.
o Class I shares of both funds have no sales charge and no 12b-1 fee.
o Class I shares are offered to certain types of investors, as listed
in each fund's prospectus for Class I shares.
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12b-1 fees: o These fees are paid out of a fund's assets on an on-going basis.
Over time these fees will increase the cost of investments and may
cost more than other types of sales charges.
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BUYING, SELLING AND EXCHANGING SHARES
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Both Core Growth Fund and Core Equity Fund
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Buying shares: Investors may buy shares at their public offering price through a
financial representative or the funds' transfer agent, John Hancock
Signature Services, Inc. After March 15, 2002, investors will not be
allowed to open new accounts in Core Growth Fund but can add to existing
accounts.
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Minimum initial Class A, Class B and Class C Shares: $1,000 for non-retirement accounts
investment: and $250 for retirement accounts and group investments.
Class I shares: $10,000. No minimum investment for retirement plans with
at least 350 eligible employees.
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Exchanging shares: Shareholders may exchange their shares at net asset value with no sales
charge for shares of the same class of any other John Hancock fund.
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Selling shares: Shareholders may sell their shares by submitting a proper written or
telephone request to John Hancock Signature Services, Inc.
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Net asset value: All purchases, exchanges and sales are made at a price based on the next
determined net asset value per share (NAV) of the fund. Both funds' NAVs
are determined at the close of regular trading on the New York Stock
Exchange, which is normally 4:00 p.m. Eastern time.
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The Funds' Expenses
Shareholders of both funds pay various expenses, either directly or indirectly.
The expense table appearing below shows the expenses for the twelve-month period
ended December 31, 2001, adjusted to reflect any changes. Core Equity Fund's
Class I shares have no operational history. As a result, Class I expenses were
projected based on expenses incurred by other classes of the Fund. Future
expenses for all classes may be greater or less. The examples contained in the
expense table show what you would pay if you invested $10,000 over the various
time periods indicated. Each example assumes that you reinvested all dividends
and that the average annual return was
6
5%. The examples are for comparison purposes only and are not a representation
of either fund's actual expenses or returns, either past or future.
Pro Forma Expenses
The board of trustees of another John Hancock fund, John Hancock Core Value
Fund, has recommended that Core Value Fund also reorganize into Core Equity
Fund. The reorganization of Core Growth Fund with Core Equity Fund, however,
does not depend upon whether the reorganization involving Core Value Fund
occurs. Your trustees expect the total expenses paid by Core Equity Fund to
increase slightly if both reorganizations do occur.
The following expense table shows the hypothetical ("pro forma") expenses of
Core Equity Fund assuming (1) that a reorganization with Core Growth Fund, but
not John Hancock Core Value Fund, occurred on December 31, 2000 or (2) that a
reorganization with both your fund and John Hancock Core Value Fund occurred on
December 31, 2000. The expenses shown in both tables are based on fees and
expenses incurred during the twelve months ended December 31, 2001. Core Equity
Fund's Class I shares have no operational history. As a result, Class I expenses
were projected based on expenses incurred by other classes of the Fund. Core
Equity Fund's actual expenses after the reorganization may be greater or less
than those shown. The pro forma examples contained in the expense table show
what you would pay on a $10,000 investment if the reorganization had occurred on
December 31, 2000. Each example assumes that you reinvested all dividends and
that the average annual return was 5%. The pro forma examples are for comparison
purposes only and are not a representation of Core Equity Fund's actual expenses
or returns, either past or future.
Core Equity Fund
(PRO FORMA
Core Equity Fund for the year
(PRO FORMA ended 12/31/01)
for the year (Assuming
ended 12/31/01) reorganization
(Assuming with
Core reorganization with Core Growth Fund
Growth Core Equity Core Growth Fund and Core Value
Fund Fund only) Fund)
Shareholder
transaction expenses Class A Class A Class A Class A
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Maximum sales charge (load) imposed on purchases 5.00% 5.00% 5.00% 5.00%
(as a % of purchase price)
Maximum sales charge imposed on reinvested none none none none
dividends
Maximum deferred sales charge (load) as a % of none none none none
purchase or sale price, whichever is less(1)
Redemption fee(2) none none none none
Exchange fee none none none none
Annual fund operating expenses
(as a % of average net assets) Class A Class A Class A Class A
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Management fee 0.80% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fee 0.30% 0.30% 0.30% 0.30%
Other expenses 1.02% 0.42% 0.45% 0.45%
Total fund operating expenses 2.12% 1.47% 1.50% 1.50%
Expense reduction(3) 0.21% none none none
Net fund operating expenses 1.91% 1.47% 1.50% 1.50%
7
Core Equity
Fund Core Equity Fund
(PRO FORMA (PRO FORMA
for the year for the year
ended 12/31/01) ended 12/31/01)
(Assuming (Assuming
reorganization reorganization with
Core with Core Growth Fund
Growth Core Equity Core Growth Fund and Core Value
Fund Fund only) Fund)
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Shareholder
transaction expenses Class B Class B Class B Class B
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Maximum sales charge (load) imposed on purchases none none none none
(as a % of purchase price)
Maximum sales charge imposed on reinvested none none none none
dividends
Maximum deferred sales charge (load) as a % of 5.00% 5.00% 5.00% 5.00%
purchase or sale price, whichever is less
Redemption fee(2) none none none none
Exchange fee none none none none
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Annual fund operating expenses
(as a % of average net assets) Class B Class B Class B Class B
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Management fee 0.80% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fee 1.00% 1.00% 1.00% 1.00%
Other expenses 1.02% 0.42% 0.45% 0.45%
Total fund operating expenses 2.82% 2.17% 2.20% 2.20%
Expense reduction(3) 0.21% none none none
Net fund operating expenses 2.61% 2.17% 2.20% 2.20%
Shareholder
transaction expenses Class C Class C Class C Class C
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Maximum sales charge (load) imposed on purchases 1.00% 1.00% 1.00% 1.00%
(as a % of purchase price)
Maximum sales charge imposed on reinvested none none none none
dividends
Maximum deferred sales charge (load) as a % of 1.00% 1.00% 1.00% 1.00%
purchase or sale price, whichever is less
Redemption fee(2) none none none none
Exchange fee none none none none
Annual fund operating expenses
(as a % of average net assets) Class C Class C Class C Class C
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Management fee 0.80% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fee 1.00% 1.00% 1.00% 1.00%
Other expenses 1.02% 0.42% 0.45% 0.45%
Total fund operating expenses 2.82% 2.17% 2.20% 2.20%
Expense reduction(3) 0.21% none none none
Net fund operating expenses 2.61% 2.17% 2.20% 2.20%
8
Core Equity
Fund Core Equity Fund
(PRO FORMA (PRO FORMA
for the year for the year
ended 12/31/01) ended 12/31/01)
(Assuming (Assuming
reorganization reorganization with
Core with Core Growth Fund
Growth Core Equity Core Growth Fund and Core Value
Fund Fund only) Fund)
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Shareholder
transaction expenses Class I Class I Class I Class I
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Maximum sales charge (load) imposed on purchases none none none none
(as a % of purchase price)
Maximum sales charge imposed on reinvested none none none none
dividends
Maximum deferred sales charge (load) as a % of none none none none
purchase or sale price, whichever is less
Redemption fee none none none none
Exchange fee none none none none
Annual fund operating expenses
(as a % of average net assets) Class I Class I Class I Class I
- -----------------------------------------------------------------------------------------------------------------------------------
Management fee 0.80% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fee none none none none
Other expenses 0.36% 0.11% 0.12% 0.12%
Total fund operating expenses 1.16% 0.86% 0.87% 0.87%
Expense reduction(3) 0.21% none none none
Net fund operating expenses 0.95% 0.86% 0.87% 0.87%
(1) Except for investments of $1 million or more.
(2 Does not include wire redemption fee (currently $4.00).
(3) The Adviser has agreed to limit Core Growth Fund's
operating expenses, excluding 12b-1 and transfer agent fees, to 0.90% of
the Fund's average daily net assets.
EXAMPLES
Core Equity Fund Core Equity Fund
(PRO FORMA) (PRO FORMA)
(Assuming (Assuming
Core reorganization with reorganization with
Class A Core Growth Equity Core Growth Fund Core Growth Fund and
Fund Fund only) Core Value Fund)
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Year 1 $ 695 $ 642 $ 645 $ 645
Year 3 $1,122 $ 942 $ 950 $ 950
Year 5 $1,573 $1,263 $1,278 $1,278
Year 10 $2,822 $2,170 $2,201 $2,201
9
Core Equity Fund
Core Equity Fund (PRO FORMA
(PRO FORMA for the year
for the year ended 12/31/01)
ended 12/31/01) (Assuming
(Assuming reorganization with
Core Growth Core Equity reorganization with Core Growth Fund and Core
Fund Fund Core Growth Fund only) Value Fund)
Class B - assuming
redemption at end of period
- -------------------------------------------------------------------------------------------------------------------------------
Year 1 $ 775 $ 720 $ 723 $ 723
Year 3 $1,165 $ 979 $ 988 $ 988
Year 5 $1,680 $1,364 $1,380 $1,380
Year 10 $2,974 $2,326 $2,357 $2,357
Class B - assuming no redemption
- -------------------------------------------------------------------------------------------------------------------------------
Year 1 $ 275 $ 220 $ 223 $ 223
Year 3 $ 865 $ 679 $ 688 $ 688
Year 5 $1,480 $1,164 $1,180 $1,180
Year 10 $2,974 $2,326 $2,357 $2,357
Class C - assuming
redemption at end of period
- -------------------------------------------------------------------------------------------------------------------------------
Year 1 $ 471 $ 417 $ 420 $ 420
Year 3 $ 956 $ 772 $ 781 $ 781
Year 5 $1,565 $1,253 $1,268 $1,268
Year 10 $3,209 $2,578 $2,609 $2,609
Class C - assuming no redemption
- -------------------------------------------------------------------------------------------------------------------------------
Year 1 $ 372 $ 318 $ 321 $ 321
Year 3 $ 956 $ 772 $ 781 $ 781
Year 5 $1,565 $1,253 $1,268 $1,268
Year 10 $3,209 $2,578 $2,609 $2,609
Class I
- -------------------------------------------------------------------------------------------------------------------------------
Year 1 $ 108 $ 88 $ 89 $ 89
Year 3 $ 359 $ 274 $ 278 $ 278
Year 5 $ 629 $ 477 $ 482 $ 482
Year 10 $1,400 $1,061 $1,073 $1,073
The Reorganization
o The reorganization is scheduled to occur at 5:00 p.m., Eastern Time, on
June 7, 2002, but may occur on any later date before December 31, 2002.
Core Growth Fund will transfer all of its assets to Core Equity Fund. Core
Equity Fund will assume Core Growth Fund's liabilities. The net asset
value of both funds will be computed as of 5:00 p.m., Eastern Time, on the
reorganization date.
o Core Equity Fund will issue to Core Growth Fund Class A shares in an
amount equal to the net assets attributable to Core Growth Fund's Class A
shares. These shares will immediately be distributed to Core Growth Fund's
Class A shareholders in proportion to their holdings on the reorganization
date. As a result, Class A shareholders of Core Growth Fund will end up as
Class A shareholders of Core Equity Fund.
o Core Equity Fund will issue to Core Growth Fund Class B shares in an
amount equal to the net assets
10
attributable to Core Growth Fund's Class B shares. These shares will
immediately be distributed to Core Growth Fund's Class B shareholders in
proportion to their holdings on the reorganization date. As a result,
Class B shareholders of Core Growth Fund will end up as Class B
shareholders of Core Equity Fund.
o Core Equity Fund will issue to Core Growth Fund Class C shares in an
amount equal to the net assets attributable to Core Growth Fund's Class C
shares. These shares will immediately be distributed to Core Growth Fund's
Class C shareholders in proportion to their holdings on the reorganization
date. As a result, Class C shareholders of Core Growth Fund will end up as
Class C shareholders of Core Equity Fund.
o Core Equity Fund will issue to Core Growth Fund Class I shares in an
amount equal to the net assets attributable to Core Growth Fund's Class I
shares. These shares will immediately be distributed to Core Growth Fund's
Class I shareholders in proportion to their holdings on the reorganization
date. As a result, Class I shareholders of Core Growth Fund will end up as
Class I shareholders of Core Equity Fund.
o After the shares are issued, Core Growth Fund will be terminated.
o The reorganization will be tax-free and will not take place unless both
funds receive a satisfactory opinion concerning the tax consequences of
the reorganization from Hale and Dorr LLP, counsel to the funds.
The following diagram shows how the reorganization would be carried out.
- --------------------------- ----------------------------
Core Growth Fund Core Growth Fund Core Equity Fund
transfers assets & assets and receives assets & assumes
liabilities to Core Equity liabilities liabilities of Core Growth
Fund Fund
- --------------------------- ----------------------------
- ------------ ------------ ------------ ------------
Class A & B Class C & I Issues Class Issues Class
shareholders shareholders C & I A & B
Shares Shares
- ------------ ------------ ------------ ------------
Core Growth Fund receives Core Equity Fund Class A, B, C
& I shares and distributes them to Core Growth Fund's
Class A, B, C & I shareholders
Other Consequences of the Reorganization. Each fund pays monthly advisory fees
equal to the following annual percentage of its average daily net assets:
- ---------------------------------------------------
Fund Asset Breakpoints Core Growth Fund
- ---------------------------------------------------
First $500 Million 0.800%
- ---------------------------------------------------
Amount over $500 Million 0.750%
- ---------------------------------------------------
- ---------------------------------------------------
Fund Asset Breakpoints Core Equity Fund
- ---------------------------------------------------
First $750 Million 0.750%
- ---------------------------------------------------
Amount over $750 Million 0.700%
- ---------------------------------------------------
Independence Investment, LLC ("Independence"), a wholly-owned subsidiary of John
Hancock Financial Services, Inc., serves as subadviser to both the Acquired Fund
and the Acquiring Fund. In this capacity, Independence has
11
primary responsibility for making investment decisions for each Fund's
investment portfolio and placing orders with brokers and dealers to implement
those decisions. Independence receives its compensation from the Adviser, and
the Funds pay no subadvisory fees over and above the management fee they pay to
the Adviser. Independence receives subadvisory fees from the Adviser at the same
rate for the Acquired Fund and the Acquiring Fund: 55% of the advisory fee
received by the Adviser. With respect to Core Growth Fund, Independence waived
its subadvisory fee during the twelve month period ended December 31, 2001.
Effective June 7, 2002, for Core Equity Fund, the subadvisory fee paid by the
Adviser to Independence will be reduced to 51% of the advisory fee received
by the Adviser.
Core Equity Fund's management fee rate of 0.75% and its pro forma management fee
rate of 0.75% are lower than Core Growth Fund's management fee rate of 0.80%.
Core Equity Fund's other expenses of 0.42% and its pro forma other expenses of
0.45% are also substantially lower than Core Growth Fund's other expenses of
1.02%. Both funds have the same 12b-1 fees for Class A shares (0.30%) and Class
B and Class C shares (1.00%). Core Equity Fund's current annual Class A expense
ratio (equal to 1.47% of average net assets) and its pro forma Class A expense
ratio (equal to 1.50% of average net assets) are substantially lower than Core
Growth Fund's current Class A expense ratio (equal to 1.91% of average net
assets). Core Equity Fund's current annual Class B and Class C expense ratio
(equal to 2.17% of average net assets) and its pro forma Class B and Class C
expense ratio (equal to 2.20% of average net assets) are also substantially
lower than Core Growth Fund's current Class B and Class C expense ratio (equal
to 2.61% of average net assets). Core Equity Fund's pro forma expense ratio for
Class I of 0.87% is also lower than Core Growth Fund's current annual Class I
expense ratio of 0.95%. Core Growth Fund's expense ratios referenced above are
after the expense reduction and are substantially higher without the expense
reduction, which may not be extended beyond June 30, 2002.
INVESTMENT RISKS
The funds are exposed to various risks that could cause shareholders to lose
money on their investments in the funds. The following table compares the risks
affecting each fund.
- --------------------------------------------------------------------------------------------------------------------------------
Core Growth Fund Core Equity Fund
- --------------------------------------------------------------------------------------------------------------------------------
Stock market risk The value of securities in the fund may go down in response to overall stock
market movements. Markets tend to move in cycles, with periods of rising prices
and periods of falling prices. Stocks tend to go up and down in value more than
bonds. If the fund concentrates in certain sectors, its performance could be
worse than that of the overall stock market.
- --------------------------------------------------------------------------------------------------------------------------------
Manager risk The manager and its strategy may fail to produce the intended results. The fund
could underperform its peers or lose money if the manager's investment strategy
does not perform as expected.
- --------------------------------------------------------------------------------------------------------------------------------
Investment The large capitalization growth stocks in which The large capitalization stocks in which the
category risk the fund primarily invests could fall out of fund primarily invests could fall out of favor
favor with the market, causing the fund to with the market, causing the fund to
underperform funds that focus on small or medium underperform funds that focus on small or
capitalization stocks or on value stocks. medium capitalization stocks.
- --------------------------------------------------------------------------------------------------------------------------------
Small and medium The fund's investments in small or medium capitalization companies may be
capitalization subject to larger and more erratic price movements than investments in large
company risk capitalization companies.
- --------------------------------------------------------------------------------------------------------------------------------
Foreign securities Foreign investments involve additional risks, including potentially inadequate
risk or inaccurate financial information and social or political instability.
- --------------------------------------------------------------------------------------------------------------------------------
Derivatives risk Certain derivative instruments can produce disproportionate gains or losses and
are riskier than direct investments. Also, in a down market derivatives could
become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------------------------------------------------------
Turnover risk In general, the greater the volume of buying and selling by a fund (and the
higher its "turnover rate"), the greater the impact that transaction costs will
have on the fund's performance. The fund's turnover rate may exceed 100%, which
is considered relatively high.
- --------------------------------------------------------------------------------------------------------------------------------
12
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
Description of Reorganization
You are being asked to approve an Agreement and Plan of Reorganization, a form
of which is attached as Exhibit A. The Agreement provides for a reorganization
on the following terms:
o The reorganization is scheduled to occur at 5:00 p.m., Eastern time, on
June 7, 2002, but may occur on any later date before December 31, 2002.
Core Growth Fund will transfer all of its assets to Core Equity Fund and
Core Equity Fund will assume all of Core Growth Fund's liabilities. This
will result in the addition of Core Growth Fund's assets to Core Equity
Fund's portfolio. The net asset value of both funds will be computed as of
5:00 p.m., Eastern time, on the reorganization date.
o Core Equity Fund will issue to Core Growth Fund Class A shares in an
amount equal to the net assets attributable to Core Growth Fund's Class A
shares. As part of the liquidation of Core Growth Fund, these shares will
immediately be distributed to Class A shareholders of record of Core
Growth Fund in proportion to their holdings on the reorganization date. As
a result, Class A shareholders of Core Growth Fund will end up as Class A
shareholders of Core Equity Fund.
o Core Equity Fund will issue to Core Growth Fund Class B shares in an
amount equal to the net assets attributable to Core Growth Fund's Class B
shares. As part of the liquidation of Core Growth Fund, these shares will
immediately be distributed to Class B shareholders of record of Core
Growth Fund in proportion to their holdings on the reorganization date. As
a result, Class B shareholders of Core Growth Fund will end up as Class B
shareholders of Core Equity Fund.
o Core Equity Fund will issue to Core Growth Fund Class C shares in an
amount equal to the net assets attributable to Core Growth Fund's Class C
shares. As part of the liquidation of Core Growth Fund, these shares will
immediately be distributed to Class C shareholders of record of Core
Growth Fund in proportion to their holdings on the reorganization date. As
a result, Class C shareholders of Core Growth Fund will end up as Class C
shareholders of Core Equity Fund.
o Core Equity Fund will issue to Core Growth Class I shares in an amount
equal to the net assets attributable to Core Growth's Class I shares.
These shares will immediately be distributed to Core Growth's Class I
shareholders in proportion to their holdings on the reorganization date.
As a result, Class I shareholders of Core Growth will end up as Class I
shareholders of Core Equity Fund.
o After the shares are issued, the existence of Core Growth Fund will be
terminated.
Reasons for the Proposed Reorganization
The board of trustees of Core Growth Fund believes that the proposed
reorganization will be advantageous to the shareholders of Core Growth Fund for
several reasons. The board of trustees considered the following matters, among
others, in approving the proposal.
First, that shareholders may be better served by a fund offering greater
diversification. Core Equity Fund has a larger asset size than your fund and
invests in similar types of securities. Combining the funds' assets into a
single investment portfolio will afford greater diversification.
Second, Core Equity Fund's expenses are lower than Core Growth Fund's total
expenses. As a result of the reorganization, shareholders of Core Growth Fund
will experience a reduction in the total amount of fees, as a percentage of
average net assets, that they indirectly pay.
Third, that Core Equity Fund's Class A, B and C shares have performed better
than Core Growth Fund's Class A, B and C shares over the one year period and
since the inception of Core Growth Fund's Class A, B and C shares on
13
July 1, 1999. (Core Equity Fund's Class I shares have no operational history.)
While past performance cannot predict future result, the trustees believe that
Core Equity Fund is better positioned than Core Growth Fund to continue to
generate strong returns.
Fourth, that a combined fund offers economies of scale that may lead to lower
per share expenses. Both funds incur substantial costs for accounting, legal,
transfer agency services, insurance, and custodial and administrative services.
Many of these expenses are duplicative and there may be an opportunity to reduce
Core Equity Fund's expense ratio over time because of economies of scale if the
funds are combined.
The board of trustees of Core Equity Fund considered that the reorganization
presents an excellent opportunity for Core Equity Fund to acquire substantial
investment assets without the obligation to pay commissions or other transaction
costs that a fund normally incurs when purchasing securities. This opportunity
provides an economic benefit to Core Equity Fund and its shareholders.
The boards of both funds also considered that the adviser and the funds'
distributor will benefit from the reorganization. For example, the adviser might
realize time savings from a consolidated portfolio management effort and from
the need to prepare fewer reports and regulatory filings as well as prospectus
disclosure for one fund instead of two. The boards believe, however, that these
savings will not amount to a significant economic benefit to the adviser or
distributor.
Comparative Fees and Expense Ratios. As discussed above, the advisory fee rates
paid by Core Growth Fund are lower than the rates paid by Core Equity Fund.
Core Equity Fund's management fee rate of 0.75% and pro forma management fee
rate of 0.75% are lower than Core Growth Fund's management fee rate of 0.80%.
Core Equity Fund's other expenses of 0.42% and its pro forma other expenses of
0.45% are also substantially lower than Core Growth Fund's other expenses of
1.02%. Both funds have the same 12b-1 fees for Class A (0.30%) and Class B and
Class C shares (1.00%). Core Equity Fund's current annual Class A expense ratio
(1.47% of average net assets) and pro forma Class A expense ratio (1.50% of
average net assets) are both substantially lower than Core Growth Fund's current
Class A expense ratio (1.91% of average net assets). Core Equity Fund's current
annual Class B and Class C expense ratio (2.17% of average net assets) and pro
forma Class B and Class C expense ratio (2.20% of average net assets) are both
also substantially lower than Core Growth Fund's current Class B and Class C
expense ratio (2.61% of average net assets). Core Equity Fund's pro forma Class
I expense ratio (0.87% of average net assets) is also lower than Core Growth
Fund's current annual Class I expense ratio (0.95% of average net assets). Core
Growth Fund's expense ratios referenced above are after the expense reduction
and are substantially higher without the expense reduction, which may not be
extended beyond June 30, 2002.
Comparative Performance. The trustees also took into consideration the relative
performance of your fund and Core Equity Fund.
Unreimbursed Distribution and Shareholder Service Expenses
The boards of trustees of Core Growth Fund and Core Equity Fund have determined
that, if the reorganization occurs, unreimbursed distribution and shareholder
service expenses incurred under Core Growth Fund's Rule 12b-1 Plans will be
reimbursable expenses under Core Equity Fund's Rule 12b-1 Plans. However, the
maximum amounts payable annually under Core Equity Fund's Rule 12b-1 Plans
(0.30%, 1.00%, 1.00% and 0.00% of average daily net assets attributable to Class
A shares, Class B shares, Class C shares and Class I shares, respectively) will
not increase.
The following table shows the actual and pro forma unreimbursed distribution and
shareholder service expenses of shares of Core Growth Fund and Core Equity Fund.
The table shows both the dollar amount of these expenses and the percentage of
each class' average net assets that they represent. Class I shares of Core
Growth Fund and Class I shares of Core Equity Fund are not included in the table
because these classes do not have Rule 12b-1 Plans.
14
Rule 12b-1 Payments and Unreimbursed Expenses
Aggregate
Dollar Amount
of 12b-1 Fees Unreimbursed Unreimbursed
Name of Fund Paid (for year Rule 12b-1 Expenses as %
ended Expenditures of Each Class's
December 31, (as of December Average Net
2001) 31, 2001) Assets
Core Growth $ 94,264(A) $2,126,015(A) 7.46%(A)
$ 221,526(B) $ 830,075(B) 3.92%(B)
$ 18,980(C) $ 46,950(C) 2.45%(C)
Core Equity $ 905,642(A) $ 562,627(A) 0.19%(A)
$4,253,417(B) $ 120,190(B) 0.03%(B)
$ 304,622(C) $ 79,545(C) 0.26%(C)
Pro Forma:
Core Equity
Assuming $ 999,906(A) $2,688,642(A) 0.82%(A)
reorganization with $4,474,943(B) $ 950,265(B) 0.21%(B)
Core Growth Fund only $ 323,602(C) $ 125,795(C) 0.39%(C)
Assuming $1,035,205(A) $2,760,322(A) 0.81%(A)
reorganization with $4,637,287(B) $1,001,678(B) 0.22%(B)
Core Growth Fund and $ 348,753(C) $ 140,745(C) 0.40%(C)
Core Value Fund
If the reorganization had taken place on December 31, 2000, the pro forma
combined unreimbursed expenses of Core Equity Fund's Class A, Class B and Class
C shares would have been higher than if no reorganization had occurred.
Nevertheless, Core Equity Fund's assumption of Core Growth Fund's unreimbursed
Rule 12b-1 expenses will have no immediate effect upon the payments made under
Core Equity Fund's Rule 12b-1 Plans. These payments will continue to be 0.30%,
100%, 1.00% and 0.00% of average daily net assets attributable to Class A, Class
B, Class C and Class I shares, respectively.
John Hancock Funds, Inc. may recover unreimbursed distribution and shareholder
service expenses for Class B and Class C shares in future years. However, if
Core Equity Fund's board terminates either class's Rule 12b-1 Plan, that class
will not be obligated to reimburse these distribution and shareholder service
expenses. Accordingly, until they are paid or accrued, unreimbursed distribution
and shareholder service expenses do not and will not appear as an expense or
liability in the financial statements of either fund. In addition, unreimbursed
expenses are not reflected in a fund's net asset value or the formula for
calculating Rule 12b-1 payments. The staff of the SEC has not approved or
disapproved the treatment of the unreimbursed distribution and shareholder
service expenses described in this proxy statement.
15
PROPOSAL 2
APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION BETWEEN CORE VALUE FUND
AND CORE EQUITY FUND
A proposal to approve an Agreement and Plan of Reorganization between Core Value
Fund and Core Equity Fund. Under this Agreement, Core Value Fund would transfer
all of its assets to Core Equity Fund in exchange for shares of Core Equity
Fund. These shares would be distributed proportionately to the shareholders of
Core Value Fund. Core Equity Fund would also assume Core Value Fund's
liabilities. Core Value Fund's Board of Trustees recommends that shareholders
vote FOR this proposal.
SUMMARY
Comparison of Core Value Fund to Core Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Core Value Fund Core Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Business A diversified series of John Hancock A diversified series of John Hancock Capital
Institutional Series Trust. The Trust is an Series, an open-end investment management
open-end investment management company organized company organized as a Massachusetts Business
as a Massachusetts Business Trust. Trust.
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets as of $34.8 million $662.8 million
December 31, 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Investment adviser, Investment Adviser: Investment Adviser:
subadviser and portfolio John Hancock Advisers, LLC John Hancock Advisers, LLC
managers
Subadviser: Subadviser:
Independence Investment LLC Independence Investment LLC
-A subsidiary of John Hancock Financial -A subsidiary of John Hancock Financial
Services, Inc. Services, Inc.
-Founded in 1982 -Founded in 1982
-Supervised by the adviser -Supervised by the adviser
Portfolio Managers: Portfolio Managers:
-Team responsible for day-to-day investment -Team responsible for day-to-day investment
management management
- ---------------------------------------------------------------------------------------------------------------------------------
Investment objective The fund seeks above-average total return (capital The fund seeks above-average total return
appreciation plus income). This objective can be (capital appreciation plus income).
changed without shareholder approval.
- ---------------------------------------------------------------------------------------------------------------------------------
Primary Investments The fund invests in a diversified portfolio of The fund normally invests at least 80% of its
primarily large-capitalization stocks and assets in a diversified portfolio of equity
emphasizes relatively undervalued stocks and high securities which are primarily large
dividend yields. The fund's risk profile is capitalization stocks. Equity securities
substantially similar to that of the Russell 1000 include common and preferred stocks and their
Value Index. In normal market conditions, the equivalents. The portfolio's risk profile is
fund is almost entirely invested in stocks. similar to that of the S&P 500 Index. Under
normal circumstances, the fund is almost
entirely invested in stocks.
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign Securities Each fund may invest in foreign securities that are U.S. dollar-denominated.
- ---------------------------------------------------------------------------------------------------------------------------------
Diversification The fund is diversified and, with respect to 75% The fund is diversified and cannot invest more
of total assets, cannot invest more than 5% of than 5% of total assets in securities of a
total assets in securities of a single issuer. single issuer.
- ---------------------------------------------------------------------------------------------------------------------------------
16
- ---------------------------------------------------------------------------------------------------------------------------------
Derivatives Each fund may make limited use of certain derivatives (investments whose value is based on indexes
or securities).
- ---------------------------------------------------------------------------------------------------------------------------------
Temporary defensive In abnormal market conditions, the fund may In abnormal circumstances, the fund may
positions temporarily invest extensively in temporarily invest more than 20% of its assets
investment-grade short-term securities. In these in investment-grade short-term securities. In
and other cases, the fund might not achieve its these and other cases, the fund might not
goal. achieve its goal.
- ---------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
CLASSES OF SHARES
- --------------------------------------------------------------------------------------------------------------------
Core Value Fund Core Equity Fund
- --------------------------------------------------------------------------------------------------------------------
Class A sales charges The Class A shares of both funds have the same characteristics and fee structure.
and 12b-1 fees:
o Class A shares are offered with front-end sales charges ranging from 2% to
5% of the fund's offering price, depending on the amount invested.
o Class A shares are subject to a 12b-1 distribution fee equal to 0.30%
annually of average net assets.
o There is no front-end sales charge for investments of $1 million or more,
but there is a contingent deferred sales charge ranging from 0.25% to
1.00% on shares sold within one year of purchase.
o Investors can combine multiple purchases of Class A shares to take
advantage of breakpoints in the sales charge schedule.
o Sales charges are waived for the categories of investors listed in the
funds' prospectuses.
- --------------------------------------------------------------------------------------------------------------------
Class B sales charges The Class B shares of both funds have the same characteristics and fee structure.
and 12b-1 fees:
o Class B shares are offered without a front-end sales charge, but are
subject to a contingent deferred sales charge (CDSC) if sold within six
years after purchase. The CDSC ranges from 1.00% to 5.00% depending on how
long the shares are held. No CDSC is imposed on shares held more than six
years.
o Class B shares are subject to 12b-1 distribution and service fees equal to
1.00% annually of average net assets.
o CDSCs are waived for the categories of investors listed in the funds'
prospectus.
o Class B shares automatically convert to Class A shares after eight years.
- --------------------------------------------------------------------------------------------------------------------
Class C sales charges The Class C shares of both funds have the same characteristics and fee structure.
and 12b-1 fees:
o Class C shares are offered with a front-end sales charge equal to 1.00% of
the fund's offering price.
o Class C shares are subject to a contingent deferred sales charge of 1.00%
on shares sold within one year of purchase.
o Class C shares are subject to 12b-1 distribution and service fees equal to
1.00% annually of average net assets.
o No automatic conversion to Class A shares, so annual expenses continue at
the Class C level throughout the life of the investment.
- --------------------------------------------------------------------------------------------------------------------
Class I sales charges The Class I shares of both funds have the same characteristics and fee
and 12b-1 fees structure.
o Class I shares of both funds have no sales charge and no 12b-1 fee.
o Class I shares are offered to certain types of investors, as listed in
each fund's prospectus for Class I shares.
- --------------------------------------------------------------------------------------------------------------------
12b-1 fees: o These fees are paid out of a fund's assets on an on-going basis. Over time
these fees will increase the cost of investments and may cost more than
other types of sales charges.
- --------------------------------------------------------------------------------------------------------------------
17
- ---------------------------------------------------------------------------------------------------------
BUYING, SELLING AND EXCHANGING SHARES
- ---------------------------------------------------------------------------------------------------------
Both Core Value Fund and Core Equity Fund
- ---------------------------------------------------------------------------------------------------------
Buying shares: Investors may buy shares at their public offering price through a financial
representative or the funds' transfer agent, John Hancock Signature Services,
Inc. After March 15, 2002, investors will not be allowed to open new accounts in
Core Value Fund but can add to existing accounts.
- ---------------------------------------------------------------------------------------------------------
Minimum initial Class A, Class B and Class C Shares: $1,000 for non-retirement accounts and $250
investment: for retirement accounts and group investments.
Class I shares: $10,000. No minimum investment for retirement plans with at
least 350 eligible employees.
- ---------------------------------------------------------------------------------------------------------
Exchanging shares: Shareholders may exchange their shares at net asset value with no sales charge
for shares of the same class of any other John Hancock fund.
- ---------------------------------------------------------------------------------------------------------
Selling shares: Shareholders may sell their shares by submitting a proper written or telephone
request to John Hancock Signature Services, Inc.
- ---------------------------------------------------------------------------------------------------------
Net asset value: All purchases, exchanges and sales are made at a price based on the next
determined net asset value per share (NAV) of the fund. Both funds' NAVs are
determined at the close of regular trading on the New York Stock Exchange, which
is normally 4:00 p.m. Eastern time.
- ---------------------------------------------------------------------------------------------------------
The Funds' Expenses
Shareholders of both funds pay various expenses, either directly or indirectly.
The expense table appearing below shows the expenses for the twelve-month period
ended December 31, 2001, adjusted to reflect any changes. Core Equity Fund's
Class I shares have no operational history. As a result, Class I expenses were
projected based on expenses incurred by other classes of the Fund. Future
expenses for all share classes may be greater or less. The examples contained in
the expense table show what you would pay if you invested $10,000 over the
various time periods indicated. Each example assumes that you reinvested all
dividends and that the average annual return was 5%. The examples are for
comparison purposes only and are not a representation of either fund's actual
expenses or returns, either past or future.
Pro Forma Expenses
The board of trustees of another John Hancock fund, John Hancock Core Growth
Fund, has recommended that Core Growth Fund also reorganize into Core Equity
Fund. The reorganization of Core Value Fund with Core Equity Fund, however, does
not depend upon whether the reorganization involving Core Growth Fund occurs.
Your trustees expect the total expenses paid by Core Equity Fund to increase
slightly if both reorganizations do occur.
The following expense table shows the hypothetical ("pro forma") expenses of
Core Equity Fund assuming (1) that a reorganization with Core Value Fund, but
not John Hancock Core Growth Fund, occurred on December 31, 2000 or (2) that a
reorganization with both Core Value Fund and John Hancock Core Growth Fund
occurred on December 31, 2000. The expenses shown in both tables are based on
fees and expenses incurred during the twelve months ended December 31, 2001.
Core Equity Fund's Class I shares have no operational history. As a result,
Class I expenses were projected based on expenses incurred by other classes of
the Fund. Core Equity Fund's actual expenses after the reorganization may be
greater or less than those shown. The pro forma examples contained in the
expense table show what you would pay on a $10,000 investment if the
reorganization had occurred on December 31, 2000. Each example assumes that you
reinvested all dividends and that the average annual return was 5%. The pro
forma examples are for comparison purposes only and are not a representation of
Core Equity Fund's actual expenses or returns, either past or future.
18
Core Equity Fund Core Equity Fund
(PRO FORMA (PRO FORMA
for the year for the year
ended 12/31/01) ended 12/31/01)
(Assuming (Assuming
reorganization with reorganization with
Core Value Core Equity Core Value Fund Core Value Fund and
Fund Fund only) Core Growth Fund)
Shareholder
transaction expenses Class A Class A Class A Class A
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases 5.00% 5.00% 5.00% 5.00%
(as a % of purchase price)
Maximum sales charge imposed on reinvested dividends none none none none
Maximum deferred sales charge (load) as a % of none none none none
purchase or sale price, whichever is less(1)
Redemption fee(2) none none none none
Exchange fee none none none none
Annual fund operating expenses
(as a % of average net assets) Class A Class A Class A Class A
- -----------------------------------------------------------------------------------------------------------------------------------
Management fee 0.80% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fee 0.30% 0.30% 0.30% 0.30%
Other expenses 0.74% 0.42% 0.43% 0.45%
Total fund operating expenses 1.84% 1.47% 1.48% 1.50%
Expense reduction(3) 0.32% none none none
Net fund operating expenses 1.52% 1.47% 1.48% 1.50%
Shareholder
transaction expenses Class B Class B Class B Class B
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases none none none none
(as a % of purchase price)
Maximum sales charge imposed on reinvested none none none none
dividends
Maximum deferred sales charge (load) as a % of 5.00% 5.00% 5.00% 5.00%
purchase or sale price, whichever is less
Redemption fee(2) none none none none
Exchange fee none none none none
Annual fund operating expenses
(as a % of average net assets) Class B Class B Class B Class B
- -----------------------------------------------------------------------------------------------------------------------------------
Management fee 0.80% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fee 1.00% 1.00% 1.00% 1.00%
Other expenses 0.74% 0.42% 0.43% 0.45%
Total fund operating expenses 2.54% 2.17% 2.18% 2.20%
Expense reduction(3) 0.32% none none none
Net fund operating expenses 2.22% 2.17% 2.18% 2.20%
19
Core Equity Fund Core Equity Fund
(PRO FORMA (PRO FORMA
for the year for the year
ended 12/31/01) ended 12/31/01)
(Assuming (Assuming
reorganization with reorganization with
Core Value Core Equity Core Value Fund Core Value Fund and
Fund Fund only) Core Growth Fund)
Shareholder
transaction expenses Class C Class C Class C Class C
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases 1.00% 1.00% 1.00% 1.00%
(as a % of purchase price)
Maximum sales charge imposed on reinvested none none none none
dividends
Maximum deferred sales charge (load) as a % of 1.00% 1.00% 1.00% 1.00%
purchase or sale price, whichever is less
Redemption fee(2) none none none none
Exchange fee none none none none
Annual fund operating expenses
(as a % of average net assets) Class C Class C Class C Class C
- -----------------------------------------------------------------------------------------------------------------------------------
Management fee 0.80% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fee 1.00% 1.00% 1.00% 1.00%
Other expenses 0.74% 0.42% 0.43% 0.45%
Total fund operating expenses 2.54% 2.17% 2.18% 2.20%
Expense reduction(3) 0.32% none none none
Net fund operating expenses 2.22% 2.17% 2.18% 2.20%
Shareholder
transaction expenses Class I Class I Class I Class I
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases none none none none
(as a % of purchase price)
Maximum sales charge imposed on reinvested none none none none
dividends
Maximum deferred sales charge (load) as a % of none none none none
purchase or sale price, whichever is less
Redemption fee none none none none
Exchange fee none none none none
Annual fund operating expenses
(as a % of average net assets) Class I Class I Class I Class I
- -----------------------------------------------------------------------------------------------------------------------------------
Management fee 0.80% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fee none none none none
Other expenses 0.47% 0.11% 0.12% 0.12%
Total fund operating expenses 1.27% 0.86% 0.87% 0.87%
Expense reduction(3) 0.32% none none none
Net fund operating expenses 0.95% 0.86% 0.87% 0.87%
(1) Except for investments of $1 million or more.
(2 Does not include wire redemption fee (currently $4.00).
(3) The Adviser has agreed to limit Core Value Fund's operating expenses,
excluding 12b-1 and transfer agent fees, to 0.90% of the Fund's average daily
net assets.
20
EXAMPLES
Core Equity Fund Core Equity Fund
(PRO FORMA) (PRO FORMA)
(Assuming (Assuming reorganization
Core Value Core Equity reorganization with with Core Value Fund and
Fund Fund Core Value Fund Core Growth Fund)
Class A only)
- ---------------------------------------------------------------------------------------------------------------------------
Year 1 $ 662 $ 642 $ 643 $ 645
Year 3 $1,035 $ 942 $ 945 $ 950
Year 5 $1,432 $1,263 $1,268 $1,278
Year 10 $2,538 $2,170 $2,180 $2,201
Class B - assuming
redemption at end of period
- ---------------------------------------------------------------------------------------------------------------------------
Year 1 $ 741 $ 720 $ 721 $ 723
Year 3 $1,075 $ 979 $ 982 $ 988
Year 5 $1,536 $1,364 $1,390 $1,380
Year 10 $2,692 $2,326 $2,336 $2,357
Class B - assuming no redemption
- ---------------------------------------------------------------------------------------------------------------------------
Year 1 $ 241 $ 220 $ 221 $ 223
Year 3 $ 775 $ 679 $ 682 $ 688
Year 5 $1,336 $1,164 $1,390 $1,180
Year 10 $2,692 $2,326 $2,336 $2,357
Class C - assuming
redemption at end of period
- ---------------------------------------------------------------------------------------------------------------------------
Year 1 $ 437 $ 417 $ 418 $ 420
Year 3 $ 868 $ 772 $ 775 $ 781
Year 5 $1,423 $1,253 $1,258 $1,268
Year 10 $2,935 $2,578 $2,588 $2,609
Class C - assuming no redemption
- ---------------------------------------------------------------------------------------------------------------------------
Year 1 $ 339 $ 318 $ 319 $ 420
Year 3 $ 868 $ 772 $ 775 $ 781
Year 5 $1,423 $1,253 $1,258 $1,268
Year 10 $2,935 $2,578 $2,588 $2,609
Class I
- ---------------------------------------------------------------------------------------------------------------------------
Year 1 $ 113 $ 88 $ 89 $ 89
Year 3 $ 387 $ 274 $ 278 $ 278
Year 5 $ 682 $ 477 $ 482 $ 482
Year 10 $1,520 $1,061 $1,073 $1,073
The Reorganization
o The reorganization is scheduled to occur at 5:00 p.m., Eastern Time, on
June 7, 2002, but may occur on any later date before December 31, 2002.
Core Value Fund will transfer all of its assets to Core Equity Fund. Core
Equity Fund will assume Core Value Fund's liabilities. The net asset value
of both funds will be computed as of 5:00 p.m., Eastern Time, on the
reorganization date.
o Core Equity Fund will issue to Core Value Fund Class A shares in an amount
equal to the net assets attributable to Core Value Fund's Class A shares.
These shares will immediately be distributed to Core Value Fund's Class A
shareholders in proportion to their holdings on the reorganization date.
As a result,
21
Class A shareholders of Core Value Fund will end up as Class A
shareholders of Core Equity Fund.
o Core Equity Fund will issue to Core Value Fund Class B shares in an amount
equal to the net assets attributable to Core Value Fund's Class B shares.
These shares will immediately be distributed to Core Value Fund's Class B
shareholders in proportion to their holdings on the reorganization date.
As a result, Class B shareholders of Core Value Fund will end up as Class
B shareholders of Core Equity Fund.
o Core Equity Fund will issue to Core Value Fund Class C shares in an amount
equal to the net assets attributable to Core Value Fund's Class C shares.
These shares will immediately be distributed to Core Value Fund's Class C
shareholders in proportion to their holdings on the reorganization date.
As a result, Class C shareholders of Core Value Fund will end up as Class
C shareholders of Core Equity Fund.
o Core Equity Fund will issue to Core Value Fund Class I shares in an amount
equal to the net assets attributable to Core Value Fund's Class I shares.
These shares will immediately be distributed to Core Value Fund's Class I
shareholders in proportion to their holdings on the reorganization date.
As a result, Class I shareholders of Core Value Fund will end up as Class
I shareholders of Core Equity Fund.
o After the shares are issued, Core Value Fund will be terminated.
o The reorganization will be tax-free and will not take place unless both
funds receive a satisfactory opinion concerning the tax consequences of
the reorganization from Hale and Dorr LLP, counsel to the funds.
The following diagram shows how the reorganization would be carried out.
- ------------------------- ---------------------------
Core Value Fund Transfers Core Value Fund Core Equity Fund
assets & liabilities assets and receives assets & assumes
Core Equity Fund liabilities liabilities of Core Value
Fund
- ------------------------- ---------------------------
- ------------ ------------- ------------ ------------
Class A & B Class C& I Issues Class Issues Class
shareholders shareholders C & I A & B
Shares Shares
- ------------ ------------- ------------ ------------
Core Value Fund receives Core Equity Fund Class A, B,
C & I shares and distributes
them to Core Value Fund's Class A, B, C & I
shareholders
22
Other Consequences of the Reorganization. Each fund pays monthly advisory fees
equal to the following annual percentage of its average daily net assets:
- -----------------------------------------------------
Fund Asset Breakpoints Core Value Fund
- -----------------------------------------------------
First $500 Million 0.800%
- -----------------------------------------------------
Amount over $500 Million 0.750%
- -----------------------------------------------------
- -----------------------------------------------------
Fund Asset Breakpoints Core Equity Fund
- -----------------------------------------------------
First $750 Million 0.750%
- -----------------------------------------------------
Amount over $750 Million 0.700%
- -----------------------------------------------------
Independence Investment, LLC ("Independence"), a wholly-owned subsidiary of John
Hancock Financial Services, Inc., serves as subadviser to both the Acquired Fund
and the Acquiring Fund. In this capacity, Independence has primary
responsibility for making investment decisions for each Fund's investment
portfolio and placing orders with brokers and dealers to implement those
decisions. Independence receives its compensation from the Adviser, and the
Funds pay no subadvisory fees over and above the management fee they pay to the
Adviser. Independence receives subadvisory fees from the Adviser at the same
rate for the Acquired Fund and the Acquiring Fund: 55% of the advisory fee
received by the Adviser. With respect to Core Value Fund, Independence waived
its subadvisory fee during the twelve month period ended December 31, 2001.
Effective June 7, 2002, for Core Equity Fund, the subadvisory fee paid by the
Adviser to Independence will be reduced to 51% of the investment advisory fee
received by the Adviser.
Core Equity Fund's management fee rate of 0.75% and its pro forma management fee
rate of 0.75% are lower than Core Value Fund's management fee rate of 0.80%.
Core Equity Fund's other expenses of 0.42% and its pro forma other expenses of
0.43% are also substantially lower than Core Value Fund's other expenses of
0.74%. Both Funds have the same 12b-1 fees for Class A shares (0.30%) and Class
B and Class C shares (1.00%) although Core Value Fund's Class B distribution
payment last year was 0.98%. Core Equity Fund's current annual Class A expense
ratio (equal to 1.47% of average net assets) and its pro forma Class A expense
ratio (equal to 1.48% of average net assets) are lower than Core Value Fund's
current Class A expense ratio (equal to 1.52% of average net assets). Core
Equity Fund's current annual Class B and Class C expense ratio (equal to 2.17%
of average net assets) and its pro forma Class B and Class C expense ratio
(equal to 2.18% of average net assets) are also lower than Core Value Fund's
current Class B and Class C expense ratio (equal to 2.22% of average net
assets). Core Equity Fund's pro forma expense ratio for Class I of 0.87% is also
lower than Core Value Fund's current annual Class I expense ratio of 0.95%. Core
Value Fund's expense ratios referenced above are after the expense reduction and
are substantially higher without the expense reduction, which may not be
extended beyond June 30, 2002.
23
INVESTMENT RISKS
The funds are exposed to various risks that could cause shareholders to lose
money on their investments in the funds. The following table compares the risks
affecting each fund.
- ------------------------------------------------------------------------------------------------------------------------------
Core Value Fund Core Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------
Stock market risk The value of securities in the fund may go down in response to overall stock
market movements. Markets tend to move in cycles, with periods of rising prices
and periods of falling prices. Stocks tend to go up and down in value more than
bonds. If the fund concentrates in certain sectors, its performance could be
worse than that of the overall stock market.
- ------------------------------------------------------------------------------------------------------------------------------
Manager risk The manager and its strategy may fail to produce the intended results. The fund
could underperform its peers or lose money if the manager's investment strategy
does not perform as expected.
- ------------------------------------------------------------------------------------------------------------------------------
Investment category The large capitalization value stocks in The large capitalization stocks in which the fund
risk which the fund primarily invests could fall primarily invests could fall out of favor with the
out of favor with the market, causing the market, causing the fund to underperform funds that
fund to underperform funds that focus on focus on small or medium capitalization stocks.
small or medium capitalization stocks or on
growth stocks.
- ------------------------------------------------------------------------------------------------------------------------------
Small and medium The fund's investments in small or medium capitalization companies may be subject to larger and more
capitalization erratic price movements than investments in large capitalization companies.
company risk
- ------------------------------------------------------------------------------------------------------------------------------
Foreign securities Foreign investments involve additional risks, including potentially inadequate
risk or inaccurate financial information and social or political instability.
- ------------------------------------------------------------------------------------------------------------------------------
Derivatives risk Certain derivative instruments can produce disproportionate gains or losses and
are riskier than direct investments. Also, in a down market derivatives could
become harder to value or sell at a fair price.
- ------------------------------------------------------------------------------------------------------------------------------
Turnover risk In general, the greater the volume of buying and selling by a fund (and the
higher its "turnover rate"), the greater the impact that transaction costs will
have on the fund's performance. The fund's turnover rate may exceed 100%, which
is considered relatively high.
- ------------------------------------------------------------------------------------------------------------------------------
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
Description of Reorganization
You are being asked to approve an Agreement and Plan of Reorganization, a form
of which is attached as Exhibit A. The Agreement provides for a reorganization
on the following terms:
o The reorganization is scheduled to occur at 5:00 p.m., Eastern time, on
June 7, 2002, but may occur on any later date before December 31, 2002.
Core Value Fund will transfer all of its assets to Core Equity Fund and
Core Equity Fund will assume all of Core Value Fund's liabilities. This
will result in the addition of Core Value Fund's assets to Core Equity
Fund's portfolio. The net asset value of both funds will be computed as of
5:00 p.m., Eastern time, on the reorganization date.
o Core Equity Fund will issue to Core Value Fund Class A shares in an amount
equal to the net assets attributable to Core Value Fund's Class A shares.
As part of the liquidation of Core Value Fund, these shares will
immediately be distributed to Class A shareholders of record of Core Value
Fund in proportion to their holdings on the reorganization date. As a
result, Class A shareholders of Core Value Fund will end up as Class A
shareholders of Core Equity Fund.
o Core Equity Fund will issue to Core Value Fund Class B shares in an amount
equal to the net assets attributable to Core Value Fund's Class B shares.
As part of the liquidation of Core Value Fund, these shares will
immediately be distributed to Class B shareholders of record of Core Value
Fund in proportion
24
to their holdings on the reorganization date. As a result, Class B
shareholders of Core Value Fund will end up as Class B shareholders of
Core Equity Fund.
o Core Equity Fund will issue to Core Value Fund Class C shares in an amount
equal to the net assets attributable to Core Value Fund's Class C shares.
As part of the liquidation of Core Value Fund, these shares will
immediately be distributed to Class C shareholders of record of Core Value
Fund in proportion to their holdings on the reorganization date. As a
result, Class C shareholders of Core Value Fund will end up as Class C
shareholders of Core Equity Fund.
o Core Equity Fund will issue to Core Value Class I shares in an amount
equal to the net assets attributable to Core Value's Class I shares. These
shares will immediately be distributed to Core Value's Class I
shareholders in proportion to their holdings on the reorganization date.
As a result, Class I shareholders of Core Value will end up as Class I
shareholders of Core Equity Fund.
o After the shares are issued, the existence of Core Value Fund will be
terminated.
Reasons for the Proposed Reorganization
The board of trustees of Core Value Fund believes that the proposed
reorganization will be advantageous to the shareholders of Core Value Fund for
several reasons. The board of trustees considered the following matters, among
others, in approving the proposal.
First, that shareholders may be better served by a fund offering greater
diversification. Core Equity Fund has a larger asset size than your fund and
invests in similar types of securities. Combining the funds' assets into a
single investment portfolio will afford greater diversification.
Second, Core Equity Fund's expenses are lower than Core Value Fund's total
expenses. As a result of the reorganization, shareholders of Core Value Fund
will experience a reduction in the total amount of fees, as a percentage of
average net assets, that they indirectly pay.
Third, that a combined fund offers economies of scale that may lead to lower per
share expenses. Both funds incur substantial costs for accounting, legal,
transfer agency services, insurance, and custodial and administrative services.
Many of these expenses are duplicative and there may be an opportunity to reduce
Core Equity Fund's expense ratio over time because of economies of scale if the
funds are combined.
The board of trustees of Core Equity Fund considered that the reorganization
presents an excellent opportunity for Core Equity Fund to acquire substantial
investment assets without the obligation to pay commissions or other transaction
costs that a fund normally incurs when purchasing securities. This opportunity
provides an economic benefit to Core Equity Fund and its shareholders.
The boards of both funds also considered that the adviser and the funds'
distributor will benefit from the reorganization. For example, the adviser might
realize time savings from a consolidated portfolio management effort and from
the need to prepare fewer reports and regulatory filings as well as prospectus
disclosure for one fund instead of two. The boards believe, however, that these
savings will not amount to a significant economic benefit to the adviser or
distributor.
Comparative Fees and Expense Ratios. As discussed above, the advisory fee rates
paid by Core Value Fund are lower than the rates paid by Core Equity Fund.
Core Equity Fund's management fee rate of 0.75% and pro forma management fee
rate of 0.75%, are lower than Core Value Fund's management fee rate of 0.80%.
Core Equity Fund's other expenses of 0.42% and its pro forma other expenses of
0.43%, are also lower than Core Value Fund's other expenses of 0.74%. Both funds
have the same 12b-1 fees for Class A shares (0.30%) and Class B and Class C
shares (1.00%), although Core Value Fund's Class B distribution payment last
year was 0.98%. Core Equity Fund's current annual Class A expense ratio (1.47%
of average net assets) and pro forma Class A expense ratio (1.48% of average net
assets) are both lower than Core Value Fund's current Class A expense ratio
(1.52% of average net assets). Core Equity Fund's current annual Class
25
B and Class C expense ratio (2.17% of average net assets) and pro forma Class B
and Class C expense ratio (2.18% of average net assets) are both also lower than
Core Value Fund's current Class B and Class C expense ratio (2.22% of average
net assets). Core Equity Fund's pro forma Class I expense ratio (0.87% of
average net assets) is also lower than Core Value Fund's current annual Class I
expense ratio (0.95% of average net assets). Core Value Fund's expense ratios
referenced above are after the expense reduction and are substantially higher
without the expense reduction, which may not be extended beyond June 30, 2002.
Comparative Performance. The trustees also took into consideration the relative
performance of your fund and Core Equity Fund.
Unreimbursed Distribution and Shareholder Service Expenses
The boards of trustees of Core Value Fund and Core Equity Fund have determined
that, if the reorganization occurs, unreimbursed distribution and shareholder
service expenses incurred under Core Value Fund's Rule 12b-1 Plans will be
reimbursable expenses under Core Equity Fund's Rule 12b-1 Plans. However, the
maximum amounts payable annually under Core Equity Fund's Rule 12b-1 Plans
(0.30%, 1.00%, 1.00% and 0.00% of average daily net assets attributable to Class
A shares, Class B shares, Class C shares and Class I shares, respectively) will
not increase.
The following table shows the actual and pro forma unreimbursed distribution and
shareholder service expenses of shares of Core Value Fund and Core Equity Fund.
The table shows both the dollar amount of these expenses and the percentage of
each class' average net assets that they represent. Class I shares of Core Value
Fund and Class I shares of Core Equity Fund are not included in the table
because these classes do not have Rule 12b-1 Plans.
Rule 12b-1 Payments and Unreimbursed Expenses
Aggregate Dollar
Amount of 12b-1 Unreimbursed Rule Unreimbursed
Fees Paid (for 12b-1 Expenses as % of
Name of Fund year ended Expenditures (as Each Class's
December 31, of December 31, Average Net
2001) 2001) Assets
Core Value $ 35,299(A) $ 71,680(A) 0.60%(A)
$ 162,344(B) $ 51,413(B) 0.30%(B)
$ 25,151(C) $ 14,950(C) 0.58%(C)
Core Equity $ 905,642(A) $ 562,627(A) 0.19%(A)
$4,253,417(B) $ 120,190(B) 0.03%(B)
$ 304,622(C) $ 79,545(C) 0.26%(C)
Pro Forma:
Core Equity
Assuming $ 940,941(A) $ 634,307(A) 0.20%(A)
reorganization with $4,415,761(B) $ 171,603(B) 0.04%(B)
Core Value Fund only $ 329,773(C) $ 94,495(C) 0.29%(C)
Assuming $1,035,205(A) $2,760,322(A) 0.81%(A)
reorganization with $4,637,287(B) $1,001,678(B) 0.22%(B)
Core Value Fund and $ 348,753(C) $ 140,745(C) 0.40%(C)
Core Growth Fund
If the reorganization had taken place on December 31, 2000, the pro forma
combined unreimbursed expenses of Core Equity Fund's Class A and Class B shares
would have been higher than if no reorganization had occurred.
26
Nevertheless, Core Equity Fund's assumption of Core Value Fund's unreimbursed
Rule 12b-1 expenses will have no immediate effect upon the payments made under
Core Equity Fund's Rule 12b-1 Plans. These payments will continue to be 0.30%,
100%, 1.00% and 0.00% of average daily net assets attributable to Class A, Class
B, Class C and Class I shares, respectively.
John Hancock Funds, Inc. may recover unreimbursed distribution and shareholder
service expenses for Class B and Class C shares in future years. However, if
Core Equity Fund's board terminates either class's Rule 12b-1 Plan, that class
will not be obligated to reimburse these distribution and shareholder service
expenses. Accordingly, until they are paid or accrued, unreimbursed distribution
and shareholder service expenses do not and will not appear as an expense or
liability in the financial statements of either fund. In addition, unreimbursed
expenses are not reflected in a fund's net asset value or the formula for
calculating Rule 12b-1 payments. The staff of the SEC has not approved or
disapproved the treatment of the unreimbursed distribution and shareholder
service expenses described in this proxy statement.
FURTHER INFORMATION ON EACH REORGANIZATION
Tax Status of Each Reorganization
Each reorganization will not result in income, gain or loss for federal income
tax purposes and will not take place unless both funds in each respective
reorganization receive a satisfactory opinion from Hale and Dorr LLP, counsel to
the Acquired Funds, substantially to the effect that the reorganization
described above will be a "reorganization" within the meaning of Section 368(a)
of the Internal Revenue Code of 1986 (the "Code").
As a result, for federal income tax purposes:
o No gain or loss will be recognized by each Acquired Fund upon (1) the
transfer of all of its assets to the Acquiring Fund as described above or
(2) the distribution by each Acquired Fund of Acquiring Fund shares to
Acquired Fund shareholders;
o No gain or loss will be recognized by the Acquiring Fund upon the receipt
of each respective Acquired Fund's assets solely in exchange for the
issuance of Acquiring Fund shares and the assumption of all of Acquired
Fund liabilities by the Acquiring Fund;
o The basis of the assets of each Acquired Fund acquired by the Acquiring
Fund will be the same as the basis of those assets in the hands of each
respective Acquired Fund immediately before the transfer;
o The tax holding period of the assets of each Acquired Fund in the hands of
the Acquiring Fund will include the Acquired Fund's tax holding period for
those assets;
o The shareholders of each Acquired Fund will not recognize gain or loss
upon the exchange of all their shares of the Acquired Funds solely for
Acquiring Fund shares as part of the reorganization;
o The basis of Acquiring Fund shares received by Acquired Fund shareholders
in the reorganization will be the same as the basis of the shares of each
Acquired Fund surrendered in exchange; and
o The tax holding period of the Acquiring Fund shares that Acquired Fund
shareholders receive will include the tax holding period of the shares of
the Acquired Fund surrendered in the exchange, provided that the shares of
the Acquired Fund were held as capital assets on the reorganization date.
You should consult your tax adviser for the particular tax consequences to you
of the transaction, including the applicability of any state, local or foreign
tax laws.
Additional Terms of each Agreement and Plan of Reorganization
Surrender of Share Certificates. If your shares are represented by one or more
share certificates before the reorganization date, you must either surrender the
certificates to your fund(s) or deliver to your fund(s) a lost
27
certificate affidavit, in the form and accompanied by the surety bonds that your
fund(s) may require (collectively, an "Affidavit"). On the reorganization date,
all certificates that have not been surrendered will be canceled, will no longer
evidence ownership of your fund's shares and will evidence ownership of Core
Equity Fund shares. Shareholders may not redeem or transfer Core Equity Fund
shares received in the reorganization until they have surrendered their fund
share certificates or delivered an Affidavit. Core Equity Fund will not issue
share certificates in the reorganization.
Conditions to Closing each Reorganization. The obligation of each Acquired Fund
to consummate the reorganization is subject to the satisfaction of certain
conditions, including the performance by the Acquiring Fund of all its
obligations under the Agreement and the receipt of all consents, orders and
permits necessary to consummate the reorganization (see Agreement, paragraph 6).
The obligation of the Acquiring Fund to consummate the reorganization is subject
to the satisfaction of certain conditions, including the Acquired Fund's
performance of all of its obligations under the Agreement, the receipt of
certain documents and financial statements from each respective Acquired Fund
and the receipt of all consents, orders and permits necessary to consummate the
reorganization (see Agreement, paragraph 7).
The obligations of each respective Acquired Fund and the Acquiring Fund are
subject to approval of the Agreement by the necessary vote of the outstanding
shares of the Acquired Fund, in accordance with the provisions of Acquired
Funds' declaration of trust and by-laws. The funds' obligations are also subject
to the receipt of a favorable opinion of Hale and Dorr LLP as to the federal
income tax consequences of the reorganization (see Agreement, paragraph 8).
Termination of Agreement. The board of trustees of each respective Acquired Fund
or the Acquiring Fund may terminate the Agreement (even if the shareholders of
an Acquired Fund have already approved it) at any time before the reorganization
date, if that board believes that proceeding with the reorganization would no
longer be advisable.
Expenses of the Reorganization. John Hancock Advisers, LLC will pay each
Acquired Fund's merger costs and the Acquiring Fund will pay its costs incurred
in connection with entering into and carrying out the provisions of the
Agreements, whether or not the reorganization occurs. With respect to each
proposal, the expenses for each fund are estimated to be approximately $29,000
for Core Growth Fund and $15,500 for Core Equity Fund; and $29,000 for Core
Value Fund and $15,500 for Core Equity Fund.
CAPITALIZATION
With respect to each Proposal, the following tables set forth the capitalization
of each fund as of December 31, 2001, and the pro forma combined capitalization
of both funds as if each reorganization had occurred on that date. If a
reorganization is consummated, the actual exchange ratios on the reorganization
date may vary from the exchange ratios indicated. This is due to changes in the
market value of the portfolio securities of both funds between December 31, 2001
and the reorganization date, changes in the amount of undistributed net
investment income and net realized capital gains of both funds during that
period resulting from income and distributions, and changes in the accrued
liabilities of both funds during the same period. It is impossible to predict
how many shares of the Acquiring Fund will actually be received and distributed
by each corresponding Acquired Fund on the reorganization date. The tables
should not be relied upon to determine the amount of Acquiring Fund shares that
will actually be received and distributed.
If the reorganization of your fund(s) had taken place on December 31, 2001:
- --------------------------------------------------------------------------------------------------
Core Growth Core Equity Pro Pro
Proposal 1 Fund Fund Forma(1) Forma(2)
- --------------------------------------------------------------------------------------------------
Net Assets (Millions) $48.2 $662.8 $711.0 $745.8
- --------------------------------------------------------------------------------------------------
Net Asset Value Per Share
- --------------------------------------------------------------------------------------------------
Class A $13.15 $26.61 $26.61 $26.61
- --------------------------------------------------------------------------------------------------
Class B $12.93 $25.71 $25.71 $25.71
- --------------------------------------------------------------------------------------------------
Class C $12.93 $25.70 $25.70 $25.70
- --------------------------------------------------------------------------------------------------
28
- --------------------------------------------------------------------------------------------------
Class I $13.34 n/a* n/a* n/a*
- --------------------------------------------------------------------------------------------------
Shares Outstanding
- --------------------------------------------------------------------------------------------------
Class A 1,836,806 9,589,956 10,497,706 10,950,690
- --------------------------------------------------------------------------------------------------
Class B 1,538,150 14,666,844 15,440,380 16,177,467
- --------------------------------------------------------------------------------------------------
Class C 179,395 1,186,056 1,276,309 1,384,019
- --------------------------------------------------------------------------------------------------
Class I 141,058 n/a* n/a* n/a*
- --------------------------------------------------------------------------------------------------
(1) Assuming the reorganization of Core Value Fund into Core Equity Fund does
not occur. If the reorganization of your fund only had taken place on December
31, 2001, approximately _____ Core Equity Fund shares would have been issued for
each share of Core Growth Fund.
(2) Assuming the reorganization of Core Value Fund into Core Equity Fund occurs.
If both reorganizations had taken place on December 31, 2001, approximately ____
Core Equity Fund shares would have been issued for each share of Core Growth
Fund.
- --------------------------------------------------------------------------------------------------
Core Growth Core Equity Pro Pro
Proposal 2 Fund Fund Forma(1) Forma(2)
- --------------------------------------------------------------------------------------------------
Net Assets (Millions) $34.8 $662.8 $697.6 $745.8
- --------------------------------------------------------------------------------------------------
Net Asset Value Per Share
- --------------------------------------------------------------------------------------------------
Class A $11.92 $26.61 $26.61 $26.61
- --------------------------------------------------------------------------------------------------
Class B $11.84 $25.71 $25.71 $25.71
- --------------------------------------------------------------------------------------------------
Class C $11.84 $25.70 $25.70 $25.70
- --------------------------------------------------------------------------------------------------
Class I $11.91 n/a* n/a* n/a*
- --------------------------------------------------------------------------------------------------
Shares Outstanding
- --------------------------------------------------------------------------------------------------
Class A 1,011,124 9,589,956 10,042,940 10,950,690
- --------------------------------------------------------------------------------------------------
Class B 1,600,624 14,666,844 15,403,931 16,177,467
- --------------------------------------------------------------------------------------------------
Class C 233,797 1,186,056 1,293,766 1,384,019
- --------------------------------------------------------------------------------------------------
Class I 84,457 n/a* n/a* n/a*
- --------------------------------------------------------------------------------------------------
(1) Assuming the reorganization of Core Growth Fund into Core Equity Fund does
not occur. If the reorganization of your fund only had taken place on December
31, 2001, approximately _____ Core Equity Fund shares would have been issued for
each share of Core Value Fund.
(2) Assuming the reorganization of Core Growth Fund into Core Equity Fund
occurs. If both reorganizations had taken place on December 31, 2001,
approximately _____ Core Equity Fund shares would have been issued for each
share of Core Value Fund.
*Core Equity Fund's Class I shares have not commenced operations.
29
ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES
The following table shows where in each fund's prospectus you can find
additional information about the business of each fund.
- -------------------------------------------------------------------------------
Type of Information Headings in Each Prospectus
- -------------------------------------------------------------------------------
Investment objective and policies Goal and Strategy / Main Risks
- -------------------------------------------------------------------------------
Portfolio Management Portfolio Management
- -------------------------------------------------------------------------------
Expenses Your Expenses
- -------------------------------------------------------------------------------
Custodian Business Structure
- -------------------------------------------------------------------------------
Shares of beneficial interest Your Account: Choosing a Share Class
- -------------------------------------------------------------------------------
Purchase of shares Your Account: Choosing a Share Class,
How Sales Charges are Calculated,
Sales Charge Reductions and Waivers,
Opening an Account, Buying Shares,
Transaction Policies, Additional
Investor Services
- -------------------------------------------------------------------------------
Redemption of sales of shares Your Account: Selling Shares, How
Sales Charges are Calculated,
Transactions Policies
- -------------------------------------------------------------------------------
Dividends, distributions and taxes Dividends and Account Policies
- -------------------------------------------------------------------------------
BOARDS' EVALUATION AND RECOMMENDATION
For the reasons described above, the board of trustees of each Acquired Fund,
including the trustees who are not "interested persons" of either fund in each
respective reorganization or the adviser ("independent trustees"), approved the
reorganization. In particular, the trustees determined that each reorganization
is in the best interests of the Acquired Funds and that the interests of
Acquired Fund shareholders would not be diluted as a result of the
reorganization. Similarly, the board of trustees of Core Equity Fund, including
the independent trustees, approved the reorganization. They also determined that
the reorganization is in the best interests of Core Equity Fund and that the
interests of Core Equity Fund's shareholders would not be diluted as a result of
the reorganization.
The trustees of each Acquired Fund recommend that
shareholders of each Acquired Fund vote for the proposal to
approve the appropriate Agreement and Plan of Reorganization.
VOTING RIGHTS AND REQUIRED VOTE
Each Acquired Fund share is entitled to one vote. Approval of each proposal
described above requires the affirmative vote of a majority of the shares of
each Acquired Fund outstanding and entitled to vote on each respective proposal.
For this purpose, a majority of the outstanding shares of your fund means the
vote of the lesser of:
(1) 67% or more of the shares present at the meeting, if the holders of more
than 50% of the shares of the fund are present or represented by proxy, or
(2) more than 50% of the outstanding shares of the fund.
30
- ----------------------------------------------------------------------------------------------------------------------
Shares Quorum Voting
- ----------------------------------------------------------------------------------------------------------------------
In General All shares "present" in Shares "present" in person will be voted in person at the
person or by proxy are meeting. Shares present by proxy will be voted in accordance
counted towards a quorum. with instructions.
- ----------------------------------------------------------------------------------------------------------------------
Proxy with No Voting Considered "present" at Voted "for" a proposal.
Instruction (other than meeting.
Broker Non-Vote)
- ----------------------------------------------------------------------------------------------------------------------
Broker Non-Vote Considered "present" at Not voted. Same effect as a vote "against" a proposal.
meeting.
- ----------------------------------------------------------------------------------------------------------------------
Vote to Abstain Considered "present" at Not voted. Same effect as a vote "against" a proposal.
meeting.
- ----------------------------------------------------------------------------------------------------------------------
If the required approval of shareholders is not obtained with respect to a
proposal, the Acquired Fund subject to the proposal will continue to engage in
business as a separate mutual fund and the board of trustees will consider what
further action may be appropriate. This action could include, among other
things, terminating a fund's expense limitation or closing the fund.
INFORMATION CONCERNING THE MEETING
Solicitation of Proxies
In addition to the mailing of these proxy materials, proxies may be solicited by
telephone, by e-mail, by fax or in person by the trustees, officers and
employees of your fund; by personnel of your fund's investment adviser, John
Hancock Advisers, LLC and its transfer agent, John Hancock Signature Services,
Inc.; or by broker-dealer firms. Signature Services, together with a third party
solicitation firm, has agreed to provide proxy solicitation services to each
Acquired Fund at a cost of approximately $5,000 per fund.
Revoking Proxies
Each Acquired Fund shareholder signing and returning a proxy has the power to
revoke it at any time before it is exercised:
o By filing a written notice of revocation with the Acquired Funds' transfer
agent, John Hancock Signature Services, Inc., 1 John Hancock Way, Suite
1000, Boston, Massachusetts 02217-1000, or
o By returning a duly executed proxy with a later date before the time of
the meeting, or
o If a shareholder has executed a proxy but is present at the meeting and
wishes to vote in person, by notifying the secretary of your fund (without
complying with any formalities) at any time before it is voted.
Being present at the meeting alone does not revoke a previously executed and
returned proxy.
Outstanding Shares and Quorum
As of March 15, 2002 (the "record date"), the number of shares of beneficial
interest of each Acquired Fund outstanding were as follows:
31
- ------------------------------------------------------------
FUND SHARES OUTSTANDING
- ------------------------------------------------------------
Core Growth Fund
- ------------------------------------------------------------
Class A
- ------------------------------------------------------------
Class B
- ------------------------------------------------------------
Class C
- ------------------------------------------------------------
Class I
- ------------------------------------------------------------
Core Value Fund
- ------------------------------------------------------------
Class A
- ------------------------------------------------------------
Class B
- ------------------------------------------------------------
Class C
- ------------------------------------------------------------
Class I
- ------------------------------------------------------------
Only shareholders of record on the record date are entitled to notice of and to
vote at the meeting. A majority of the outstanding shares of each Acquired Fund
that are entitled to vote will be considered a quorum for the transaction of
business.
Other Business
Each Acquired Fund's board of trustees knows of no business to be presented for
consideration at the meeting other than the proposals. If other business is
properly brought before the meeting, proxies will be voted according to the best
judgment of the persons named as proxies.
Adjournments
If a quorum is not present in person or by proxy at the time any session of the
meeting is called to order, the persons named as proxies may vote those proxies
that have been received to adjourn the meeting to a later date. If a quorum is
present but there are not sufficient votes in favor of a proposal, the persons
named as proxies may propose one or more adjournments of the meeting to permit
further solicitation of proxies concerning the proposal. Any adjournment will
require the affirmative vote of a majority of an Acquired Fund's shares at the
session of the meeting to be adjourned. If an adjournment of the meeting is
proposed because there are not sufficient votes in favor of a proposal, the
persons named as proxies will vote those proxies favoring the proposal in favor
of adjournment, and will vote those proxies against the reorganization against
adjournment.
Telephone Voting
In addition to soliciting proxies by mail, by fax or in person, your fund(s) may
also arrange to have votes recorded by telephone by officers and employees of
your fund(s) or by personnel of the adviser or transfer agent or a third party
solicitation firm. The telephone voting procedure is designed to verify a
shareholder's identity, to allow a shareholder to authorize the voting of shares
in accordance with the shareholder's instructions and to confirm that the voting
instructions have been properly recorded. If these procedures were subject to a
successful legal challenge, these telephone votes would not be counted at the
meeting. Your fund has not obtained an opinion of counsel about telephone
voting, but is currently not aware of any challenge.
o A shareholder will be called on a recorded line at the telephone number in
a fund's account records and will be asked to provide the shareholder's
social security number or other identifying information.
o The shareholder will then be given an opportunity to authorize proxies to
vote his or her shares at the meeting in accordance with the shareholder's
instructions.
o To ensure that the shareholder's instructions have been recorded
correctly, the shareholder will also receive a confirmation of the voting
instructions by mail.
32
o A toll-free number will be available in case the voting information
contained in the confirmation is incorrect.
o If the shareholder decides after voting by telephone to attend the
meeting, the shareholder can revoke the proxy at that time and vote the
shares at the meeting.
Internet Voting
You will also have the opportunity to submit your voting instructions via the
internet by utilizing a program provided through a vendor. Voting via the
internet will not affect your right to vote in person if you decide to attend
the meting. Do not mail the proxy card if you are voting via the internet. To
vote via the internet , you will need the "control number" that appears on your
proxy card. These Internet voting procedures are designed to authenticate
shareholder identities, to allow shareholders give their voting instructions,
and to confirm that shareholders instructions have been recorded properly. If
you are voting via the internet you should understand that there may be costs
associated with electronic access, such as usage charges from internet access
providers and telephone companies, that must be borne to you.
o Read the proxy statement and have your proxy card(s) at hand.
o Go to the Web site www.jhfunds.com.
o Select the shareholder entryway.
o Select the proxy-voting link for your Fund(s).
o Enter the "control number" found on your proxy card.
o Follow the instructions on the Web site. Please call us at 1-800-225-5291
if you have any problems.
o To insure that your instructions have been recorded correctly, you will
receive a confirmation of your voting instructions immediately after your
submission and also by email if chosen.
Shareholders' Proposals
The Funds are not required, and do not intend, to hold meetings of shareholders
each year. Instead, meetings will be held only when and if required. Any
shareholders desiring to present a proposal for consideration at the next
meeting for shareholders of their respective Funds must submit the proposal in
writing, so that it is received by the appropriate Fund at 101 Huntington
Avenue, Boston, Massachusetts 02199 within a reasonable time before any meeting.
OWNERSHIP OF SHARES OF THE FUNDS
To the knowledge of each fund, as of March 15, 2002, the following persons owned
of record or beneficially 5% or more of the outstanding shares of each fund,
respectively:
- --------------------------------------------------------------------------------
Names and Addresses of Owners of More
Than 5% of Shares Core Growth Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Names and Addresses of Owners of More Core Value Fund
Than 5% of Shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Names and Addresses of Owners of More Core Equity Fund
Than 5% of Shares
- --------------------------------------------------------------------------------
33
As of March 15, 2002, the trustees and officers of each fund owned in the
aggregate less than 1% of the outstanding shares of their respective funds.
EXPERTS
The financial statements and the financial highlights of Core Equity Fund for
the period ended December 31, 2001 and Core Growth and Core Value Funds for the
period ended August 31, 2001 are incorporated by reference into this proxy
statement and prospectus. The financial statements and financial highlights for
Core Growth Fund and Core Value Fund have been independently audited by Deloitte
& Touche, LLP, and for Core Equity Fund by PricewaterhouseCoopers, LLP, as
stated in their reports appearing in the statement of additional information.
These financial statements and financial highlights have been included in
reliance on their reports given on their authority as experts in accounting and
auditing.
AVAILABLE INFORMATION
Each fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 and files reports,
proxy statements and other information with the SEC. These reports, proxy
statements and other information filed by the funds can be inspected and copied
(for a duplication fee) at the public reference facilities of the SEC at 450
Fifth Street, N.W., Washington, D.C., and at the Midwest Regional Office (500
West Madison Street, Suite 1400, Chicago, Illinois). Copies of these materials
can also be obtained by mail from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
copies of these documents may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov.
34
Exhibit A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 1st day
of March, 2002, by and between John Hancock Core Equity Fund (the "Acquiring
Fund"), a series of John Hancock Capital Series, a Massachusetts business trust
(the "Trust"), and ___________________________ (the "Acquired Fund"), a series
of John Hancock Institutional Series Trust, a Massachusetts business trust (the
"Trust II"), each with their principal place of business at 101 Huntington
Avenue, Boston, Massachusetts 02199. The Acquiring Fund and the Acquired Fund
are sometimes referred to collectively herein as the "Funds" and individually as
a "Fund."
This Agreement is intended to be and is adopted as a plan of "reorganization,"
as such term is used in Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization will consist of the transfer of all of
the assets of the Acquired Fund to the Acquiring Fund in exchange solely for the
issuance of Class A shares, Class B shares, Class C shares, and Class I shares
of beneficial interest of the Acquiring Fund (the "Acquiring Fund Shares") to
the Acquired Fund and the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund, followed by the distribution by the Acquired
Fund, on or promptly after the Closing Date hereinafter referred to, of the
Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation
and termination of the Acquired Fund as provided herein, all upon the terms and
conditions set forth in this Agreement.
In consideration of the premises of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF
LIABILITIES AND ISSUANCE OF ACQUIRING FUND SHARES; LIQUIDATION OF THE
ACQUIRED FUND
1.1 The Acquired Fund will transfer all of its assets (consisting, without
limitation, of portfolio securities and instruments, dividends and
interest receivables, cash and other assets), as set forth in the
statement of assets and liabilities referred to in Paragraph 7.2 hereof
(the "Statement of Assets and Liabilities"), to the Acquiring Fund free
and clear of all liens and encumbrances, except as otherwise provided
herein, in exchange for (i) the assumption by the Acquiring Fund of the
known and unknown liabilities of the Acquired Fund, including the
liabilities set forth in the Statement of Assets and Liabilities (the
"Acquired Fund Liabilities"), which shall be assigned and transferred to
the Acquiring Fund by the Acquired Fund and assumed by the Acquiring Fund,
and (ii) delivery by the Acquiring Fund to the Acquired Fund, for
distribution pro rata by the Acquired Fund to its shareholders in
proportion to their respective ownership of Class A, Class B, Class C
and/or Class I shares of beneficial interest of the Acquired Fund, as of
the close of business on June 7, 2002 (the "Closing Date"), of a number of
the Acquiring Fund Shares having an aggregate net asset value equal, in
the case of each class of Acquiring Fund Shares, to the value of the
assets, less such liabilities (herein referred to as the "net value of the
assets") attributable to the applicable class, assumed, assigned and
delivered, all determined as provided in Paragraph 2.1 hereof and as of a
date and time as specified therein. Such transactions shall take place at
the closing provided for in Paragraph 3.1 hereof (the "Closing"). All
computations shall be provided by The Bank of New York (the "Custodian"),
as custodian and pricing agent for the Acquiring Fund and the Acquired
Fund.
1.2 The Acquired Fund has provided the Acquiring Fund with a list of the
current securities holdings of the Acquired Fund as of the date of
execution of this Agreement. The Acquired Fund reserves the right to sell
any of these securities (except to the extent sales may be limited by
representations made in connection with issuance of the tax opinion
provided for in paragraph 8.6 hereof) but will not, without the prior
approval of the Acquiring Fund, acquire any additional securities other
than securities of the type in which the Acquiring Fund is permitted to
invest.
1.3 The Acquiring Fund and the Acquired Fund shall each bear its own expenses
in connection with the transactions contemplated by this Agreement.
35
1.4 On or as soon after the Closing Date as is conveniently practicable (the
"Liquidation Date"), the Acquired Fund will liquidate and distribute pro
rata to shareholders of record (the "Acquired Fund shareholders"),
determined as of the close of regular trading on the New York Stock
Exchange on the Closing Date, the Acquiring Fund Shares received by the
Acquired Fund pursuant to Paragraph 1.1 hereof. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund
Shares then credited to the account of the Acquired Fund on the books of
the Acquiring Fund, to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund shareholders and
representing the respective pro rata number and class of Acquiring Fund
Shares due such shareholders. Acquired Fund shareholders who own Class A
shares of the Acquired Fund will receive Class A Acquiring Fund Shares,
Acquired Fund shareholders who own Class B shares of the Acquired Fund
will receive Class B Acquiring Fund Shares, Acquired Fund shareholders
who own Class C shares of the Acquired Fund will receive Class C
Acquiring Fund Shares, and Acquired Fund shareholders who own Class I
shares of the Acquired Fund will receive Class I Acquiring Fund Shares.
The Acquiring Fund shall not issue certificates representing Acquiring
Fund Shares in connection with such exchange.
1.5 The Acquired Fund shareholders holding certificates representing their
ownership of shares of beneficial interest of the Acquired Fund shall
surrender such certificates or deliver an affidavit with respect to lost
certificates in such form and accompanied by such surety bonds as the
Acquired Fund may require (collectively, an "Affidavit"), to John Hancock
Signature Services, Inc. prior to the Closing Date. Any Acquired Fund
share certificate which remains outstanding on the Closing Date shall be
deemed to be canceled, shall no longer evidence ownership of shares of
beneficial interest of the Acquired Fund and shall evidence ownership of
Acquiring Fund Shares. Unless and until any such certificate shall be so
surrendered or an Affidavit relating thereto shall be delivered,
dividends and other distributions payable by the Acquiring Fund
subsequent to the Liquidation Date with respect to Acquiring Fund Shares
shall be paid to the holder of such certificate(s), but such shareholders
may not redeem or transfer Acquiring Fund Shares received in the
Reorganization. The Acquiring Fund will not issue share certificates in
the Reorganization.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquired Fund Shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
1.7 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Acquired Fund, including, but not
limited to, the responsibility for filing of regulatory reports, tax
returns, or other documents with the Securities and Exchange Commission
(the "Commission"), any state securities commissions, and any federal,
state or local tax authorities or any other relevant regulatory authority,
is and shall remain the responsibility of the Acquired Fund.
2. VALUATION
2.1 The net asset values of the Class A, Class B, Class C, and Class I
Acquiring Fund Shares and the net values of the assets and liabilities of
the Acquired Fund attributable to its Class A, Class B, Class C, and Class
I shares to be transferred shall, in each case, be determined as of the
close of business (4:00 p.m. Boston time) on the Closing Date. The net
asset values of the Class A, Class B, Class C, and Class I Acquiring Fund
Shares shall be computed by the Custodian in the manner set forth in the
Acquiring Fund's Declaration of Trust as amended and restated (the
"Declaration"), or By-Laws and the Acquiring Fund's then-current
prospectus and statement of additional information and shall be computed
in each case to not fewer than four decimal places. The net values of the
assets of the Acquired Fund attributable to its Class A, Class B, Class C,
and Class I shares to be transferred shall be computed by the Custodian by
calculating the value of the assets of each class transferred by the
Acquired Fund and by subtracting therefrom the amount of the liabilities
of each class assigned and transferred to and assumed by the Acquiring
Fund on the Closing Date, said assets and liabilities to be valued in the
manner set forth in the Acquired Fund's then current prospectus and
statement of additional information and shall be computed in each case to
not fewer than four decimal places.
36
2.2 The number of shares of each class of Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Acquired Fund's
assets shall be determined by dividing the value of the Acquired Fund's
assets attributable to a class, less the liabilities attributable to that
class assumed by the Acquiring Fund, by the Acquiring Fund's net asset
value per share of the same class, all as determined in accordance with
Paragraph 2.1 hereof.
2.3 All computations of value shall be made by the Custodian in accordance
with its regular practice as pricing agent for the Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be June 7, 2002 or such other date on or before
December 31, 2002 as the parties may agree. The Closing shall be held as
of 5:00 p.m. at the offices of the Trust and the Trust II, 101 Huntington
Avenue, Boston, Massachusetts 02199, or at such other time and/or place as
the parties may agree.
3.2 Portfolio securities that are not held in book-entry form in the name of
the Custodian as record holder for the Acquired Fund shall be presented by
the Acquired Fund to the Custodian for examination no later than three
business days preceding the Closing Date. Portfolio securities which are
not held in book-entry form shall be delivered by the Acquired Fund to the
Custodian for the account of the Acquiring Fund on the Closing Date, duly
endorsed in proper form for transfer, in such condition as to constitute
good delivery thereof in accordance with the custom of brokers, and shall
be accompanied by all necessary federal and state stock transfer stamps or
a check for the appropriate purchase price thereof. Portfolio securities
held of record by the Custodian in book-entry form on behalf of the
Acquired Fund shall be delivered to the Acquiring Fund by the Custodian by
recording the transfer of beneficial ownership thereof on its records. The
cash delivered shall be in the form of currency or by the Custodian
crediting the Acquiring Fund's account maintained with the Custodian with
immediately available funds.
3.3 In the event that on the Closing Date (a) the New York Stock Exchange
shall be closed to trading or trading thereon shall be restricted or (b)
trading or the reporting of trading on said Exchange or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date
shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored;
provided that if trading shall not be fully resumed and reporting restored
on or before December 31, 2002, this Agreement may be terminated by the
Acquiring Fund or by the Acquired Fund upon the giving of written notice
to the other party.
3.4 The Acquired Fund shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup withholding
and nonresident alien withholding status of the Acquired Fund shareholders
and the number of outstanding shares of each class of beneficial interest
of the Acquired Fund owned by each such shareholder, all as of the close
of business on the Closing Date, certified by its Treasurer, Secretary or
other authorized officer (the "Shareholder List"). The Acquiring Fund
shall issue and deliver to the Acquired Fund a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares
have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such
bills of sale, checks, assignments, stock certificates, receipts or other
documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Trust II on behalf of the Acquired Fund represents, warrants and
covenants to the Acquiring Fund as follows:
(a) The Trust II is a business trust, duly organized, validly existing
and in good standing under the laws of The Commonwealth of
Massachusetts and has the power to own all of its properties and
assets and, subject to approval by the shareholders of the Acquired
Fund, to carry out the transactions contemplated by this Agreement.
Neither the Trust II nor the Acquired Fund is required to qualify to
do business in any
37
jurisdiction in which it is not so qualified or where failure to
qualify would subject it to any material liability or disability.
The Trust II has all necessary federal, state and local
authorizations to own all of its properties and assets and to carry
on its business as now being conducted;
(b) The Trust II is a registered investment company classified as a
management company and its registration with the Commission as an
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), is in full force and effect. The Acquired
Fund is a diversified series of the Trust II;
(c) The Trust II and the Acquired Fund are not, and the execution,
delivery and performance of their obligations under this Agreement
will not result, in violation of any provision of the Trust II's
Declaration of Trust, as amended and restated (the "Trust II's
Declaration") or By-Laws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Trust II or the
Acquired Fund is a party or by which it is bound;
(d) Except as otherwise disclosed in writing and accepted by the
Acquiring Fund, no material litigation or administrative proceeding
or investigation of or before any court or governmental body is
currently pending or threatened against the Trust II or the Acquired
Fund or any of the Acquired Fund's properties or assets. The Trust
II knows of no facts which might form the basis for the institution
of such proceedings, and neither the Trust II nor the Acquired Fund
is a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects the Acquired Fund's business or its ability to
consummate the transactions herein contemplated;
(e) The Acquired Fund has no material contracts or other commitments
(other than this Agreement or agreements for the purchase of
securities entered into in the ordinary course of business and
consistent with its obligations under this Agreement) which will not
be terminated without liability to the Acquired Fund at or prior to
the Closing Date;
(f) The audited statement of assets and liabilities, including the
schedule of investments, of the Acquired Fund as of _______________
and the related statement of operations (copies of which have been
furnished to the Acquiring Fund) and the unaudited statements as of
__________________, present fairly in all material respects the
financial condition of the Acquired Fund as of ________________ and
______________ and the results of its operations for the period then
ended in accordance with generally accepted accounting principles
consistently applied, and there were no known actual or contingent
liabilities of the Acquired Fund as of the respective dates thereof
not disclosed therein;
(g) Since ______________, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquired Fund of indebtedness
maturing more than one year from the date such indebtedness was
incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund;
(h) At the date hereof and by the Closing Date, all federal, state and
other tax returns and reports, including information returns and
payee statements, of the Acquired Fund required by law to have been
filed or furnished by such dates shall have been filed or furnished,
and all federal, state and other taxes, interest and penalties shall
have been paid so far as due, or provision shall have been made for
the payment thereof, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment
has been asserted with respect to such returns or reports;
(i) The Acquired Fund has qualified as a regulated investment company
for each taxable year of its operation and the Acquired Fund will
qualify as such as of the Closing Date with respect to its taxable
year ending on the Closing Date;
(j) The authorized capital of the Acquired Fund consists of an unlimited
number of shares of beneficial interest, no par value. All issued
and outstanding shares of beneficial interest of the Acquired Fund
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Trust II. All of
the issued and outstanding shares of beneficial interest of the
Acquired Fund will, at the time of Closing, be held by the persons
and in the amounts and classes set forth in the Shareholder List
submitted to
38
the Acquiring Fund pursuant to Paragraph 3.4 hereof. The Acquired
Fund does not have outstanding any options, warrants or other rights
to subscribe for or purchase any of its shares of beneficial
interest, nor is there outstanding any security convertible into any
of its shares of beneficial interest;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the assets to be transferred to the Acquiring Fund pursuant
to Paragraph 1.1 hereof, and full right, power and authority to
sell, assign, transfer and deliver such assets hereunder, and upon
delivery and payment for such assets, the Acquiring Fund will
acquire good and marketable title thereto subject to no restrictions
on the full transfer thereof, including such restrictions as might
arise under the Securities Act of 1933, as amended (the "1933 Act");
(l) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Trust II
on behalf of the Acquired Fund, and this Agreement constitutes a
valid and binding obligation of the Acquired Fund enforceable in
accordance with its terms, subject to the approval of the Acquired
Fund's shareholders;
(m) The information to be furnished by the Acquired Fund to the
Acquiring Fund for use in applications for orders, registration
statements, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby
shall be accurate and complete and shall comply in all material
respects with federal securities and other laws and regulations
thereunder applicable thereto;
(n) The proxy statement of the Acquired Fund (the "Proxy Statement") to
be included in the Registration Statement referred to in Paragraph
5.7 hereof (other than written information furnished by the
Acquiring Fund for inclusion therein, as covered by the Acquiring
Fund's warranty in Paragraph 4.2(m) hereof), on the effective date
of the Registration Statement, on the date of the meeting of the
Acquired Fund shareholders and on the Closing Date, shall not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this Agreement;
(p) All of the issued and outstanding shares of beneficial interest of
the Acquired Fund have been offered for sale and sold in conformity
with all applicable federal and state securities laws;
(q) The Class A, Class B, and Class C prospectus of the Acquired Fund,
dated ____________ and the Class I prospectus of the Acquired Fund,
dated _____________ (the "Acquired Fund Prospectuses"), furnished to
the Acquiring Fund, does not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; and
(r) The Acquired Fund Tax Representation Certificate to be delivered by
the Acquired Fund to the Acquiring Fund at Closing pursuant to
Section 7.5 (the "Acquired Fund Tax Representation Certificate")
will not on the Closing Date contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein not misleading.
4.2 The Trust on behalf of the Acquiring Fund represents, warrants and
covenants to the Acquired Fund as follows:
(a) The Trust is a business trust duly organized, validly existing and
in good standing under the laws of The Commonwealth of Massachusetts
and has the power to own all of its properties and assets and to
carry out the Agreement. Neither the Trust nor the Acquiring Fund is
required to qualify to do business in any jurisdiction in which it
is not so qualified or where failure to qualify would subject it to
any material liability or disability. The Trust has all necessary
federal, state and local authorizations to own all of its properties
and assets and to carry on its business as now being conducted;
39
(b) The Trust is a registered investment company classified as a
management company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
The Acquiring Fund is a diversified series of the Trust;
(c) The prospectus (the "Acquiring Fund Prospectus") and statement of
additional information for Class A, Class B, Class C and Class I
shares of the Acquiring Fund, dated March 1, 2002, and any
amendments or supplements thereto on or prior to the Closing Date,
and the Registration Statement on Form N-14 filed in connection with
this Agreement (the "Registration Statement") (other than written
information furnished by the Acquired Fund for inclusion therein, as
covered by the Acquired Fund's warranty in Paragraph 4.1(m) hereof)
will conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder, the Acquiring Fund Prospectus does not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading and the Registration Statement will not
include any untrue statement of material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading;
(d) At the Closing Date, the Trust on behalf of the Acquiring Fund will
have good and marketable title to the assets of the Acquiring Fund;
(e) The Trust and the Acquiring Fund are not, and the execution,
delivery and performance of their obligations under this Agreement
will not result in a violation of any provisions of the Trust's
Declaration, or By-Laws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Trust or the
Acquiring Fund is a party or by which the Trust or the Acquiring
Fund is bound;
(f) Except as otherwise disclosed in writing and accepted by the
Acquired Fund, no material litigation or administrative proceeding
or investigation of or before any court or governmental body is
currently pending or threatened against the Trust or the Acquiring
Fund or any of the Acquiring Fund's properties or assets. The Trust
knows of no facts which might form the basis for the institution of
such proceedings, and neither the Trust nor the Acquiring Fund is a
party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects the Acquiring Fund's business or its ability to
consummate the transactions herein contemplated;
(g) The audited statement of assets and liabilities, including the
schedule of investments, of the Acquiring Fund as of December 31,
2001 and the related statement of operations (copies of which have
been furnished to the Acquired Fund), present fairly in all material
respects the financial condition of the Acquiring Fund as of
December 31, 2001 and the results of its operations for the period
then ended in accordance with generally accepted accounting
principles consistently applied, and there were no known actual or
contingent liabilities of the Acquiring Fund as of the respective
dates thereof not disclosed therein;
(h) Since December 31, 2001, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by the Trust on behalf of the
Acquiring Fund of indebtedness maturing more than one year from the
date such indebtedness was incurred, except as disclosed to and
accepted by the Acquired Fund;
(i) Each of the Acquiring Fund and its predecessors has qualified as a
regulated investment company for each taxable year of its operation
and the Acquiring Fund will qualify as such as of the Closing Date;
(j) The authorized capital of the Trust consists of an unlimited number
of shares of beneficial interest, no par value per share. All issued
and outstanding shares of beneficial interest of the Acquiring Fund
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Trust. The
Acquiring Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any of its shares of
beneficial interest, nor is there outstanding any security
convertible into any of its shares of beneficial interest;
40
(k) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action on the part of the Trust on
behalf of the Acquiring Fund, and this Agreement constitutes a valid
and binding obligation of the Acquiring Fund enforceable in
accordance with its terms;
(l) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund pursuant to the terms of this Agreement, when so issued and
delivered, will be duly and validly issued shares of beneficial
interest of the Acquiring Fund and will be fully paid and
nonassessable by the Trust;
(m) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements, proxy materials
and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and
shall comply in all material respects with federal securities and
other laws and regulations applicable thereto;
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by the Agreement,
except for the registration of the Acquiring Fund Shares under the
1933 Act and the 1940 Act; and
(o) The Acquiring Fund Tax Representation Certificate to be delivered by
the Acquiring Fund to the Acquired Fund at Closing pursuant to
Section 6.3 (the "Acquiring Fund Tax Representation Certificate")
will not on the Closing Date contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein not misleading.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary, the Trust II on
behalf of the Acquired Fund and the Trust on behalf of the Acquiring Fund,
will operate their respective businesses in the ordinary course between
the date hereof and the Closing Date, it being understood that such
ordinary course of business will include customary dividends and
distributions and any other distributions necessary or desirable to avoid
federal income or excise taxes.
5.2 The Trust II will call a meeting of the Acquired Fund shareholders to
consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired by the Acquired Fund for the purpose of
making any distribution thereof other than in accordance with the terms of
this Agreement.
5.4 The Trust II on behalf of the Acquired Fund will provide such information
within its possession or reasonably obtainable as the Trust on behalf of
the Acquiring Fund requests concerning the beneficial ownership of the
Acquired Fund's shares of beneficial interest.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund each shall take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate the transactions contemplated by this Agreement.
5.6 The Trust II on behalf of the Acquired Fund shall furnish to the Trust on
behalf of the Acquiring Fund on the Closing Date the Statement of Assets
and Liabilities of the Acquired Fund as of the Closing Date, which
statement shall be prepared in accordance with generally accepted
accounting principles consistently applied and shall be certified by the
Acquired Fund's Treasurer or Assistant Treasurer. As promptly as
practicable but in any case within 60 days after the Closing Date, the
Acquired Fund shall furnish to the Acquiring Fund, in such form as is
reasonably satisfactory to the Trust, a statement of the earnings and
profits of the Acquired Fund for federal income tax purposes and of any
capital loss carryovers and other items that will be carried over to the
Acquiring Fund as a result of Section 381 of the Code, and which statement
will be certified by the President of the Acquired Fund.
41
5.7 The Trust on behalf of the Acquiring Fund will prepare and file with the
Commission the Registration Statement in compliance with the 1933 Act and
the 1940 Act in connection with the issuance of the Acquiring Fund Shares
as contemplated herein.
5.8 The Trust II on behalf of the Acquired Fund will prepare a Proxy
Statement, to be included in the Registration Statement in compliance with
the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934
Act"), and the 1940 Act and the rules and regulations thereunder
(collectively, the "Acts") in connection with the special meeting of
shareholders of the Acquired Fund to consider approval of this Agreement.
5.9 Neither the Acquired Fund nor the Acquiring Fund shall take any action
that is inconsistent with the representations set forth in, with respect
to the Acquired Fund, the Acquired Fund Tax Representation Certificate,
and with respect to the Acquiring Fund, the Acquiring Fund Tax
Representation Certificate, to the extent such action would prevent the
reorganization from qualifying as a "reorganization" under Section 368(a)
of the Code.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST II ON BEHALF OF THE
ACQUIRED FUND
The obligations of the Trust II on behalf of the Acquired Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Trust on behalf of the Acquiring Fund of all the obligations
to be performed by it hereunder on or before the Closing Date, and, in addition
thereto, the following further conditions:
6.1 All representations and warranties of the Trust on behalf of the Acquiring
Fund contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date with
the same force and effect as if made on and as of the Closing Date;
6.2 The Trust on behalf of the Acquiring Fund shall have delivered to the
Trust II on behalf of the Acquired Fund a certificate executed in its name
by the Trust's President or Vice President and its Treasurer or Assistant
Treasurer, in form and substance satisfactory to the Trust II on behalf of
the Acquired Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Trust on behalf of the Acquiring
Fund made in this Agreement are true and correct at and as of the Closing
Date, except as they may be affected by the transactions contemplated by
this Agreement, and as to such other matters as the Trust II on behalf of
the Acquired Fund shall reasonably request; and
6.3 The Acquiring Fund shall have delivered to the Acquired Fund an Acquiring
Fund Tax Representation Certificate substantially in the form attached to
this Agreement as Annex A concerning certain tax-related matters with
respect to the Acquiring Fund.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE
ACQUIRING FUND
The obligations of the Trust on behalf of the Acquiring Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Trust II on behalf of the Acquired Fund of all the
obligations to be performed by it hereunder on or before the Closing Date and,
in addition thereto, the following conditions:
7.1 All representations and warranties of the Trust II on behalf of the
Acquired Fund contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the
Closing Date with the same force and effect as if made on and as of the
Closing Date;
7.2 The Trust II on behalf of the Acquired Fund shall have delivered to the
Trust on behalf of the Acquiring Fund the Statement of Assets and
Liabilities of the Acquired Fund, together with a list of its portfolio
securities showing the federal income tax bases and holding periods of
such securities, as of the Closing Date, certified by the Treasurer or
Assistant Treasurer of the Acquired Fund;
42
7.3 The Trust II on behalf of the Acquired Fund shall have delivered to the
Trust on behalf of the Acquiring Fund on the Closing Date a certificate
executed in the name of the Acquired Fund by a President or Vice President
and a Treasurer or Assistant Treasurer of the Acquired Fund, in form and
substance satisfactory to the Trust on behalf of the Acquiring Fund and
dated as of the Closing Date, to the effect that the representations and
warranties of the Acquired Fund in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters
as the Trust on behalf of the Acquiring Fund shall reasonably request;
7.4 At or prior to the Closing Date, the Acquired Fund's investment adviser,
or an affiliate thereof, shall have made all payments, or applied all
credits, to the Acquired Fund required by any applicable contractual
expense limitation; and
7.5 The Acquired Fund shall have delivered to the Acquiring Fund an Acquired
Fund Tax Representation Certificate substantially in the form attached to
this Agreement as Annex B concerning certain tax-related matters with
respect to the Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST II ON BEHALF OF
THE ACQUIRED FUND AND THE TRUST ON BEHALF OF THE ACQUIRING FUND
The obligations hereunder of the Trust II on behalf of the Acquired Fund and the
Trust on behalf of the Acquiring Fund are each subject to the further conditions
that on or before the Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
beneficial interest of the Acquired Fund in accordance with the provisions
of the Trust II's Declaration and By-Laws, and certified copies of the
resolutions evidencing such approval by the Acquired Fund's shareholders
shall have been delivered by the Acquired Fund to the Trust on behalf of
the Acquiring Fund;
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain
or prohibit, or obtain changes or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and permits
of federal, state and local regulatory authorities (including those of the
Commission and their "no-action" positions) deemed necessary by the Trust
II or the Trust to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a
risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may
waive any such conditions for itself;
8.4 The Registration Statement shall have become effective under the 1933 Act
and the 1940 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been instituted
or be pending, threatened or contemplated under the 1933 Act or the 1940
Act;
8.5 The Acquired Fund shall have distributed to its shareholders, in a
distribution or distributions qualifying for the deduction for dividends
paid under Section 561 of the Code, all of its investment company taxable
income (as defined in Section 852(b)(2) of the Code determined without
regard to Section 852(b)(2)(D) of the Code) for its taxable year ending on
the Closing Date, all of the excess of (i) its interest income excludable
from gross income under Section 103(a) of the Code over (ii) its
deductions disallowed under Sections 265 and 171(a)(2) of the Code for its
taxable year ending on the Closing Date, and all of its net capital gain
(as such term is used in Sections 852(b)(3)(A) and (C) of the Code), after
reduction by any available capital loss carryforward, for its taxable year
ending on the Closing Date; and
8.6 The parties shall have received an opinion of Hale and Dorr LLP,
satisfactory to the Trust II on behalf of the Acquired Fund and the Trust
on behalf of the Acquiring Fund, substantially to the effect that for
federal
43
income tax purposes the acquisition by the Acquiring Fund of all of the
assets of the Acquired Fund solely in exchange for the issuance of
Acquiring Fund Shares to the Acquired Fund and the assumption of all of
the Acquired Fund Liabilities by the Acquiring Fund, followed by the
distribution by the Acquired Fund, in liquidation of the Acquired Fund, of
Acquiring Fund Shares to the shareholders of the Acquired Fund in exchange
for their shares of beneficial interest of the Acquired Fund and the
termination of the Acquired Fund, will constitute a "reorganization"
within the meaning of Section 368(a) of the Code. Notwithstanding anything
herein to the contrary, neither the Trust II nor the Trust may waive the
conditions set forth in this Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust on behalf of the Acquiring Fund and the Trust II on behalf of
the Acquired Fund each represent and warrant to the other that there are
no brokers or finders entitled to receive any payments in connection with
the transactions provided for herein.
9.2 The Acquiring Fund and the Acquired Fund shall each be liable solely for
its own expenses incurred in connection with entering into and carrying
out the provisions of this Agreement whether or not the transactions
contemplated hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust on behalf of the Acquiring Fund and the Trust II on behalf of
the Acquired Fund agree that neither party has made any representation,
warranty or covenant not set forth herein or referred to in Paragraph 4
hereof and that this Agreement constitutes the entire agreement between
the parties.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Trust on
behalf of the Acquiring Fund and the Trust II on behalf of the Acquired
Fund. In addition, either party may at its option terminate this Agreement
at or prior to the Closing Date:
(a) because of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be performed at
or prior to the Closing Date;
(b) because of a condition herein expressed to be precedent to the
obligations of the terminating party which has not been met and
which reasonably appears will not or cannot be met;
(c) by resolution of the Trust's Board of Trustees if circumstances
should develop that, in the good faith opinion of such Board, make
proceeding with the Agreement not in the best interests of the
Acquiring Fund's shareholders; or
(d) by resolution of the Trust II's Board of Trustees if circumstances
should develop that, in the good faith opinion of such Board, make
proceeding with the Agreement not in the best interests of the
Acquired Fund's shareholders.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Trust, the Acquiring Fund, the Trust II, or the
Acquired Fund, or the Trustees or officers of the Trust or the Trust II,
but each party shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement.
12. AMENDMENTS
44
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon by the authorized officers of the Trust and the Trust II.
However, following the meeting of shareholders of the Acquired Fund held
pursuant to Paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions regarding the method for determining the
number of Acquiring Fund Shares to be received by the Acquired Fund shareholders
under this Agreement to the detriment of such shareholders without their further
approval; provided that nothing contained in this Article 12 shall be construed
to prohibit the parties from amending this Agreement to change the Closing Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to the Acquiring Fund or to the Acquired
Fund, each at 101 Huntington Avenue, Boston, Massachusetts 02199, Attention:
President, and, in either case, with copies to Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts 02109, Attention: Pamela J. Wilson, Esq.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any
party without the prior written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or
by reason of this Agreement.
14.5 All persons dealing with the Trust or the Trust II must look solely to the
property of the Trust or the Trust II, respectively, for the enforcement
of any claims against the Trust or the Trust II as the Trustees, officers,
agents and shareholders of the Trust or the Trust II assume no personal
liability for obligations entered into on behalf of the Trust or the Trust
II, respectively. None of the other series of the Trust or the Trust II
shall be responsible for any obligations assumed by or on behalf of the
Acquiring Fund or the Acquired Fund under this Agreement.
45
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first set forth above by its President or Vice President
and has caused its corporate seal to be affixed hereto.
JOHN HANCOCK CAPITAL SERIES on behalf of
JOHN HANCOCK CORE EQUITY FUND
By:
------------------------------------------------
Maureen R. Ford
Chairman, President and Chief Executive Officer
JOHN HANCOCK INSTITUTIONAL SERIES TRUST on behalf of
------------------------------------------------
By:
------------------------------------------------
Susan S. Newton
Senior Vice President and Secretary
46
Thank
You
for mailing
your proxy card
promptly!
[LOGO]
JOHN HANCOCK
- --------------------------------------------------------------------------------
Prospectus 3.1.02 Core Equity Fund
[LOGO](R) As with all mutual funds, the Securities and Exchange
- ------------------ Commission has not approved or disapproved this fund
JOHN HANCOCK FUNDS or determined whether the information in this
prospectus is adequate and accurate. Anyone who
indicates otherwise is committing a federal crime.
Contents
- --------------------------------------------------------------------------------
A summary of the fund's Core Equity Fund 4
goals, strategies, risks,
performance and expenses.
Policies and instructions for Your account
opening, maintaining and
closing an account. Choosing a share class 6
How sales charges are calculated 6
Sales charge reductions and waivers 7
Opening an account 8
Buying shares 9
Selling shares 10
Transaction policies 12
Dividends and account policies 12
Additional investor services 13
Further information on the Fund details
fund.
Business structure 14
Financial highlights 15
For more information back cover
3
Core Equity Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return (capital appreciation plus
income). To pursue this goal, the fund normally invests at least 80% of its
assets in a diversified portfolio of equity securities (including common and
preferred stocks and their equivalents) which are primarily large-capitalization
stocks. The portfolio's risk profile is similar to that of the Standard & Poor's
500 Index.
The managers select from a menu of stocks of approximately 600 companies that
evolves over time. Approximately 70% to 80% of these companies also are included
in the Standard & Poor's 500 Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
use this in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o improving fundamentals, meaning they show potential for strong growth
This process, together with a risk/return analysis against the Standard & Poor's
500 Index, results in a portfolio of approximately 100 to 130 of the stocks from
the top 60% of the menu. The fund generally sells stocks that fall into the
bottom 20% of the menu.
In normal circumstances, the fund is almost entirely invested in stocks. The
fund may invest in dollar-denominated foreign securities and make limited use of
certain derivatives (investments whose value is based on indexes or securities).
In abnormal circumstances, the fund may temporarily invest more than 20% of its
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. All
figures assume dividend reinvestment. Past performance before and after taxes
does not indicate future results.
Class A, total returns
Best quarter: Q4 '98, 24.17%
Worst quarter: Q3 '01, -15.72%
After-tax returns
After-tax returns are shown for Class A shares only and would be different for
the other classes. They are calculated using the historical highest individual
federal marginal income-tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on the investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
- --------------------------------------------------------------------------------
Class A calendar year total returns (without sales charges)
- --------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
9.01% 16.12% -2.14% 37.20% 21.24% 29.19% 28.84% 12.37% -7.75% -10.87%
- --------------------------------------------------------------------------------------------
Average annual total returns (including sales charge) for periods ending 12-31-01
- --------------------------------------------------------------------------------------------
1 year 5 year 10 year Life of Life of
Class B Class C
Class A before tax -15.32% 7.88% 11.65% -- --
Class A after tax on distributions -15.33% 7.23% 10.76% -- --
Class A after tax on distributions, with sale -9.33% 6.31% 9.56% -- --
Class B before tax (began 9-7-95) -15.91% 7.96% -- 11.01% --
Class C before tax (began 5-1-98) -13.24% -- -- -- -0.53%
Standard & Poor's 500 Index -11.89% 10.70% 12.94% 13.49% 1.97%
4
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on small- or
medium-capitalization stocks.
The fund's management strategy has a significant influence on fund performance.
If the investment research team's earnings estimates or projections turn out to
be inaccurate, or if the proprietary computer models do not perform as expected,
the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
inadequate or inaccurate financial information and social or political
instability.
Investments in the fund are not bank deposits and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. You
could lose money by investing in this fund.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) 5.00% 5.00% 2.00%
Maximum front-end sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price, whichever is less none(2) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.42% 0.42% 0.42%
Total fund operating expenses 1.47% 2.17% 2.17%
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $642 $942 $1,263 $2,170
Class B with redemption $720 $979 $1,364 $2,326
Class B without redemption $220 $679 $1,164 $2,326
Class C with redemption $417 $772 $1,253 $2,578
Class C without redemption $318 $772 $1,253 $2,578
(1) A $4.00 fee will be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
================================================================================
SUBADVISER
Independence Investment LLC
Team responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1982
Supervised by the adviser
FUND CODES
Class A Ticker JHDCX
CUSIP 409902707
Newspaper CoreEqA
SEC number 811-1677
JH fund number 25
Class B Ticker JHIDX
CUSIP 409902806
Newspaper CoreEqB
SEC number 811-1677
JH fund number 125
Class C Ticker JHCEX
CUSIP 409902863
Newspaper CoreEqC
SEC number 811-1677
JH fund number 525
5
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
Each share class has its own cost structure, including a Rule 12b-1 plan that
allows it to pay fees for the sale, distribution and service of its shares. Your
financial representative can help you decide which share class is best for you.
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
o A front-end sales charge, as described at right.
o Distribution and service (12b-1) fees of 0.30%.
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
o No front-end sales charge; all your money goes to work for you right away.
o Distribution and service (12b-1) fees of 1.00%.
o A deferred sales charge, as described on following page.
o Automatic conversion to Class A shares after eight years, thus reducing
future annual expenses.
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
o A front-end sales charge, as described at right.
o Distribution and service (12b-1) fees of 1.00%.
o A 1.00% contingent deferred sales charge on shares sold within one year of
purchase.
o No automatic conversion to Class A shares, so annual expenses continue at
the Class C level throughout the life of your investment.
For actual past expenses of each share class, see the fund-by-fund information
earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, they may cost shareholders more
than other types of sales charges.
Investors purchasing $1 million or more of Class B or Class C shares may want to
consider the lower operating expenses of Class A shares.
Your broker receives a percentage of these sales charges and fees. In addition,
John Hancock Funds may pay significant compensation out of its own resources to
your broker.
Your broker or agent may charge you a fee to effect transactions in fund shares.
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Class A and Class C Sales charges are as follows:
- --------------------------------------------------------------------------------
Class A sales charges
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $49,999 5.00% 5.26%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,000 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
- --------------------------------------------------------------------------------
Class C sales charges
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $1,000,000 1.00% 1.01%
$1,000,000 and over none
Investments of $1 million or more Class A and Class C shares are available with
no front-end sales charge. However, there is a contingent deferred sales charge
(CDSC) on any Class A shares sold within one year of purchase, as follows:
- --------------------------------------------------------------------------------
CDSC on $1 million+ investments
- --------------------------------------------------------------------------------
CDSC on shares
Your investment being sold
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the first day of that month.
6 YOUR ACCOUNT
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
Class B Shares are offered at their net asset value per share, without any
initial sales charge.
Class B and Class C A CDSC may be charged if you sell Class B or Class C shares
within a certain time after you bought them, as described in the tables below.
There is no CDSC on shares acquired through reinvestment of dividends. The CDSC
is based on the original purchase cost or the current market value of the shares
being sold, whichever is less. The CDSCs are as follows:
- --------------------------------------------------------------------------------
Class B deferred charges
- --------------------------------------------------------------------------------
Years after purchase CDSC on shares being sold
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6th year none
- --------------------------------------------------------------------------------
Class C deferred charges
- --------------------------------------------------------------------------------
Years after purchase CDSC
1st year 1.00%
After 1st year none
For purposes of these CDSCs, all purchases made during a calendar month are
counted as having been made on the first day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
o Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge. Retirement plans investing $1 million in
Class B shares may add that value to Class A purchases to calculate
charges.
o Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had
been purchased at once.
o Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Signature Services, or consult the SAI (see the
back cover of this prospectus).
Group Investment Program A group may be treated as a single purchaser under the
accumulation and combination privileges. Each investor has an individual
account, but the group's investments are lumped together for sales charge
purposes, making the investors potentially eligible for reduced sales charges.
There is no charge or obligation to invest (although initial investments must
total at least $250) and individual investors may close their accounts at any
time.
To utilize: contact your financial representative or Signature Services to find
out how to qualify, or consult the SAI (see the back cover of the prospectus).
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for each share class will generally be waived in the following cases:
o to make payments through certain systematic withdrawal plans
o to make certain distributions from a retirement plan
o because of shareholder death or disability
To utilize: If you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI (see the back
cover of this prospectus).
YOUR ACCOUNT 7
Reinstatement privilege If you sell shares of a John Hancock fund, you may
reinvest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge, as long as Signature Services is
notified before you reinvest. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must have
the same registration.
To utilize: contact your financial representative or Signature Services.
Waivers for certain investors Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
o selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under signed agreement with John Hancock Funds
o fund trustees and other individuals who are affiliated with these or other
John Hancock funds
o individuals transferring assets from an employee benefit plan into a John
Hancock fund
o participants in certain retirement plans with at least 100 eligible
employees (one-year CDSC applies)
Class C shares may be offered without front-end sales charges to various
individuals and institutions.
To utilize: if you think you may be eligible for a sales charge waiver, contact
Signature Services or consult the SAI (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
o non-retirement account: $1,000
o retirement account: $250
o group investments: $250
o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must
invest at least $25 a month
o fee-based clients of selling brokers who have placed at least $2
billion in John Hancock funds: $250
3 Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. You must notify
your financial representative or Signature Services if this information
changes. For more details, please contact your financial representative or
call Signature Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges
later.
5 Make your initial investment using the table on the next page. You and
your financial representative can initiate any purchase, exchange or sale
of shares.
8 YOUR ACCOUNT
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clip Art] o Make out a check for the o Make out a check for the
investment amount, payable to investment amount payable to
"John Hancock Signature "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to your investment slip from an
financial representative, or account statement. If no slip
mail them to Signature is available, include a note
Services (address below). specifying the fund name,
your share class, your
account number and the
name(s) in which the account
is registered.
o Deliver the check and your
investment slip or note to
your financial
representative, or mail them
to Signature Services
(address below).
By exchange
[Clip Art] o Call your financial o Log on to www.jhfunds.com to
representative or Signature process exchanges between
Services to request an funds.
exchange.
o Call EASI-Line for automated
service 24 hours a day using
your touch-tone phone at
1-800-338-8080.
o Call your financial
representative or Signature
Services to request an
exchange.
By wire
[Clip Art] o Deliver your completed o Instruct your bank to wire
application to your financial the amount of your investment
representative, or mail it to to:
Signature Services. First Signature Bank & Trust
Account # 900000260
o Obtain your account number by Routing # 211475000
calling your financial
representative or Signature Specify the fund name, your
Services. share class, your account
number and the name(s) in which
o Instruct your bank to wire the account is registered. Your
the amount of your investment bank may charge a fee to wire
to: funds.
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s)
in which the account is
registered. Your bank may
charge a fee to wire funds.
By Internet
[Clip Art] See "By exchange" and "By o Verify that your bank or
wire." credit union is a member of
the Automated Clearing House
(ACH) system.
o Complete the "Bank
Information" section on your
account application.
o Log on to www.jhfunds.com to
initiate purchases using your
authorized bank account.
By phone
[Clip Art] See "By exchange" and "By o Verify that your bank or
wire." credit union is a member of
the Automated Clearing House
(ACH) system.
o Complete the "Bank
Information" section on your
account application.
o Call EASI-Line for automated
service 24 hours a day using
your touch-tone phone at
1-800-338-8080.
o Call your financial
representative or Signature
Services between 8 A.M. and 4
P.M. Eastern Time on most
business days.
- ----------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone Number: 1-800-225-5291
Or contact your financial representative for
instructions and assistance.
- ----------------------------------------------
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
YOUR ACCOUNT 9
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clip Art] o Accounts of any type. o Write a letter of instruction
or complete a stock power
o Sales of any amount. indicating the fund name,
your share class, your
account number, the name(s)
in which the account is
registered and the dollar
value or number of shares you
wish to sell.
o Include all signatures and
any additional documents that
may be required (see next
page).
o Mail the materials to
Signature Services.
o A check will be mailed to the
name(s) and address in which
the account is registered, or
otherwise according to your
letter of instruction.
By Internet
[Clip Art] o Most accounts. o Log on to www.jhfunds.com to
initiate redemptions from
o Sales of up to $100,000. your funds.
By phone
[Clip Art] o Most accounts. o Call EASI-Line for automated
service 24 hours a day using
o Sales of up to $100,000. your touch-tone phone at
1-800-338-8080.
o Call your financial
representative or Signature
Services between 8 A.M. and 4
P.M. Eastern Time on most
business days.
By wire or electronic funds transfer (EFT)
[Clip Art] o Requests by letter to sell o To verify that the Internet
any amount. or telephone redemption
privilege is in place on an
o Requests by Internet or phone account, or to request the
to sell up to $100,000. form to add it to an existing
account, call Signature
Services.
o Amounts of $1,000 or more
will be wired on the next
business day. A $4 fee will
be deducted from your
account.
o Amounts of less than $1,000
may be sent by EFT or by
check. Funds from EFT
transactions are generally
available by the second
business day. Your bank may
charge a fee for this
service.
By exchange
[Clip Art] o Accounts of any type. o Obtain a current prospectus
for the fund into which you
o Sales of any amount. are exchanging by Internet or
by calling your financial
representative or Signature
Services.
o Log on to www.jhfunds.com to
process exchanges between
your funds.
o Call EASI-Line for automated
service 24 hours a day using
your touch-tone phone at
1-800-338-8080.
o Call your financial
representative or Signature
Services to request an
exchange.
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
10 YOUR ACCOUNT
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, unless they were previously provided to Signature Services and are
still accurate. These items are shown in the table below. You may also need to
include a signature guarantee, which protects you against fraudulent orders. You
will need a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling more than $100,000 worth of shares
o you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You will need to obtain your signature guarantee from a member of the Signature
Guarantee Medallion Program. Most brokers and securities dealers are members of
this program. A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
- --------------------------------------------------------------------------------
[Clip Art]
Owners of individual, joint or o Letter of instruction.
UGMA/UTMA accounts (custodial
accounts for minors). o On the letter, the signatures and
titles of all persons authorized to
sign for the account, exactly as
the account is registered.
o Signature guarantee if applicable
(see above).
Owners of corporate, sole o Letter of instruction.
proprietorship, general partner or
association accounts. o Corporate business/organization
resolution, certified within the
past 12 months, or a John Hancock
Funds business/organization
certification form.
o On the letter and the resolution,
the signature of the person(s)
authorized to sign for the account.
o Signature guarantee if applicable
(see above).
Owners or trustees of trust accounts. o Letter of instruction.
o On the letter, the signature(s) of
the trustee(s).
o Copy of the trust document
certified within the past 12 months
or a John Hancock Funds trust
certification form.
o Signature guarantee if applicable
(see above).
Joint tenancy shareholders with o Letter of instruction signed by
rights of survivorship whose surviving tenant.
co-tenants are deceased.
o Copy of death certificate.
o Signature guarantee if applicable
(see above).
Executors of shareholder estates. o Letter of instruction signed by
executor.
o Copy of order appointing executor,
certified within the past 12
months.
o Signature guarantee if applicable
(see above).
Administrators, conservators, o Call 1-800-225-5291 for
guardians and other sellers or instructions.
account types not listed above.
- ----------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone Number: 1-800-225-5291
Or contact your financial representative for
instructions and assistance.
- ----------------------------------------------
YOUR ACCOUNT 11
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value (NAV) per share for each class of the
fund is determined each business day at the close of regular trading on the New
York Stock Exchange (typically 4 P.M. Eastern Time). The fund uses market prices
in valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable. The fund may also value securities at fair value
if the value of these securities has been materially affected by events
occurring after the close of a foreign market. Foreign stock or other portfolio
securities held by the fund may trade on U.S. holidays and weekends, even though
the fund's shares will not be priced on those days. This may change the fund's
NAV on days when you cannot buy or sell shares.
Buy and sell prices When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
Execution of requests The fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after Signature Services receives your
request in good order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line, accessing www.jhfunds.com, or
sending your request in writing.
In unusual circumstances, the fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. Also for your protection, telephone
redemption transactions are not permitted on accounts whose names or addresses
have changed within the past 30 days. Proceeds from telephone transactions can
only be mailed to the address of record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical. Class B and Class
C shares will continue to age from the original date and will retain the same
CDSC rate. However, if the new fund's CDSC rate is higher, then the rate will
increase. A CDSC rate that has increased will drop again with a future exchange
into a fund with a lower rate.
To protect the interests of other investors in the fund, the fund may cancel the
exchange privileges of any parties who, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. The fund may also refuse any exchange
order. The fund may change or cancel its exchange policies at any time, upon 60
days' notice to its shareholders.
Certificated shares The funds no longer issue share certificates. Shares are
electronically recorded. Any existing certificated shares can only be sold by
returning the certificated shares to Signature Services, along with a letter of
instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The fund generally distributes most or all of its net earnings in the
form of dividends. The fund declares and pays any income dividends annually.
Capital gains, if any, are typically distributed annually.
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends and capital gains in the amount of more than $10 mailed to you.
However, if the check is not deliverable or the combined dividend and capital
gains amount is $10 or less, your proceeds will be reinvested. If five or more
of your dividend or capital gains checks remain uncashed after 180 days, all
subsequent dividends and capital gains will be reinvested.
12 YOUR ACCOUNT
Taxability of dividends Dividends you receive from a fund, whether reinvested or
taken as cash, are generally considered taxable. Dividends from the fund's
long-term capital gains are taxable as capital gains; dividends from the fund's
income and short-term capital gains are generally taxable as ordinary income.
Whether gains are short-term or long-term depends on the fund's holding period.
Some dividends paid in January may be taxable as if they had been paid the
previous December.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
o Complete the appropriate parts of your account application.
o If you are using MAAP to open an account, make out a check ($25 minimum)
for your first investment amount payable to "John Hancock Signature
Services, Inc." Deliver your check and application to your financial
representative or Signature Services.
Systematic withdrawal plan This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account
(buying shares during a period when you are also selling shares of the
same fund is not advantageous to you, because of sales charges).
o Specify the payee(s). The payee may be yourself or any other party, and
there is no limit to the number of payees you may have, as long as they
are all on the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial
representative or Signature Services.
Retirement plans John Hancock Funds offers a range of retirement plans,
including traditional, Roth and Education IRAs, SIMPLE plans and SEPs. Using
these plans, you can invest in any John Hancock fund (except tax-free income
funds) with a low minimum investment of $250 or, for some group plans, no
minimum investment at all. To find out more, call Signature Services at
1-800-225-5291.
YOUR ACCOUNT 13
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the fund. The
fund's board of trustees oversees the fund's business activities and retains the
services of the various firms that carry out the fund's operations.
The trustees of the fund have the power to change the focus of the fund's 80%
investment policy without shareholder approval. The fund will provide written
notice to shareholders at least 60 days prior to a change in its 80% investment
policy.
The management firm The fund is managed by John Hancock Advisers, LLC. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Financial Services, Inc. and manages approximately $30 billion in assets.
Management fee For the fiscal year ended December 31, 2001, the fund paid the
investment adviser management fees of 0.75% of average net assets.
-----------------------
Shareholders
-----------------------
Distribution and
shareholder services
---------------------------------------------------
Financial services firms and
their representatives
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
---------------------------------------------------
---------------------------------------------------
Principal distributor
John Hancock Funds, LLC
Markets the fund and distributes shares
through selling brokers, financial planners
and other financial representatives.
---------------------------------------------------
---------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
Handles shareholder services, including record-
keeping and statements, distribution of dividends
and processing of buy and sell requests.
---------------------------------------------------
Asset
management
---------------------------------------------------
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Manages the fund's business and
investment activities.
---------------------------------------------------
---------------------------------------------------
Subadvisers
Independence Investment LLC
53 State Street
Boston, MA 02109
Provide portfolio
management to the fund.
---------------------------------------------------
---------------------------------------------------
Custodian
The Bank of New York
One Wall Street
New York, New York 10286
Holds the fund's assets, settles all
portfolio trades and collects most of
the valuation data required for
calculating the fund's NAV.
---------------------------------------------------
---------------------------------------------------
Trustees
Oversee the fund's activities.
---------------------------------------------------
14 FUND DETAILS
FINANCIAL HIGHLIGHTS
These tables detail the performance of the fund's share classes, including total
return information showing how much an investment in the fund has increased
or decreased each year.
Core Equity Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED: 12-31-97 12-31-98 12-31-99 12-31-00 12-31-01
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $19.42 $23.93 $30.14 $33.21 $29.87
Net investment income (loss)(1) 0.10 0.05 (0.02) (0.06) (0.03)
Net realized and unrealized gain (loss) on investments 5.55 6.81 3.72 (2.49) (3.22)
Total from investment operations 5.65 6.86 3.70 (2.55) (3.25)
Less distributions
From net investment income (0.04) -- -- -- --
From net realized gain (1.10) (0.65) (0.63) (0.42) (0.01)
In excess of net realized gain -- -- -- (0.37) --
(1.14) (0.65) (0.63) (0.79) (0.01)
Net asset value, end of period $23.93 $30.14 $33.21 $29.87 $26.61
Total return(2) (%) 29.19(3) 28.84 12.37 (7.75) (10.87)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $92 $201 $394 $373 $255
Ratio of expenses to average net assets (%) 1.42 1.39 1.37 1.41 1.47
Ratio of adjusted expenses to average net assets(4) (%) 1.44 -- -- -- --
Ratio of net investment income (loss) to average net assets (%) 0.45 0.17 (0.06) (0.19) (0.12)
Portfolio turnover (%) 62 50 98 82 76
CLASS B SHARES PERIOD ENDED: 12-31-97 12-31-98 12-31-99 12-31-00 12-31-01
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $19.41 $23.80 $29.75 $32.54 $29.06
Net investment loss(1) (0.06) (0.14) (0.24) (0.27) (0.22)
Net realized and unrealized gain (loss) on investments 5.56 6.74 3.66 (2.42) (3.12)
Total from investment operations 5.50 6.60 3.42 (2.69) (3.34)
Less distributions
From net investment income (0.01) -- -- -- --
From net realized gain (1.10) (0.65) (0.63) (0.42) (0.01)
In excess of net realized gain -- -- -- (0.37) --
(1.11) (0.65) (0.63) (0.79) (0.01)
Net asset value, end of period $23.80 $29.75 $32.54 $29.06 $25.71
Total return(2) (%) 28.39(3) 27.90 11.59 (8.35) (11.49)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $135 $347 $664 $499 $377
Ratio of expenses to average net assets (%) 2.12 2.09 2.07 2.07 2.17
Ratio of adjusted expenses to average net assets(4) (%) 2.14 -- -- -- --
Ratio of net investment income (loss) to average net assets (%) (0.25) (0.53) (0.77) (0.86) (0.82)
Portfolio turnover (%) 62 50 98 82 76
FUND DETAILS 15
CLASS C SHARES PERIOD ENDED: 12-31-99(5) 12-31-00 12-31-01(1)
- -------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.60 $14.05 $13.03
Net investment income(2) 0.19 0.24 0.21
Net realized and unrealized loss on investments (0.37) (0.59) (0.99)
Total from investment operations (0.18) (0.35) (0.78)
Less distributions
From net investment income (0.19) (0.24) (0.24)
In excess of net investment income --(3) -- --
From net realized gain (0.18) (0.43) --
(0.37) (0.67) (0.24)
Net asset value, end of period $14.05 $13.03 $12.01
Total return(4) (%) (1.15)(6) (2.51) (5.99)
- -------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) --(7) $1 $2
Ratio of expenses to average net assets (%) 1.84(8) 2.01 2.07
Ratio of net investment income to average net assets (%) 1.88(8) 1.93 1.76
Portfolio turnover (%) 94 99 98
(1) As required, effective January 1, 2001, the fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies, as revised, and began amortizing premiums on debt securities.
The effect of this change for the year ended December 31, 2001 was to
decrease net investment income per share by $0.01, decrease net realized
and unrealized losses per share by $0.01, and, had the fund not amortized
premiums on debt securities, the annualized ratio of net investment income
to average net assets would have been 2.50%, 1.80% and 1.80% for Class A,
Class B and Class C shares, respectively. Per share ratios and
supplemental data for periods prior to January 1, 2001 have not been
restated to reflect this change in presentation.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Class C shares began operations on 5-3-99.
(6) Not annualized.
(7) Less than $500,000.
(8) Annualized.
16 FUND DETAILS
For more information
Two documents are available that offer further information on the John Hancock
Core Equity Fund:
Annual/Semiannual Report to Shareholders
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, as well as the
auditors' report (in annual report only).
Statement of Additional Information (SAI)
The SAI contains more detailed information on all aspects of the fund. The
current annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By phone: 1-800-225-5291
By EASI-Line: 1-800-338-8080
By TDD: 1-800-544-6713
On the Internet: www.jhfunds.com
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC. For access to
the Reference Room call 1-202-942-8090
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-0102
(duplicating fee required)
By electronic request: publicinfo@sec.gov
(duplicating fee required)
On the Internet: www.sec.gov
[LOGO](R)
[OLYMPIC LOGO]
WORLDWIDE SPONSOR
John Hancock Funds, LLC
MEMBER NASD
101 Huntington Avenue
Boston, MA 02199-7603
www.jhfunds.com
Mutual Funds
Institutional Services
Private Managed Accounts
Retirement Plans
(C)2002 JOHN HANCOCK FUNDS, LLC
250PN 3/02
JOHN HANCOCK
- --------------------------------------------------------------------------------
Prospectus 3.1.02 Core Equity Fund
INSTITUTIONAL CLASS I
[LOGO](R) As with all mutual funds, the Securities and Exchange
- ------------------ Commission has not approved or disapproved this fund or
JOHN HANCOCK FUNDS determined whether the information in this prospectus is
adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
Contents
- --------------------------------------------------------------------------------
A summary of the fund's Core Equity Fund 4
goals, strategies, risks,
performance and expenses.
Policies and instructions Your account
for opening, maintaining and
closing an account. Who can buy shares 6
Opening an account 6
Buying shares 7
Selling shares 8
Transaction policies 10
Dividends and account policies 10
Further information on Fund details
the fund.
Business structure 11
Financial highlights 12
For more information back cover
Core Equity Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return (capital appreciation plus
income). To pursue this goal, the fund normally invests at least 80% of its
assets in a diversified portfolio of equities securities (including common and
preferred stocks and their equivalents) which are primarily large-capitalization
stocks. The portfolio's risk profile is similar to that of the Standard & Poor's
500 Index.
The managers select from a menu of stocks of approximately 600 companies that
evolves over time. Approximately 70% to 80% of these companies also are included
in the Standard & Poor's 500 Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
uses this in-house research to rank the stocks according to their combination
of:
o value, meaning they appear to be underpriced
o improving fundamentals, meaning they show potential for strong growth
This process, together with a risk/return analysis against the Standard & Poor's
500 Index, results in a portfolio of approximately 100 to 130 of the stocks from
the top 60% of the menu. The fund generally sells stocks that fall into the
bottom 20% of the menu.
In normal circumstances, the fund is almost entirely invested in stocks. The
fund may invest in dollar-denominated foreign securities and make limited use of
certain derivatives (investments whose value is based on indexes or securities).
In abnormal circumstances, the fund may temporarily invest more than 20% of its
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. Since Class I shares have no operational history, the
year-by-year and average annual figures are for Class A shares, which are
offered in a separate prospectus. Annual returns should be substantially similar
since all classes invest in the same portfolio. Class I shares have no sales
charges and lower expenses than Class A shares. The average annual figures
reflect sales charges; the year-by-year and index figures do not, and would be
lower if they did. All figures assume dividend reinvestment. Past performance
before and after taxes does not indicate future results.
Class A, total returns
Best quarter: Q4 '98, 24.17%
Worst quarter: Q3 '01, -15.72%
After-tax returns
After-tax returns are shown for Class A shares only and would be different for
the other classes. They are calculated using the historical highest individual
federal marginal income-tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on the investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
- --------------------------------------------------------------------------------
Class A calendar year total returns (without sales charges)
- --------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
9.01% 16.12% -2.14% 37.20% 21.24% 29.19% 28.84% 12.37% -7.75% -10.87%
- --------------------------------------------------------------------------------
Average annual total returns (including sales charge) for periods ending
12-31-01
- --------------------------------------------------------------------------------
1 year 5 year 10 year
- --------------------------------------------------------------------------------
Class A before tax -15.32% 7.88% 11.65%
Class A after tax on distributions -15.33% 7.23% 10.76%
Class A after tax on distributions, with sale -9.33% 6.31% 9.56%
Class I before tax (no operational history) -- -- --
Standard & Poor's 500 Index -11.89% 10.70% 12.94%
4
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on small- or
medium-capitalization stocks.
The fund's management strategy has a significant influence on fund performance.
If the investment research team's earnings estimates or projections turn out to
be inaccurate, or if the proprietary computer models do not perform as expected,
the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
inadequate or inaccurate financial information and social or political
instability.
Investments in the fund are not bank deposits and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. You
could lose money by investing in this fund.
================================================================================
YOUR EXPENSES
[Clip Art] Operating expenses are paid from the fund's assets, and therefore are
paid by shareholders indirectly. Because Class I is new, its expenses are based
on Class A expenses, adjusted to reflect any changes.
- --------------------------------------------------------------------------------
Annual operating expenses
- --------------------------------------------------------------------------------
Management fee 0.75%
Other expenses 0.13%
Total fund operating expenses 0.88%
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class I $90 $281 $488 $1,084
================================================================================
SUBADVISER
Independence Investment LLC
Team responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1982
Supervised by the adviser
FUND CODES
Class I Ticker --
CUSIP 409902848
Newspaper --
SEC number 811-1677
JH fund number 423
5
Your Account
- --------------------------------------------------------------------------------
WHO CAN BUY SHARES
Class I shares are offered without any sales charge to certain types of
investors, as noted below:
o Retirement and other benefit plans and their participants
o Rollover assets for participants whose plans are invested in the
fund
o Certain trusts, endowment funds and foundations
o Any state, county or city, or its instrumentality, department,
authority or agency
o Insurance companies, trust companies and bank trust departments
buying shares for their own account
o Investment companies not affiliated with the adviser
o Clients of service agents and broker-dealers who have entered into
an agreement with John Hancock Funds
o Investors who participate in fee-based, wrap and other investment
platform programs
o Any entity that is considered a corporation for tax purposes
o Fund trustees and other individuals who are affiliated with this
fund or other John Hancock funds
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine if you are eligible, by referring to "Who can buy shares"
on the left.
3 Determine how much you want to invest. The minimum initial
investment is $10,000. There is no minimum investment for retirement
plans with at least 350 eligible employees.
4 Complete the appropriate parts of the account application, carefully
following the instructions. By applying for privileges now, you can
avoid the delay and inconvenience of having to file an additional
application if you want to add privileges later. You must submit
additional documentation when opening trust, corporate or power of
attorney accounts.
5 Make your initial investment using the table on the next page.
6 If you have questions or need more information, please contact your
financial representative or call Signature Services at
1-888-972-8696.
John Hancock Funds may pay significant compensation out of its own resources to
your financial representative.
Your broker or agent may charge you a fee to effect transactions in fund shares.
6 YOUR ACCOUNT
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clip Art] o Make out a check for the o Make out a check for the
investment amount, payable to investment amount payable to
"John Hancock Signature "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to your investment slip from an
financial representative, or account statement. If no slip
mail them to Signature is available, include a note
Services (address below). specifying the fund name(s),
your share class, your
account number and the
name(s) in which the account
is registered.
o Deliver the check and
investment slip or note to
your financial
representative, or mail them
to Signature Services
(address below).
By exchange
[Clip Art] o Call your financial o Call your financial
representative or Signature representative or Signature
Services to request an Services to request an
exchange. exchange.
o You may only exchange for o You may only exchange for
shares of other institutional shares of other institutional
funds or Class I shares. funds or Class I shares.
By wire
[Clip Art] o Deliver your completed o Instruct your bank to wire
application to your financial the amount of your investment
representative, or mail it to to:
Signature Services. First Signature Bank & Trust
Account # 900022260
o Obtain your account number by Routing # 211475000
calling your financial
representative or Signature Specify the fund name(s), your
Services. share class, your account
number and the name(s) in which
o Instruct your bank to wire the account is registered. Your
the amount of your investment bank may charge a fee to wire
to: funds.
First Signature Bank & Trust
Account # 900022260
Routing # 211475000
Specify the fund name(s),
the share class, the new
account number and the name(s)
in which the account is
registered. Your bank may
charge a fee to wire funds.
By phone
[Clip Art] See "By exchange" and "By o Verify that your bank or
wire." credit union is a member of
the Automated Clearing House
(ACH) system.
o Complete the "To Purchase,
Exchange or Redeem Shares via
Telephone" and "Bank Information"
sections on your account
application.
o Call Signature Services to
verify that these features are
in place on your account.
o Call your financial
representative or Signature
Services with the fund name(s),
your share class, your account
number, the name(s) in which the
account is registered and the
amount of your investment.
- ---------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
Phone Number: 1-888-972-8696
Or contact your financial representative for
instructions and assistance.
- ---------------------------------------------
YOUR ACCOUNT 7
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clip Art] o Sales of any amount, however, o Write a letter of
sales of $5 million or more instruction indicating the
must be made by letter. fund name, your account
number, your share class,
o Certain requests will require. the name(s) in which the
a Medallion signature guarantee. account is registered and
Please refer to "Selling shares the dollar value or number
in writing." of shares you wish to sell.
o Include all signatures and
any additional documents that
may be required (see next
page).
o Mail the materials to
Signature Services.
o A check or wire will be sent
according to your letter of
instruction.
By phone
[Clip Art] o Sales of up to $5 million. o To place your request with a
representative at John Hancock
Funds, call Signature Services
between 8 A.M. and 4 P.M.
Eastern Time on most business
days.
o Redemption proceeds of up to
$100,000 may be sent by wire
or by check. A check will be
mailed to the exact name(s)
and address on the account.
Redemption proceeds
exceeding $100,000 must be
wired to your designated
bank account.
By wire or electronic funds transfer (EFT)
[Clip Art] o Requests by letter to sell o To verify that the telephone
any amount. redemption privilege is in
place on an account, or to
o Requests by phone to sell up request the forms to add it
to $5 million (accounts with to an existing account, call
telephone redemption Signature Services.
privileges).
o Amounts of $5 million or more
will be wired on the next
business day.
o Amounts up to $100,000 may
be sent by EFT or by check.
Funds from EFT transactions
are generally available by
the second business day.
Your bank may charge a fee
for this service.
By exchange
[Clip Art] o Sales of any amount. o Obtain a current prospectus
for the fund into which you
are exchanging by calling your
financial representative or
Signature Services.
o You may only exchange
for shares of other
institutional funds or
Class I shares.
o Call your financial
representative or
Signature Services to
request an exchange.
8 YOUR ACCOUNT
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below, unless they were previously provided
to Signature Services and are still accurate. You may also need to include a
Medallion signature guarantee, which protects you against fraudulent orders. You
will need a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling more than $100,000 worth of shares and are requesting
payment by check
o you are selling more than $5 million worth of shares
You will need to obtain your Medallion signature guarantee from a member of the
Signature Guarantee Medallion Program. Most brokers and securities dealers are
members of this program. A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
- --------------------------------------------------------------------------------
Owners of individual, joint or o Letter of instruction.
UGMA/UTMA accounts (custodial
accounts for minors). o On the letter, the signatures of
all persons authorized to sign for
the account, exactly as the
account is registered.
o Medallion signature guarantee if
applicable (see above).
Owners of corporate, sole o Letter of instruction.
proprietorship, general partner or
association accounts. o Corporate business/organization
resolution, certified within the
past 12 months, or a John Hancock
Funds business/organization
certification form.
o On the letter and the resolution,
the signature of the person(s)
authorized to sign for the
account.
o Medallion signature guarantee if
applicable (see above).
Owners or trustees of retirement o Letter of instruction.
plan, pension trust and trust
accounts. o On the letter, the signature(s) of
the trustee(s).
o Copy of the trust document
certified within the past 12
months or a John Hancock Funds
trust certification form.
o Medallion signature guarantee if
applicable (see above).
Joint tenancy shareholders o Letter of instruction signed by
with rights of survivorship surviving tenant.
whose co-tenants are
deceased. o Copy of death certificate.
o Medallion signature
guarantee if applicable (see
above).
Executors of shareholder estates. o Letter of instruction
signed by executor.
o Copy of order appointing
executor, certified within
the past 12 months.
o Medallion signature
guarantee if applicable (see
above).
Administrators, o Call 1-888-972-8696 for instructions.
conservators, guardians and
other sellers or account
types not listed above.
- ---------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
Phone Number: 1-888-972-8696
Or contact your financial representative for
instructions and assistance.
- ---------------------------------------------
YOUR ACCOUNT 9
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value (NAV) per share for the fund is
determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time). The fund uses market prices in
valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable. The fund may also value securities at fair value
if the value of these securities has been materially affected by events
occurring after the close of a foreign market. The fund may trade foreign stock
or other portfolio securities on U.S. holidays and weekends, even though the
fund's shares will not be priced on those days. This may change a fund's NAV on
days when you cannot buy or sell shares.
Buy and sell prices When you buy shares, you pay the NAV. When you sell shares,
you receive the NAV.
Execution of requests The fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after Signature Services receives your
request in good order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing.
In unusual circumstances, the fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. Also for your protection, telephone
transactions are not permitted on accounts whose names or addresses have changed
within the past 30 days. Proceeds from telephone transactions can only be mailed
to the address of record.
Exchanges You may exchange Class I shares for shares of any institutional fund
or Class I shares. The registration for both accounts involved must be
identical.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties who, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. The fund reserves the right to require that
previously exchanged shares and reinvested dividends be in the fund for 90 days
before a shareholder is permitted a new exchange. The fund may also refuse any
exchange order. A fund may change or cancel its exchange policies at any time,
upon 60 days' notice to its shareholders.
Certificated shares The fund no longer issues share certificates. Shares are
electronically recorded. Any existing certificated shares can only be sold by
returning the certificated shares to Signature Services, along with a letter of
instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, at least quarterly
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The fund generally distributes most or all of its net earnings in the
form of dividends. Any capital gains are distributed annually. The fund declares
and pays any income dividends annually.
Dividend reinvestments Dividends will be reinvested automatically in additional
shares of the same fund on the dividend record date. Alternatively, you can
choose to have your dividends and capital gains sent directly to your bank
account or a check will be sent in the amount of more than $10. However, if the
check is not deliverable or the combined dividend and capital gains amount is
$10 or less, your proceeds will be reinvested. If five or more of your dividend
or capital gains checks remain uncashed after 180 days, all subsequent dividends
and capital gains will be reinvested.
10 YOUR ACCOUNT
Taxability of dividends For investors who are not exempt from federal income
taxes, dividends you receive from a fund, whether reinvested or taken as cash,
are generally considered taxable. Dividends from a fund's short-term capital
gains are taxable as ordinary income. Dividends from a fund's long-term capital
gains are taxable at a lower rate. Whether gains are short-term or long-term
depends on the fund's holding period. Some dividends paid in January may be
taxable as if they had been paid the previous December.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you if you are not exempt from federal income
taxes. Depending on the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or a loss on the transaction. You are
responsible for any tax liabilities generated by your transactions.
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The fund's board of trustees oversees the fund's business activities and retains
the services of the various firms that carry out the fund's operations.
The trustees of the fund have the power to change the focus of a fund's 80%
investment policy without shareholder approval. The fund will provide written
notice to shareholders at least 60 days prior to a change in its 80% investment
policy.
The investment adviser The fund is managed by John Hancock Advisers, LLC, 101
Huntington Avenue, Boston, MA 02199-7603. Founded in 1968, John Hancock Advisers
is a wholly owned subsidiary of John Hancock Financial Services, Inc. and
manages approximately $30 billion in assets.
Subadviser Independence Investment LLC, 53 State Street, Boston, MA 02109.
Management fees For the period ended December 31, 2001, the fund paid the
investment adviser management fees at a rate of 0.75% of average net assets.
YOUR ACCOUNT 11
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Since Class I shares have no operational history, financial highlights are
provided for the fund's Class A shares, which are offered in a separate
prospectus. This table details the performance of the fund's Class A shares,
including total return information showing how much an investment in the fund
has increased or decreased each year.
Core Equity Fund Figures
Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED: 12-31-97 12-31-98 12-31-99 12-31-00 12-31-01
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $19.42 $23.93 $30.14 $33.21 $29.87
Net investment income (loss)(1) 0.10 0.05 (0.02) (0.06) (0.03)
Net realized and unrealized gain (loss) on investments 5.55 6.81 3.72 (2.49) (3.22)
Total from investment operations 5.65 6.86 3.70 (2.55) (3.25)
Less distributions (0.04) -- -- -- --
From net investment income (1.10) (0.65) (0.63) (0.42) (0.01)
From net realized gain -- -- -- (0.37) --
In excess of net realized gain (1.14) (0.65) (0.63) (0.79) (0.01)
Net asset value, end of period $23.93 $30.14 $33.21 $29.87 $26.61
Total return(2) (%) 29.19(3) 28.84 12.37 (7.75) (10.87)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 92 $ 201 $ 394 $373 $ 255
Ratio of expenses to average net assets (%) 1.42 1.39 1.37 1.41 1.47
Ratio of adjusted expenses to average net assets(4) 1.44 -- -- -- --
Ratio of net investment income (loss) to average net assets (%) 0.45 0.17 (0.06) (0.19) (0.12)
Portfolio turnover (%) 62 50 98 82 76
- ----------------------------------------------------------------------------------------------------------------------------
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) The total return would have been lower had certain expenses not been
reduced during the period shown.
(4) Does not take into consideration expense reductions during the periods
shown.
- --------------------------------------------------------------------------------
The following returns are not audited and are not part of the audited financial
highlights presented above: Without the expense reductions, returns for Class A
for the year ended December 31, 1997 would have been 29.17%.
12 FUND DETAILS
For more information
Two documents are available that offer further information on the John Hancock
Core Equity Fund:
Annual/Semiannual Report to Shareholders Includes financial statements, a
discussion of the market conditions and investment strategies that significantly
affected performance, as well as the auditors' report (in annual report only).
Statement of Additional Information (SAI) The SAI contains more detailed
information on all aspects of the fund/. The current annual report is included
in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA02217-1001
By phone: 1-888-972-8696
By EASI-Line: 1-800-597-1897
By TDD: 1-800-462-0825
On the Internet: www.jhfunds.com
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC. For access to
the Reference Room call 1-202-942-8090
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-0102
(duplicating fee required)
By electronic request: publicinfo@sec.gov
(duplicating fee required)
On the Internet: www.sec.gov
- -------------------------
John Hancock Funds, LLC
Member NASD
101 Huntington Avenue
Boston, MA 02199-7603
www.jhfunds.com
Mutual Funds
Institutional Services
Private Managed Accounts
Retirement Plans
(C)2002 john hancock funds, LLC
46IPN 3/02
John Hancock
Core Equity
Fund
ANNUAL
REPORT
12.31.01
Sign up for electronic delivery at
www.jhancock.com/funds/edelivery
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of Maureen R. Ford, Chairman and Chief Executive Officer,
flush left next to first paragraph.]
WELCOME
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
A look at performance
page 6
Growth of $10,000
page 7
Fund's investments
page 8
Financial statements
page 12
For your information
page 25
Dear Fellow Shareholders,
The U.S. stock market produced double-digit losses for the second year
in a row in 2001 -- the first back-to-back down years for stocks since
the 1973-74 bear market. The economy slipped into recession, wreaking
havoc with corporate profits, and the tragic events of September 11
further rattled investors. Even a strong fourth quarter rally was not
enough to lift the major indexes into positive territory. The Standard &
Poor's 500 Index finished the year losing 11.88%, including reinvested
dividends, and the Dow Jones Industrial Average lost 5.42%. The
tech-heavy Nasdaq Composite Index fell 21.05% -- tamer than 2000's loss
thanks to a late-year rebound in the beleaguered technology and
telecommunications sectors.
Stock mutual fund investors didn't find many places to hide, and 83% of
U.S. stock funds posted negative returns in 2001, with the average stock
fund falling 10.89%, according to Lipper, Inc. In stark contrast, bonds
beat stocks for the second straight year and produced positive results,
buoyed by falling interest rates and investors' search for safety.
These last two years couldn't have provided a more vivid example of the
importance of being well diversified, since a portfolio concentrated
solely in stocks would have fallen more in the last two years than one
combining investments in both stocks and bonds.
Two disappointing years of stock performance could also be a reason to
re-evaluate with your investment professional whether you are still on
track to meet your long-term financial goals. It's possible that
downsized results, and modified expectations, could foster some changes
in your investing strategies. And now is certainly a good time to
perform this review, given the increased opportunities for retirement
and college savings offered in President Bush's major tax-cut
legislation enacted in June.
With the market's fourth quarter rally, and the growing expectation that
the economy would rebound sometime in 2002, we begin the year on a
positive note, confident in the resilience of the economy, the financial
markets and the nation.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Chairman and Chief Executive Officer
YOUR FUND
AT A GLANCE
The Fund seeks
above-average
total return
(capital apprecia-
tion plus income)
by investing in a
diversified
portfolio of
primarily large-
capitalization
stocks. The
portfolio's risk
profile is similar
to that of the
Standard & Poor's
500 Index.
Over the last twelve months
* The economy slipped into recession, and declining corporate earnings
hurt stock market results.
* The Fed continued to cut interest rates aggressively.
* The Fund's blend of growth and value helped its relative performance.
[Bar chart with heading "John Hancock Core Equity Fund." Under the
heading is a note that reads "Fund performance for the year ended
December 31, 2001." The chart is scaled in increments of 4% with -12% at
the bottom and 0% at the top. The first bar represents the -10.87% total
return for Class A. The second bar represents the -11.49% total return
for Class B. The third bar represents the -11.49% total return for Class
C. A note below the chart reads "Total returns for the Fund are at net
asset value with all distributions reinvested."]
Top 10 holdings
3.4% Pfizer
3.4% Citigroup
3.3% Microsoft
2.9% Exxon Mobil
2.9% General Electric
2.5% Intel
2.2% American Home Products
2.2% Tyco International
2.1% IBM
2.0% Philip Morris
As a percentage of net assets on December 31, 2001.
MANAGERS'
REPORT
BY PAUL MCMANUS, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Core Equity
Fund
While 2001 was undoubtedly a difficult year for many investors, a strong
year-end rally helped to offset some of the stock-market damage
inflicted earlier in the year. During the first half, the key question
was whether the U.S. economy would enter a recession. As the summer
progressed, the answer to this question was still in doubt, as the
economy experienced clear but contained weakening. The manufacturing
sector continued to be the most troublesome spot, while consumer
spending held up fairly well. In September some economic data, such as
the National Association of Purchasing Management's index of
manufacturing activity, began to indicate that the rate of economic
deceleration might be decreasing. Then September 11 changed everything,
and suddenly the question became how long the recession would last.
"...a strong year-end rally
helped to offset some
of the stock-market
damage inflicted earlier
in the year."
The silver lining in all of these clouds was the Federal Reserve Board's
proactive response to the situation. By September 11, the Fed had
already reduced short-term interest rates seven times in 2001. The
central bank reacted swiftly and decisively to the terrorist crisis,
cutting rates another four times before the end of the period and
aggressively adding reserves to the banking system. Seeing the Fed's
commitment to reviving the economy, investors looked ahead to the
possibility of a recovery in 2002 and drove the popular stock averages
back up to their pre-attack levels by the end of the period.
PERFORMANCE REVIEW
The Fund's strategy of maintaining broad diversification and seeking out
undervalued stocks of companies with improving fundamentals served it
well. In the first and third quarters of the year, when most stocks
suffered their worst declines, value outperformed growth. Conversely,
the second and fourth quarters saw growth stocks take the lead when the
markets rallied. Because our methodology includes growth and value
components, we benefited from both scenarios on a relative basis.
Similarly, our exposure to stocks from all market capitalizations
enabled the Fund to take advantage of the relative outperformance of
medium- and small-cap shares. Consequently, although we finished a
difficult year with negative returns, we managed to outperform our
benchmark and peer group average.
For the 12 months ended December 31, 2001, the John Hancock Core Equity
Fund's Class A, Class B and Class C shares returned -10.87%, -11.49%
and -11.49%, respectively, at net asset value. These returns compared
favorably with the -11.88% return of the S&P 500 Index, including
reinvested dividends, and with the -13.77% return of the average
large-cap core fund, according to Lipper, Inc.1 Keep in mind that your
returns will differ from those listed above if you were not invested in
the Fund for the entire period or did not reinvest all distributions.
Historical performance information can be found on pages six and seven.
"...our exposure to stocks
from all market capitaliza-
tions enabled the Fund to
take advantage of the
relative outperformance
of medium- and small-cap
shares."
INDIVIDUAL TECHNOLOGY STANDOUTS
While technology stocks were the hardest hit sector during the year,
there were some exceptions. Software giant Microsoft was the Fund's most
positive contributor. Investors were less fearful of the U.S. Department
of Justice's antitrust suit against the company once a Republican
administration regained the White House. Another positive factor for
Microsoft was the introduction of Windows XP, its updated version of the
widely used Windows personal computer operating system. A second
technology stalwart, IBM, also aided the Fund's performance. The company
did a good job of meeting its earnings estimates, and investors liked
the company's prospects in the improving economic environment
anticipated for 2002. Software firms Intuit and Cadence Design Systems
benefited from the comparative reliability of their earnings stream.
[Table at top left-hand side of page entitled "Top five industry
groups." The first listing is Medical 16%, the second is Computers 15%,
the third Retail 9%, the fourth Electronics 8%, and the fifth Oil & gas
7%.
BIG-CAP LOSERS
On the downside, we were hurt most by Cisco Systems, which reflected the
tech sector's moves, doing well in the fourth quarter but struggling for
the year as a whole. Downward revisions in earnings and revenues early
in the year were particularly damaging, and we underweighted the stock
for most of the year compared with our benchmark. Pharmaceutical stock
Merck dropped sharply in December when the company announced that it was
scaling back its earnings guidance and delaying product development
targets for 2002. Enron, the bankrupt energy trading firm, detracted
from the Fund's performance, but we smelled trouble and liquidated the
position in October, when the stock was still trading near $20. Finally,
General Electric lost some of its luster due to concerns about its jet
engine business in the wake of September 11. A dip in orders for GE's
generators in response to the overbuilding of power generating capacity
during the past few years was another point of concern.
[Pie chart at middle of page with heading "Portfolio diversification As
a percentage of net assets on 12-31-01." The chart is divided into two
sections (from top to left): Common stocks 99% and Short-term
investments 1%.]
[Table at top of page entitled "SCORECARD." The header for the left
column is "INVESTMENT" and the header for the right column is "RECENT
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Microsoft followed by an up arrow with the phrase "Relatively stable
earnings growth, updated Windows version." The second listing is Cisco
Systems followed by a down arrow with the phrase "Earnings shortfalls,
overbuilding of networks." The third listing is Merck followed by a down
arrow with the phrase "Disappointing December earnings forecast."]
LOOKING AHEAD
As happened just before September 11, we are again beginning to see
signs of an economy that could be bottoming. We believe that the main
effect of the terrorist attacks was to delay a recovery, but that they
did not deal the economy an irreparable blow. The big question now is
when corporate earnings will rebound. We expect that companies will
attempt to get most of their bad news out of the way and write off the
maximum allowable losses in the fourth quarter, leaving them with
essentially a clean slate in the new year. That fact, together with the
robust fourth quarter rally that might have boosted share prices a
little too far, too fast, leaves us with only a mixed outlook for stocks
over the very short term. However, we are considerably more confident
about the long-term picture, which should benefit from historically low
interest rates and the government's stimulative fiscal policies. We look
forward to the possibility of applying our disciplined methodology under
better conditions in 2002 than we saw in 2001.
"...we are considerably more
confident about the long-
term picture, which should
benefit from historically
low interest rates and the
government's stimulative
fiscal policies."
This commentary reflects the views of the portfolio management team
through the end of the Fund's period discussed in this report. Of
course, the team's views are subject to change as market and other
conditions warrant.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
A LOOK AT
PERFORMANCE
For the period ended
December 31, 2001
The index used for
comparison is the
Standard & Poor's
500 Index, an
unmanaged index
that includes 500
widely traded
common stocks.
It is not possible to
invest in an index.
Class A Class B Class C Index
Inception date 6-10-91 9-7-95 5-1-98 --
Average annual returns with maximum sales charge (POP)
One year -15.32% -15.91% -13.24% -11.88%
Five years 7.88% 7.96% -- 10.70%
Ten years 11.65% -- -- 12.93%
Since inception -- 11.01% -0.53% --
Cumulative total returns with maximum sales charge (POP)
One year -15.32% -15.91% -13.24% -11.88%
Five years 46.10% 46.67% -- 66.26%
Ten years 200.97% -- -- 237.32%
Since inception -- 93.43% -1.93% --
Performance figures assume all distributions are reinvested. Returns
with maximum sales charge reflect a sales charge on Class A shares of 5%
and Class C shares of 1%, and the applicable contingent deferred sales
charge (CDSC) on Class B and Class C shares. The Class B shares' CDSC
declines annually between years 1-6 according to the following
schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the
sixth year. Class C shares held for one year or less are subject to a 1%
CDSC. The return and principal value of an investment in the Fund will
fluctuate, so that shares, when redeemed, may be worth more or less than
the original cost. Index figures do not reflect sales charges and would
be lower if they did.
The returns reflect past results and should not be considered indicative
of future performance. The performance table above and the chart on the
next page do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
The Fund's performance results reflect any applicable expense
reductions, without which the expenses would increase and results would
have been less favorable. These reductions can be terminated in the
future.
GROWTH OF
$10,000
This chart shows what happened to a hypothetical $10,000 investment in
Class A shares for the period indicated. For comparison, we've shown the
same investment in the Standard & Poor's 500 Index.
Line chart with the heading "GROWTH OF $10,000." Within the chart are
three lines. The first line represents the Index and is equal to $33,732
as of December 31, 2001. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock Core Equity
Fund, before sales charge, and is equal to $31,685 as of December 31,
2001. The third bar represents the same hypothetical $10,000 investment
made in the John Hancock Core Equity Fund, after sales charge, and is
equal to $30,097 as of December 31, 2001.
Class B 1 Class C 1
Inception date 9-7-95 5-1-98
Without sales charge $19,343 $9,906
With maximum sales charge -- $9,807
Index $22,584 $10,832
Assuming all distributions were reinvested for the period indicated, the
chart above shows the value of a $10,000 investment in the Fund's Class
B and Class C shares, respectively, as of December 31, 2001. Performance
of the classes will vary based on the difference in sales charges paid
by shareholders investing in the different classes and the fee structure
of those classes.
1 No contingent deferred sales charge applicable.
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
December 31, 2001
This schedule is divided into two main categories: common stocks and
short-term investments. Common stocks are further broken down by
industry group. Short-term investments, which represent the Fund's cash
position, are listed last.
SHARES ISSUER VALUE
COMMON STOCKS 99.61% $660,153,603
(Cost $560,671,244)
Aerospace 1.53% $10,174,535
23,800 General Dynamics Corp. 1,895,432
128,100 United Technologies Corp. 8,279,103
Automobiles/Trucks 1.67% 11,068,922
250,200 Ford Motor Co. 3,933,144
67,800 General Motors Corp. 3,295,080
100,700 Lear Corp.* 3,840,698
Banks -- United States 3.53% 23,413,367
97,300 Bank of America Corp. 6,125,035
186,500 J.P. Morgan Chase & Co. 6,779,275
52,000 TCF Financial Corp. 2,494,960
382,900 U.S. Bancorp 8,014,097
Beverages 1.44% 9,519,036
96,500 Anheuser-Busch Cos., Inc. 4,362,765
105,900 PepsiCo, Inc. 5,156,271
Business Services -- Misc. 0.31% 2,069,448
55,200 Convergys Corp.* 2,069,448
Chemicals 3.10% 20,570,802
119,300 Air Products & Chemicals, Inc. 5,596,363
276,300 Dow Chemical Co. 9,333,414
102,100 Praxair, Inc. 5,641,025
Computers 14.62% 96,868,871
115,000 Cadence Design Systems, Inc.* 2,520,800
547,500 Cisco Systems, Inc.* 9,915,225
38,600 Computer Sciences Corp.* 1,890,628
373,200 Dell Computer Corp.* 10,143,576
81,800 Electronic Data Systems Corp. 5,607,390
129,500 First Data Corp. 10,159,275
114,500 International Business Machines Corp. 13,849,920
122,700 Intuit, Inc.* 5,249,106
331,400 Microsoft Corp.* 21,955,250
107,100 Network Associates, Inc.* 2,768,535
368,200 Oracle Corp.* 5,084,842
65,600 PeopleSoft, Inc.* 2,637,120
257,600 Sun Microsystems, Inc.* 3,168,480
42,800 VERITAS Software Corp.* 1,918,724
Cosmetics & Personal Care 0.77% 5,138,250
110,500 Avon Products, Inc. 5,138,250
Diversified Operations 2.64% 17,496,796
93,800 Honeywell International, Inc. 3,172,316
243,200 Tyco International Ltd. 14,324,480
Electronics 7.96% 52,780,826
50,300 Analog Devices, Inc.* 2,232,817
60,300 Applied Materials, Inc.* 2,418,030
478,300 General Electric Co. 19,170,264
518,200 Intel Corp. 16,297,390
49,500 Linear Technology Corp. 1,932,480
69,900 Micron Technology, Inc.* 2,166,900
300,000 Motorola, Inc. 4,506,000
50,000 QLogic Corp.* 2,225,500
46,900 Xilinx, Inc.* 1,831,445
Finance 5.53% 36,619,418
444,400 Citigroup, Inc. 22,433,312
62,000 Concord EFS, Inc.* 2,032,360
106,900 Morgan Stanley Dean Witter & Co. 5,979,986
188,800 Washington Mutual, Inc. 6,173,760
Food 1.30% 8,587,904
57,000 Kraft Foods, Inc. (Class A)* 1,939,710
115,400 Unilever NV, American Depositary Receipts (ADR) (Netherlands) 6,648,194
Insurance 5.52% 36,584,029
153,400 American International Group, Inc. 12,179,960
147,400 Hartford Financial Services Group, Inc. (The) 9,261,142
34,900 Lincoln National Corp. 1,695,093
18,500 Marsh & McLennan Cos., Inc. 1,987,825
48,400 PMI Group, Inc. (The) 3,243,284
72,600 Radian Group, Inc. 3,118,170
85,500 Torchmark Corp. 3,362,715
19,000 XL Capital Ltd. (Class A) 1,735,840
Manufacturing 0.64% 4,221,700
70,000 Danaher Corp. 4,221,700
Media 2.15% 14,256,765
197,300 AOL Time Warner, Inc.* 6,333,330
191,000 Liberty Media Corp. (Class A)* 2,674,000
118,900 Viacom, Inc. (Class B)* 5,249,435
Medical 15.59% 103,306,675
146,800 Abbott Laboratories 8,184,100
112,400 Allergan, Inc. 8,435,620
240,400 American Home Products Corp. 14,750,944
80,000 CV Therapeutics, Inc.* 4,161,600
174,500 Johnson & Johnson 10,312,950
20,800 Laboratory Corp. of America Holdings* 1,681,680
100,000 Lilly (Eli) & Co. 7,854,000
572,700 Pfizer, Inc. 22,822,095
132,900 Pharmacia Corp. 5,668,185
62,200 Schering-Plough Corp. 2,227,382
202,700 Tenet Healthcare Corp.* 11,902,544
49,900 Trigon Healthcare, Inc.* 3,465,555
26,000 UnitedHealth Group, Inc. 1,840,020
Mortgage Banking 1.95% 12,958,500
163,000 Fannie Mae 12,958,500
Office 0.60% 3,957,100
70,000 Avery Dennison Corp. 3,957,100
Oil & Gas 7.03% 46,564,395
90,000 Baker Hughes, Inc. 3,282,300
80,000 ChevronTexaco Corp. 7,168,800
79,100 El Paso Corp. 3,528,651
496,200 Exxon Mobil Corp. 19,500,660
209,200 Royal Dutch Petroleum Co. (ADR) (Netherlands) 10,254,984
94,300 USX -- Marathon Group 2,829,000
Retail 8.83% 58,517,398
138,100 Bed Bath & Beyond, Inc.* 4,681,590
38,700 CDW Computer Centers, Inc.* 2,078,577
58,900 Family Dollar Stores, Inc. 1,765,822
229,000 Home Depot, Inc. (The) 11,681,290
105,600 Kohl's Corp.* 7,438,464
206,800 Lowe's Cos., Inc. 9,597,588
70,000 Penney (J. C.) Co., Inc. 1,883,000
153,200 Target Corp. 6,288,860
91,200 TJX Cos., Inc. 3,635,232
164,500 Wal-Mart Stores, Inc. 9,466,975
Soap & Cleaning Preparations 1.32% 8,728,039
110,300 Procter & Gamble Co. (The) 8,728,039
Telecommunications 4.22% 27,986,247
196,800 Nokia Corp. (ADR) (Finland) 4,827,504
103,400 QUALCOMM, Inc.* 5,221,700
176,100 Sprint Corp. 4,298,601
257,700 Verizon Communications, Inc. 12,230,442
100,000 WorldCom, Inc. -- WorldCom Group* 1,408,000
Tobacco 1.97% 13,058,080
284,800 Philip Morris Cos., Inc. 13,058,080
Transport 0.31% 2,057,485
78,500 Continental Airlines, Inc. (Class B)* 2,057,485
Utilities 5.08% 33,649,015
70,000 Allegheny Energy, Inc. 2,535,400
115,800 Dominion Resources, Inc. 6,959,580
100,000 Duke Energy Corp. 3,926,000
116,200 Entergy Corp. 4,544,582
160,600 NiSource, Inc. 3,703,436
206,700 SBC Communications, Inc. 8,096,439
85,500 Sempra Energy 2,099,025
70,900 UtiliCorp United, Inc. 1,784,553
INTEREST PAR VALUE
ISSUER, DESCRIPTION, MATURITY DATE RATE (000S OMITTED) VALUE
SHORT-TERM INVESTMENTS 0.50% $3,344,000
(Cost $3,344,000)
Joint Repurchase Agreement 0.50% 3,344,000
Investment in a joint repurchase agreement transaction with
UBS Warburg, Inc. -- Dated 12-31-01, due 01-02-02
(Secured by U.S. Treasury Bonds 9.875% due 11-15-15
and 8.750% due 05-15-17, U.S. Treasury Notes 5.625%
due 12-31-02 and 6.250% due 02-15-03, U.S. Treasury
Inflation Index Bond 3.375% due 04-15-32, U.S. Treasury
Inflation Index Note 3.375% due 01-15-07) 1.70% $3,344 3,344,000
TOTAL INVESTMENTS 100.11% $663,497,603
OTHER ASSETS AND LIABILITIES, NET (0.11%) ($732,708)
TOTAL NET ASSETS 100.00% $662,764,895
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security
description represents country of foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to
financial statements.
ASSETS AND
LIABILITIES
December 31, 2001
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes. You'll
also find the net
asset value and
the maximum
offering price
per share.
ASSETS
Investments at value (cost $564,015,244) $663,497,603
Receivable for shares sold 49,861
Dividends and interest receivable 628,345
Other assets 21,094
Total assets 664,196,903
LIABILITIES
Due to custodian 2,067
Payable for shares repurchased 499,235
Payable to affiliates 807,623
Other payables and accrued expenses 123,083
Total liabilities 1,432,008
NET ASSETS
Capital paid-in 672,596,829
Accumulated net realized loss on investments (109,305,536)
Net unrealized appreciation of investments 99,482,359
Accumulated net investment loss (8,757)
Net assets $662,764,895
NET ASSET VALUE PER SHARE
Based on net asset values and shares outstanding
Class A ($255,219,486 [DIV] 9,589,956 shares) $26.61
Class B ($377,065,745 [DIV] 14,666,844 shares) $25.71
Class C ($30,479,664 [DIV] 1,186,056 shares) $25.70
MAXIMUM OFFERING PRICE PER SHARE
Class A 1 ($26.61 [DIV] 95%) $28.01
Class C ($25.70 [DIV] 99%) $25.96
1 On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
See notes to
financial statements.
OPERATIONS
For the year ended
December 31, 2001
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in
operating the
Fund. It also shows
net gains (losses)
for the period
stated.
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $61,013) $9,849,346
Interest 319,962
Securities lending income 44,982
Total investment income 10,214,290
EXPENSES
Investment management fee 5,665,542
Class A distribution and service fee 901,850
Class B distribution and service fee 4,247,235
Class C distribution and service fee 304,516
Transfer agent fee 2,733,460
Custodian fee 155,413
Accounting and legal services fee 153,343
Trustees' fee 48,238
Printing 40,939
Miscellaneous 25,302
Auditing fee 20,500
Registration and filing fee 11,130
Legal fee 8,147
Interest expense 3,131
Total expenses 14,318,746
Net investment loss (4,104,456)
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss from investments (95,427,871)
Change in net unrealized appreciation (depreciation)
of investments 3,840,862
Net realized and unrealized loss (91,587,009)
Decrease in net assets from operations ($95,691,465)
See notes to
financial statements.
CHANGES IN
NET ASSETS
This Statement
of Changes in
Net Assets
shows how the
value of the
Fund's net assets
has changed
since the end of
the previous
period. The dif-
ference reflects
earnings less
expenses, any
investment gains
and losses, distri-
butions paid to
shareholders, if
any, and any
increase or
decrease in
money share-
holders invested
in the Fund.
YEAR YEAR
ENDED ENDED
12-31-00 12-31-01
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment loss ($5,883,128) ($4,104,456)
Net realized gain (loss) 8,405,087 (95,427,871)
Change in net unrealized
appreciation (depreciation) (87,527,991) 3,840,862
Decrease in net assets resulting
from operations (85,006,032) (95,691,465)
Distributions to shareholders
From net realized gain
Class A (5,106,990) (116,099)
Class B (7,058,921) (177,732)
Class C (442,207) (14,036)
In excess of net realized gain
Class A (4,538,046) --
Class B (6,272,523) --
Class C (392,944) --
(23,811,631) (307,867)
From fund share transactions (75,310,466) (144,863,026)
NET ASSETS
Beginning of period 1,087,755,382 903,627,253
End of period 1 $903,627,253 $662,764,895
1 Includes accumulated net investment loss of $7,356 and $8,757, respectively.
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS A SHARES
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
PERIOD ENDED 12-31-97 12-31-98 12-31-99 12-31-00 12-31-01
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $19.42 $23.93 $30.14 $33.21 $29.87
Net investment income (loss) 1 0.10 0.05 (0.02) (0.06) (0.03)
Net realized and unrealized
gain (loss) on investments 5.55 6.81 3.72 (2.49) (3.22)
Total from
investment operations 5.65 6.86 3.70 (2.55) (3.25)
Less distributions
From net investment income (0.04) -- -- -- --
From net realized gain (1.10) (0.65) (0.63) (0.42) (0.01)
In excess of net realized gain -- -- -- (0.37) --
(1.14) (0.65) (0.63) (0.79) (0.01)
Net asset value,
end of period $23.93 $30.14 $33.21 $29.87 $26.61
Total return 2 (%) 29.19 3 28.84 12.37 (7.75) (10.87)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $92 $201 $394 $373 $255
Ratio of expenses to
average net assets (%) 1.42 1.39 1.37 1.41 1.47
Ratio of adjusted expenses
to average net assets 4 (%) 1.44 -- -- -- --
Ratio of net investment
income (loss) to average
net assets (%) 0.45 0.17 (0.06) (0.19) (0.12)
Portfolio turnover (%) 62 50 98 82 76
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS B SHARES
PERIOD ENDED 12-31-97 12-31-98 12-31-99 12-31-00 12-31-01
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $19.41 $23.80 $29.75 $32.54 $29.06
Net investment loss 1 (0.06) (0.14) (0.24) (0.27) (0.22)
Net realized and unrealized
gain (loss) on investments 5.56 6.74 3.66 (2.42) (3.12)
Total from
investment operations 5.50 6.60 3.42 (2.69) (3.34)
Less distributions
From net investment income (0.01) -- -- -- --
From net realized gain (1.10) (0.65) (0.63) (0.42) (0.01)
In excess of net realized gain -- -- -- (0.37) --
(1.11) (0.65) (0.63) (0.79) (0.01)
Net asset value,
end of period $23.80 $29.75 $32.54 $29.06 $25.71
Total return 2 (%) 28.39 3 27.90 11.59 (8.35) (11.49)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $135 $347 $664 $499 $377
Ratio of expenses to
average net assets (%) 2.12 2.09 2.07 2.07 2.17
Ratio of adjusted expenses
to average net assets 4 (%) 2.14 -- -- -- --
Ratio of net investment
income (loss) to average
net assets (%) (0.25) (0.53) (0.77) (0.86) (0.82)
Portfolio turnover (%) 62 50 98 82 76
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS C SHARES
PERIOD ENDED 12-31-98 7 12-31-99 12-31-00 12-31-01
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $27.81 $29.75 $32.54 $29.05
Net investment loss 1 (0.09) (0.25) (0.28) (0.22)
Net realized and unrealized
gain (loss) on investments 2.68 3.67 (2.42) (3.12)
Total from
investment operations 2.59 3.42 (2.70) (3.34)
Less distributions
From net realized gain (0.65) (0.63) (0.42) (0.01)
In excess of net realized gain -- -- (0.37) --
(0.65) (0.63) (0.79) (0.01)
Net asset value,
end of period $29.75 $32.54 $29.05 $25.70
Total return 2 (%) 9.46 5 11.59 (8.38) (11.49)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $7 $30 $32 $30
Ratio of expenses to
average net assets (%) 2.12 6 2.08 2.11 2.17
Ratio of net investment loss
to average net assets (%) (0.53) 6 (0.80) (0.89) (0.82)
Portfolio turnover (%) 50 98 82 76
1 Based on the average of the shares outstanding at the end of each month.
2 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
3 Total return would have been lower had certain expenses not been
reduced during the period shown.
4 Does not take into consideration expense reductions during the period shown.
5 Not annualized.
6 Annualized.
7 Class C shares began operations on 5-1-98.
See notes to
financial statements.
NOTES TO
STATEMENTS
NOTE A
Accounting policies
John Hancock Core Equity Fund (the "Fund") is a diversified series of
John Hancock Capital Series, an open-end investment management company
registered under the Investment Company Act of 1940. The investment
objective of the Fund is to seek above-average total return, consisting
of capital appreciation plus current income.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class C. The Trustees
authorized the issuance of Class I shares effective March 1, 2002. The
shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights to voting, redemptions,
dividends and liquidation, except that certain expenses, subject to the
approval of the Trustees, may be applied differently to each class of
shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a
class that bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at
fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60
days are valued at amortized cost, which approximates market value.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, LLC (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
LLC, may participate in a joint repurchase agreement transaction.
Aggregate cash balances are invested in one or more large repurchase
agreements, whose underlying securities are obligations of the U.S.
government and/or its agencies. The Fund's custodian bank receives
delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are
determined at the fund level and allocated daily to each class of shares
based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class
level based on the appropriate net assets of each class and the specific
expense rate(s) applicable to each class.
Expenses
The majority of the expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund will
be allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and
the relative sizes of the funds.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency
purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund has
entered into a syndicated line of credit agreement with various banks.
This agreement enables the Fund to participate with other funds managed
by the Adviser in an unsecured line of credit with banks, which permit
borrowings up to $500 million, collectively. Interest is charged to each
fund, based on its borrowing. In addition, a commitment fee is charged
to each fund based on the average daily unused portion of the line of
credit and is allocated among the participating funds. The average daily
loan balance during the period for which loans were outstanding amounted
to $2,147,857, and the weighted average interest rate was 5.75%.
Interest expense includes $2,352 paid under the line of credit. There
was no outstanding borrowing under the line of credit on December 31,
2001.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the
Fund negotiated lender fees. The loans are collateralized at all times
with cash or securities with a market value at least equal to the market
value of the securities on loan. As with other extensions of credit, the
Fund may bear the risk of delay of the loaned securities in recovery or
even loss of rights in the collateral, should the borrower of the
securities fail financially. At December 31, 2001, the Fund loaned
securities having a market value of $13,420,678 collateralized by
securities in the amount of $13,761,358.
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, at December 31, 2001, the fund has
$98,763,630 of capital loss carryforward available, to the extent
provided by regulations, to offset future net realized capital gains. If
such carryforward is used by the Fund, no capital gain distribution will
be made. The Fund's carryforward expires December 31, 2009.
Additionally, net capital losses of $9,493,846 are attributable to
security transactions incurred after October 31, 2001 and are treated as
arising on the first day (January 1, 2002) of the Fund's next taxable
year.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment
income and realized gains on the ex- dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from accounting principles generally accepted in the United
States of America. Distributions paid by the Fund with respect to each
class of shares will be calculated in the same manner, at the same time
and will be in the same amount, except for the effect of expenses that
may be applied differently to each class.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of
America, incorporates estimates made by management in determining the
reported amount of assets, liabilities, revenues and expenses of the
Fund. Actual results could differ from these estimates.
NOTE B
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the Adviser equivalent, on an annual basis, to the sum of: (a)
0.75% of the first $750,000,000 of the Fund's average daily net asset
value and (b) 0.70% of the Fund's average daily net asset value in
excess of $750,000,000. The Fund and the Adviser have a subadvisory
contract with Independence Investment LLC, a wholly owned indirect
subsidiary of John Hancock Life Insurance Company ("JHLICo"). The Fund
is not responsible for payment of subadviser's fees.
The Fund has Distribution Plans with John Hancock Funds, LLC ("JH
Funds"), a wholly owned subsidiary of the Adviser. The Fund has adopted
Distribution Plans with respect to Class A, Class B and Class C pursuant
to Rule 12b-1 under the Investment Company Act of 1940 to reimburse JH
Funds for the services it provides as distributor of shares of the Fund.
Accordingly, the Fund makes payments to JH Funds at an annual rate not
to exceed 0.30% of Class A average daily net assets and 1.00% of Class B
and Class C average daily net assets. A maximum of 0.25% of such
payments may be service fees as defined by the Conduct Rules of the
National Association of Securities Dealers. Under the Conduct Rules,
curtailment of a portion of the Fund's 12b-1 payments could occur under
certain circumstances.
Class A and Class C shares are assessed up-front sales charges. During
the year ended December 31, 2001, JH Funds received net up-front sales
charges of $557,600 with regard to sales of Class A shares. Of this
amount, $30,951 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $362,270 was paid as
sales commissions to unrelated broker-dealers and $164,379 was paid as
sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer. The Adviser's indirect
parent, JHLICo, is the indirect sole shareholder of Signator Investors.
During the year ended December 31, 2001, JH Funds received net up-front
sales charges of $85,743 with regard to sales of Class C shares. Of this
amount, $76,595 was paid as sales commissions to unrelated
broker-dealers and $9,148 was paid as sales commissions to sales
personnel of Signator Investors.
Class B shares which are redeemed within six years of purchase are
subject to a contingent deferred sales charge ("CDSC") at declining
rates, beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares being
redeemed. Class C shares which are redeemed within one year of purchase
are subject to a CDSC at a rate of 1.00% of the lesser of the current
market value at the time of redemption or the original purchase cost of
the shares being redeemed. Proceeds from the CDSCs are paid to JH Funds
and are used in whole or in part to defray its expenses for providing
distribution-related services to the Fund in connection with the sale of
Class B and Class C shares. For the year ended December 31, 2001, CDSCs
received by JH Funds amounted to $1,004,588 for Class B shares and
$7,131 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc., an indirect subsidiary of JHLICo. The Fund pays a
monthly transfer agent fee based on the number of shareholder accounts,
plus certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year was at an annual rate of 0.02% of the average net assets of the
Fund.
Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of
the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes
their receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. The
Deferred Compen-sation Plan investments had no impact on the operations
of the Fund.
NOTE C
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding
dollar value. The Fund has an unlimited number of shares authorized with
no par value.
YEAR ENDED 12-31-00 YEAR ENDED 12-31-01
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Sold 7,472,136 $242,645,384 3,184,828 $89,249,931
Distributions reinvested 294,124 9,132,732 3,567 102,700
Repurchased (7,137,691) (231,147,253) (6,083,979) (170,783,705)
Net increase (decrease) 628,569 $20,630,863 (2,895,584) ($81,431,074)
CLASS B SHARES
Sold 3,722,423 $117,774,617 1,932,483 $51,837,146
Distributions reinvested 364,052 11,003,383 5,758 146,614
Repurchased (7,324,747) (230,240,864) (4,439,490) (117,896,331)
Net decrease (3,238,272) ($101,462,864) (2,501,249) ($65,912,571)
CLASS C SHARES
Sold 484,442 $15,325,133 435,126 $11,609,714
Distributions reinvested 22,172 669,881 441 11,242
Repurchased (332,373) (10,473,479) (341,238) (9,140,337)
Net increase 174,241 $5,521,535 94,329 $2,480,619
NET DECREASE (2,435,462) ($75,310,466) (5,302,504) ($144,863,026)
NOTE D
Investment transactions
Purchases and proceeds from sales of securities, other than short-term
securities and obligations of the U.S. government, during the year ended
December 31, 2001, aggregated $566,384,550 and $700,742,154,
respectively.
The cost of investments owned at December 31, 2001, including short-term
investments, for federal income tax purposes was $565,063,303. Gross
unrealized appreciation and depreciation of investments aggregated
$120,550,626 and $22,116,326, respectively, resulting in net unrealized
appreciation of $98,434,300. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable
primarily to the tax deferral of losses on wash sales.
NOTE E
Reclassification of accounts
During the year ended December 31, 2001, the Fund has reclassified
amounts to reflect a decrease in accumulated net realized loss on
investments of $2,997, a decrease in undistributed accumulated net
investment loss of $4,103,055 and a decrease in capital paid-in of
$4,106,052. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of
December 31, 2001. Additional adjustments may be needed in subsequent
reporting periods. These reclassifications, which have no impact on the
net asset value of the Fund, are primarily attributable to the treatment
of net operating losses in the computation of distributed income and
capital gains under federal tax rules versus accounting principles
generally accepted in the United States of America. The calculation of
net investment income (loss) per share in the financial highlights
excludes these adjustments.
AUDITOR'S
REPORT
Report of
Pricewaterhouse-
Coopers LLP,
Independent
Auditors
To the Shareholders and Board of Trustees of
John Hancock Core Equity Fund
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of the
John Hancock Core Equity Fund (the "Fund") at December 31, 2001 and the
results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with
accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities owned at
December 31, 2001 by correspondence with the custodian and brokers,
provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2002
TAX
INFORMATION
Unaudited
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund for its fiscal year ended
December 31, 2001.
The Fund designated a distribution to shareholders of $307,867 as a
long-term capital gain dividend. This amount was reported on the 2001
U.S. Treasury Department Form 1099-DIV.
TRUSTEES
& OFFICERS
This chart provides information about the Trustees and Officers who
oversee your John Hancock fund. Officers elected by the Trustees manage
the day-to-day operations of the Fund and execute policies formulated by
the Trustees.
INDEPENDENT TRUSTEES
NUMBER OF
NAME, AGE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER TRUSTEE FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 2 BY TRUSTEE
Dennis S. Aronowitz 1, Born: 1931 1991 30
Professor of Law, Emeritus, Boston University School of Law
(as of 1996); Director, Brookline Bancorp.
Richard P. Chapman, Jr., Born: 1935 1991 30
Chairman, President, and Chief Executive Officer, Brookline Bancorp.
(lending) (since 1972); Trustee, Northeastern University (education);
Chairman and Director, Lumber Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement Services, Inc. (retirement
administration) (since 1998).
William J. Cosgrove 1, Born: 1933 1991 30
Vice President, Senior Banker and Senior Credit Officer, Citibank, N.A.
(retired 1991); Executive Vice President, Citadel Group Representatives,
Inc.; Director, Hudson City Bancorp; Trustee, Scholarship Fund for
Inner City Children (since 1986).
Richard A. Farrell 1, Born: 1932 1996 30
President, Farrell, Healer & Co., Inc. (venture capital management firm)
(since 1980) and General Partner of the Venture Capital Fund of NE
(since 1980); prior to 1980, headed the venture capital group at Bank
of Boston Corporation.
Gail D. Fosler, Born: 1947 1994 30
Senior Vice President and Chief Economist, The Conference Board
(non-profit economic and business research) (since 1989); Director, Unisys
Corp. (since 1993); Director, H.B. Fuller Company (since 1992) and
DBS Holdings (Singapore) (banking and financial services) (since 1999);
Director, National Bureau of Economic Research (academic) (since 1989);
Director, Baxter International (medical health care) (since 2001).
William F. Glavin, Born: 1932 1996 30
President Emeritus, Babson College (as of 1998); Vice Chairman, Xerox
Corporation (until 1989); Director, Reebok, Inc. (since 1994) and Inco Ltd.
John A. Moore, Born: 1939 1996 36
President and Chief Executive Officer, Institute for Evaluating Health
Risks, (nonprofit institution) (until 2001); Senior Scientist, Sciences
International (health research) (since 1998); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002).
Patti McGill Peterson, Born: 1943 1996 36
Executive Director, Council for International Exchange of Scholars
(since 1998), Vice President, Institute of International Education
(since January 1998); Senior Fellow, Cornell Institute of Public Affairs,
Cornell University (until 1997); President Emerita of Wells College and
St. Lawrence University; Director, Niagara Mohawk Power Corporation
(electric utility).
John W. Pratt 1, Born: 1931 1996 30
Professor of Business Administration Emeritus, Harvard University
Graduate School of Business Administration (as of 1998).
INTERESTED TRUSTEES 3
NAME, AGE NUMBER OF
POSITION(S) HELD WITH FUND JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER TRUSTEE FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 2 BY TRUSTEE
John M. DeCiccio, Born: 1948 2001 66
Trustee
Executive Vice President and Chief Investment Officer, John Hancock
Financial Services, Inc.; Director, Executive Vice President and Chief
Investment Officer, John Hancock Life Insurance Company; Chairman of
the Committee of Finance of John Hancock Life Insurance Company;
Director, John Hancock Subsidiaries, LLC, Hancock Natural Resource
Group, Independence Investment LLC, Independence Fixed Income LLC,
John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial
Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John
Hancock Funds"), Massachusetts Business Development Corporation;
Director, John Hancock Insurance Agency, Inc. ("Insurance Agency, Inc.")
(until 1999) and John Hancock Signature Services, Inc. ("Signature
Services") (until 1997).
Maureen R. Ford, Born: 1955 2000 66
Trustee, Chairman, President and Chief Executive Officer
Executive Vice President, John Hancock Financial Services, Inc., John
Hancock Life Insurance Company; Chairman, Director, President and
Chief Executive Officer, the Advisers and The Berkeley Group; Chairman,
Director and Chief Executive Officer, John Hancock Funds, Chairman,
Director and President, Insurance Agency, Inc.; Chairman, Director and
Chief Executive Officer, Sovereign Asset Management Corporation
("SAMCorp."); Director, Independence Investment LLC, Independence
Fixed Income LLC and Signature Services; Senior Vice President,
MassMutual Insurance Co. (until 1999); Senior Vice President,
Connecticut Mutual Insurance Co. (until 1996).
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NAME, AGE
POSITION(S) HELD WITH FUND
PRINCIPAL OCCUPATION(S) AND OTHER OFFICER
DIRECTORSHIPS DURING PAST 5 YEARS SINCE
William L. Braman, Born: 1953 2000
Executive Vice President and Chief Investment Officer
Executive Vice President and Chief Investment Officer, the Adviser and
each of the John Hancock funds; Director, SAMCorp., Executive Vice
President and Chief Investment Officer, Barring Asset Management, London
UK (until 2000).
Richard A. Brown, Born: 1949 2000
Senior Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, the
Adviser, John Hancock Funds, and The Berkeley Group; Second Vice
President and Senior Associate Controller, Corporate Tax Department,
John Hancock Financial Services, Inc. (until 2001).
Thomas H. Connors, Born: 1959 1992
Vice President and Compliance Officer
Vice President and Compliance Officer, the Adviser and each of the John
Hancock funds; Vice President, John Hancock Funds.
William H. King, Born: 1952 1992
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President and
Treasurer of each of the John Hancock funds; Assistant Treasurer of each
of the John Hancock funds (until 2001).
Susan S. Newton, Born: 1950 1991
Senior Vice President, Secretary and Chief Legal Officer
Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the
Adviser and each of the John Hancock funds, John Hancock Funds and The
Berkeley Group; Vice President, Signature Services (until 2000);
Director, Senior Vice President and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington
Avenue, Boston, Massachusetts 02199.
The Statement of Additional Information of the Fund includes
additional information about members of the board of Trustees of the
Fund and is available, without charge, upon request, by calling
1-800-426-5523.
1 Member of Audit Committee.
2 Each Trustee serves until resignation, retirement age or until his
or her successor is elected.
3 Interested Trustee holds positions with the Fund's investment
adviser, underwriter and certain other affiliates.
OUR FAMILY
OF FUNDS
- -------------------------------------------------------
Equity Balanced Fund
Core Equity Fund
Core Growth Fund
Core Value Fund
Focused Equity Fund
Growth Trends Fund
Large Cap Equity Fund
Large Cap Growth Fund
Mid Cap Growth Fund
Multi Cap Growth Fund
Small Cap Growth Fund
Small Cap Equity Fund
Sovereign Investors Fund
- -------------------------------------------------------
Sector Biotechnology Fund
Financial Industries Fund
Health Sciences Fund
Real Estate Fund
Regional Bank Fund
Technology Fund
- -------------------------------------------------------
Income Bond Fund
Government Income Fund
High Yield Bond Fund
Investment Grade Bond Fund
Strategic Income Fund
- -------------------------------------------------------
International European Equity Fund
Global Fund
International Fund
Pacific Basin Equities Fund
- -------------------------------------------------------
Tax-Free Income California Tax-Free Income Fund
High Yield Municipal Bond Fund
Massachusetts Tax-Free Income Fund
New York Tax-Free Income Fund
Tax-Free Bond Fund
- -------------------------------------------------------
Money Market Money Market Fund
U.S. Government Cash Reserve
FOR YOUR
INFORMATION
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By regular mail John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By express mail John Hancock Signature Services, Inc.
Attn: Mutual Fund Image Operations
529 Main Street
Charlestown, MA 02129
Customer service representatives 1-800-225-5291
24-hour automated information 1-800-338-8080
TDD line 1-800-544-6713
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-225-5291
1-800-544-6713 (TDD)
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhancock.com/funds/edelivery
This report is for the information of
the shareholders of the John Hancock
Core Equity Fund.
2500A 12/01
2/02
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK CORE GROWTH FUND
SPECIAL MEETING OF SHAREHOLDERS - MAY 29, 2002
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Maureen
R. Ford, Susan S. Newton and William H. King, with full power of substitution in
each, to vote all the shares of beneficial interest of John Hancock Core Growth
Fund ("Core Growth Fund") which the undersigned is (are) entitled to vote at the
Special Meeting of Shareholders (the "Meeting") of Core Growth Fund to be held
at 101 Huntington Avenue, Boston, Massachusetts, on May 29, 2002 at 9:00 a.m.,
Boston time, and at any adjournment(s) of the Meeting. All powers may be
exercised by a majority of all proxy holders or substitutes voting or acting,
or, if only one votes and acts, then by that one. Receipt of the Proxy Statement
dated April 15, 2002 is hereby acknowledged. If not revoked, this proxy shall be
voted for the proposal.
Date , 2002
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE
----------------------------------------------------
----------------------------------------------------
Signature(s)
NOTE: Signature(s) should
agree with the name(s)
printed herein. When
signing as attorney,
executor, administrator,
trustee or guardian, please
give your full name as
such. If a corporation,
please sign in full
corporate name by president
or other authorized
officer. If a partnership,
please sign in partnership
name by authorized person.
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
THIS PROXY WILL BE VOTED IN FAVOR OF (FOR) PROPOSAL 1 IF NO SPECIFICATION IS
MADE BELOW. AS TO ANY OTHER MATTER, THE PROXY OR PROXIES WILL VOTE IN ACCORDANCE
WITH THEIR BEST JUDGEMENT.
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW
(1) To approve an Agreement and Plan of Reorganization between John Hancock
Core Growth Fund ("Core Growth Fund") and John Hancock Core Equity Fund
("Core Equity Fund"). Under this Agreement, Core Growth Fund would
transfer all of its assets to Core Equity Fund in exchange for shares
of Core Equity Fund. These shares will be distributed proportionately
to you and the other shareholders of Core Growth Fund. Core Equity Fund
will also assume Core Growth Fund's liabilities.
FOR |_| AGAINST |_| ABSTAIN |_|
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
---------------
Shareholder Login PROXY DIRECT TM
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Back to Home Contact Us Security ?
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You can now submit your voting instructions online. To do so, please enter your
Proxy Control Number in the area below. Your Internet Voting Control Number is
located on your voting instruction card and is identified as Control Number or
Internet Control Number. If you have received multiple voting instruction
cards, each card has its own control number; you will need to login and provide
your voting instructions separately for each such distinct Control Number.
- --------------------------------------------------------------------------------
Enter Control Number here: [ ] [ ] [ ] [ ] Continue
- --------------------------------------------------------------------------------
Your browser must support JavaScript 1.1 or higher and be able to accept cookies
in order to continue. Click on HELP button at the top for more information and
navigation tips. If you are unable to vote yor proxy using this service
because of technical difficulties, you should refer to your Proxy Package for
other voting options.
VeriSign
Secure
Site
Click to verify
C 2001 PROXY DIRECT TM - Service of ALAMO Direct Mail Svcs, Inc. All rights
reserved.
John Hancock Institutional Series Trust Proxy PROXY DIRECT TM
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Back to Home Contact Us Security ?
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John Hancock
------------------
JOHN HANCOCK FUNDS
i Below is the list of your holdings. Text next to each holding's name
indicates whether you wish to vote as the Board recommends or to submit your
individual instructions. To change between board recommended and individual
instructions, click on the name of the holding; then follow the additional
instructions. Unless you click on the name of the holding and the vote of
your choice, your vote will automatically be recorded on the proposal as
recommended by the Board.
YOU MUST CLICK VOTE NOW! BUTTON TO COMPLETE YOUR SESSION
- --------------------------------------------------------------------------------
List of Your Holdings Voting instructions
- --------------------------------------------------------------------------------
John Hancock Active Bond Fund as recommended by the Board
- --------------------------------------------------------------------------------
John Hancock Core Growth Fund as recommended by the Board
- --------------------------------------------------------------------------------
John Hancock Core Value Fund as recommended by the Board
- --------------------------------------------------------------------------------
John Hancock Dividend Performers Fund as recommended by the Board
- --------------------------------------------------------------------------------
John Hancock Independence Balanced Fund as recommended by the Board
- --------------------------------------------------------------------------------
John Hancock International Equity Fund as recommended by the Board
- --------------------------------------------------------------------------------
John Hancock Medium Capitalization Growth Fund as recommended by the Board
- --------------------------------------------------------------------------------
John Hancock Small Cap Equity Fund Y as recommended by the Board
- --------------------------------------------------------------------------------
Click on arrow to modify voting instructions
- --------------------------------------------
Help me... Cancel Vote Now!
- ---------- ------ ---------
If you need help navigating You can quit Internet Once you have
the site or experience problems voting at any time. However, completed
during your online session, your voting instructions set selection of your
this page may provide you with up during this session will voting
answers be disregarded instructions and
are ready to
submit them for
processing, click
the Vote Now!
button
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Back to Home Contact Us Security C 2000 PROXY DIRECT TM
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John Hancock Institutional Series Trust Proxy PROXY DIRECT TM
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Shareholder: John P. Sample
ALAMO Direct Mail Services,
Inc.
23-10 Square Circle Lane
Someoldtown, TS 12345-
6789
Acount: ALAMO-TST01 / 271-XXXX- John Hancock
XXXX-123 ------------------
JOHN HANCOCK FUNDS
Previous vote: None-Testing APPS/TR
Setup
John Hancock Core Growth Fund
- --------------------------------------------------------------------------------
Applicable Campaign Proposals Mark All For Against Board
- --------------------------------------------------------------------------------
1 A proposal to approve an agreement and ( ) For ( ) Against ( ) Board
Plan of Reorganization between John Hancock
Core Growth Fund ("Core Growth Fund") and
John Hancock Core Equity Fund ("Core Equity Fund").
Under this Agreement, your fund would transfer all
of its assets to Core Equity Fund in exchange for
shares of Core Equity Fund. These shares
would be distributed proportionately to you
and the other shareholders of Core Growth
Fund. Core Equity would also assume Core
Growth Fund's liabilities.
- --------------------------------------------------------------------------------
Any other business that may properly come before the meeting.
- --------------------------------------------------------------------------------
Voting Instructions
-------------------
i Answers have been marked according to the Board's
recommendations. Please change responses as appropriate
before submission.
[ ] Cancel [ ] Continue
- --------------------------------------------------------------------------------
Back to Home Contact Us Security C 2000 PROXY DIRECT TM
- --------------------------------------------------------------------------------
John Hancock Institutional Series Trust Proxy PROXY DIRECT TM
- --------------------------------------------------------------------------------
Back to Home Contact Us Security ?
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John Hancock
------------------
JOHN HANCOCK FUNDS
Thank you. Your voting instructions have been submitted for processing.
If necessary, you can revisit Internet Voting site any time before the Meeting
Date on Wednesday, May 29, 2002 at 9:00 AM [ET] to submit new voting
instructions.
This is the summary of your voting instructions delivered to John Hancock Funds.
It is not a receipt or vote confirmation. You may print this page for your
records.
Instructions submitted on _________, 2002
Transaction Code: __________________
John Hancock Core Growth Fund
- --------------------------------------------------------------------------------
1 Approve an Agreement and Plan of Reorganization Voted For
If you wish to vote another card, please click here.
- --------------------------------------------------------------------------------
Back to Home Contact Us Security C 2000 PROXY DIRECT TM
- --------------------------------------------------------------------------------
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK CORE VALUE FUND
SPECIAL MEETING OF SHAREHOLDERS - MAY 29, 2002
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Maureen
R. Ford, Susan S. Newton and William H. King, with full power of substitution in
each, to vote all the shares of beneficial interest of John Hancock Core Value
Fund ("Core Value Fund") which the undersigned is (are) entitled to vote at the
Special Meeting of Shareholders (the "Meeting") of Core Value Fund to be held at
101 Huntington Avenue, Boston, Massachusetts, on May 29, 2002 at 9:00 a.m.,
Boston time, and at any adjournment(s) of the Meeting. All powers may be
exercised by a majority of all proxy holders or substitutes voting or acting,
or, if only one votes and acts, then by that one. Receipt of the Proxy Statement
dated April 15, 2002 is hereby acknowledged. If not revoked, this proxy shall be
voted for the proposal.
Date , 2002
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE
--------------------------------------------
--------------------------------------------
Signature(s)
NOTE: Signature(s) should
agree with the name(s)
printed herein. When
signing as attorney,
executor, administrator,
trustee or guardian, please
give your full name as
such. If a corporation,
please sign in full
corporate name by president
or other authorized
officer. If a partnership,
please sign in partnership
name by authorized person.
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
THIS PROXY WILL BE VOTED IN FAVOR OF (FOR) PROPOSAL 1 IF NO SPECIFICATION IS
MADE BELOW. AS TO ANY OTHER MATTER, THE PROXY OR PROXIES WILL VOTE IN ACCORDANCE
WITH THEIR BEST JUDGEMENT.
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW
(1) To approve an Agreement and Plan of Reorganization between John Hancock
Core Value Fund ("Core Value Fund") and John Hancock Core Equity Fund
("Core Equity Fund"). Under this Agreement, Core Value Fund would
transfer all of its assets to Core Equity Fund in exchange for shares
of Core Equity Fund. These shares will be distributed proportionately
to you and the other shareholders of Core Value Fund. Core Equity Fund
will also assume Core Value Fund's liabilities.
FOR |_| AGAINST |_| ABSTAIN |_|
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
---------------
Shareholder Login PROXY DIRECT TM
- --------------------------------------------------------------------------------
Back to Home Contact Us Security ?
- --------------------------------------------------------------------------------
You can now submit your voting instructions online. To do so, please enter your
Proxy Control Number in the area below. Your Internet Voting Control Number is
located on your voting instruction card and is identified as Control Number or
Internet Control Number. If you have received multiple voting instruction
cards, each card has its own control number; you will need to login and provide
your voting instructions separately for each such distinct Control Number.
- --------------------------------------------------------------------------------
Enter Control Number here: [ ] [ ] [ ] [ ] Continue
- --------------------------------------------------------------------------------
Your browser must support JavaScript 1.1 or higher and be able to accept cookies
in order to continue. Click on HELP button at the top for more information and
navigation tips. If you are unable to vote yor proxy using this service
because of technical difficulties, you should refer to your Proxy Package for
other voting options.
VeriSign
Secure
Site
Click to verify
C 2001 PROXY DIRECT TM - Service of ALAMO Direct Mail Svcs, Inc. All rights
reserved.
John Hancock Institutional Series Trust Proxy PROXY DIRECT TM
- --------------------------------------------------------------------------------
Back to Home Contact Us Security ?
- --------------------------------------------------------------------------------
John Hancock
------------------
JOHN HANCOCK FUNDS
i Below is the list of your holdings. Text next to each holding's name
indicates whether you wish to vote as the Board recommends or to submit your
individual instructions. To change between board recommended and individual
instructions, click on the name of the holding; then follow the additional
instructions. Unless you click on the name of the holding and the vote of
your choice, your vote will automatically be recorded on the proposal as
recommended by the Board.
YOU MUST CLICK VOTE NOW! BUTTON TO COMPLETE YOUR SESSION
- --------------------------------------------------------------------------------
List of Your Holdings Voting instructions
- --------------------------------------------------------------------------------
John Hancock Active Bond Fund as recommended by the Board
- --------------------------------------------------------------------------------
John Hancock Core Growth Fund as recommended by the Board
- --------------------------------------------------------------------------------
John Hancock Core Value Fund as recommended by the Board
- --------------------------------------------------------------------------------
John Hancock Dividend Performers Fund as recommended by the Board
- --------------------------------------------------------------------------------
John Hancock Independence Balanced Fund as recommended by the Board
- --------------------------------------------------------------------------------
John Hancock International Equity Fund as recommended by the Board
- --------------------------------------------------------------------------------
John Hancock Medium Capitalization Growth Fund as recommended by the Board
- --------------------------------------------------------------------------------
John Hancock Small Cap Equity Fund Y as recommended by the Board
- --------------------------------------------------------------------------------
Click on arrow to modify voting instructions
- --------------------------------------------
Help me... Cancel Vote Now!
- ---------- ------ ---------
If you need help navigating You can quit Internet Once you have
the site or experience problems voting at any time. However, completed
during your online session, your voting instructions set selection of your
this page may provide you with up during this session will voting
answers be disregarded instructions and
are ready to
submit them for
processing, click
the Vote Now!
button
- --------------------------------------------------------------------------------
Back to Home Contact Us Security C 2000 PROXY DIRECT TM
- --------------------------------------------------------------------------------
John Hancock Institutional Series Trust Proxy PROXY DIRECT TM
- --------------------------------------------------------------------------------
Back to Home Contact Us Security ?
- --------------------------------------------------------------------------------
Shareholder: John P. Sample
ALAMO Direct Mail Services,
Inc.
23-10 Square Circle Lane
Someoldtown, TS 12345-
6789
Acount: ALAMO-TST01 / 271-XXXX- John Hancock
XXXX-123 ------------------
JOHN HANCOCK FUNDS
Previous vote: None-Testing APPS/TR
Setup
John Hancock Core Growth Fund
- --------------------------------------------------------------------------------
Applicable Campaign Proposals Mark All For Against Board
- --------------------------------------------------------------------------------
1 A proposal to approve an agreement and ( ) For ( ) Against ( ) Board
Plan of Reorganization between John Hancock
Core Value Fund ("Core Value Fund") and
John Hancock Core Equity Fund ("Core Equity Fund").
Under this Agreement, your fund would transfer all
of its assets to Core Equity Fund in exchange for
shares of Core Equity Fund. These shares
would be distributed proportionately to you
and the other shareholders of Core Value
Fund. Core Equity would also assume Core
Value Fund's liabilities.
- --------------------------------------------------------------------------------
Any other business that may properly come before the meeting.
- --------------------------------------------------------------------------------
Voting Instructions
-------------------
i Answers have been marked according to the Board's
recommendations. Please change responses as appropriate
before submission.
[ ] Cancel [ ] Continue
- --------------------------------------------------------------------------------
Back to Home Contact Us Security C 2000 PROXY DIRECT TM
- --------------------------------------------------------------------------------
John Hancock Institutional Series Trust Proxy PROXY DIRECT TM
- --------------------------------------------------------------------------------
Back to Home Contact Us Security ?
- --------------------------------------------------------------------------------
John Hancock
------------------
JOHN HANCOCK FUNDS
Thank you. Your voting instructions have been submitted for processing.
If necessary, you can revisit Internet Voting site any time before the Meeting
Date on Wednesday, May 29, 2002 at 9:00 AM [ET] to submit new voting
instructions.
This is the summary of your voting instructions delivered to John Hancock Funds.
It is not a receipt or vote confirmation. You may print this page for your
records.
Instructions submitted on _________, 2002
Transaction Code: __________________
John Hancock Core Value Fund
- --------------------------------------------------------------------------------
1 Approve an Agreement and Plan of Reorganization Voted For
If you wish to vote another card, please click here.
- --------------------------------------------------------------------------------
Back to Home Contact Us Security C 2000 PROXY DIRECT TM
- --------------------------------------------------------------------------------
Part B
Statement of Additional Information
JOHN HANCOCK CORE EQUITY FUND
(the "Acquiring Fund" and a series of John Hancock Capital Series)
JOHN HANCOCK CORE GROWTH FUND
JOHN HANCOCK CORE VALUE FUND
(Each an "Acquired Fund", and each a series of
John Hancock Institutional Series)
101 Huntington Avenue
Boston, MA 02199
1-800-225-5291
April 15, 2002
This Statement of Additional Information provides additional information and is
not a prospectus. It should be read in conjunction with the related proxy
statement and prospectus that is also dated April 15, 2002. This Statement of
Additional Information provides additional information about John Hancock Core
Equity Fund and the Funds that it is acquiring, John Hancock Core Growth Fund
and John Hancock Core Value Fund. Please retain this Statement of Additional
Information for future reference. A copy of the proxy statement and prospectus
can be obtained free of charge by calling John Hancock Signature Services, Inc.,
at 1-800-225-5291.
Table Of Contents
Page
Introduction 3
Note Regarding Pro Forma Financial Information 3
Additional Information about the Acquiring Fund 3
General Information and History 3
Investment Objective and Policies 3
Management of the Acquiring Fund 3
Control Persons and Principal Holders of Shares 3
Investment Advisory and Other Services 3
Brokerage Allocation 3
Capital Stock and Other Securities 3
Purchase, Redemption and Pricing of Acquiring Fund Shares 3
Tax Status 4
Underwriters 4
Calculation of Performance Data 4
Financial Statements 4
Additional Information about the Acquired Funds 4
General Information and History 4
Investment Objective and Policies 4
Management of the Acquired Funds 4
Investment Advisory and Other Services 4
Brokerage Allocation 4
Capital Stock and Other Securities 4
Purchase, Redemption and Pricing of Acquired Fund shares 5
Tax Status 5
Underwriters 5
Calculation of Performance Data 5
Financial Statements 5
Exhibits
A - Statement of Additional Information, dated March 1, 2002, of the Acquiring
Fund including audited financial statements as of December 31, 2001.
B - Statement of Additional Information, dated July 1, 2001, of the Acquired
Funds including unaudited financial statements as of August 30, 2001 and
audited financial statements as of February 28, 2001.
2
INTRODUCTION
This Statement of Additional Information ("SAI") is intended to supplement the
information provided in a proxy statement and prospectus dated April 15, 2002.
The proxy statement and prospectus has been sent to the shareholders of the
Acquired Funds in connection with the solicitation by the Trustees of the
Acquired Funds of proxies to be voted at the Special Meeting of Shareholders of
the Acquired Funds to be held on May 29, 2002. This Statement of Additional
Information incorporates by reference the Statement of Additional Information of
the Acquiring Fund, dated March 1, 2002, and the Statements of Additional
Information of the Acquired Funds, each dated July 1, 2001. The SAI for the
Acquiring Fund and the SAIs for the Acquired Funds are included with this
Statement of Additional Information.
NOTE REGARDING PRO FORMA FINANCIAL INFORMATION
In accordance with Item 14(a)(2) of Form N-14, pro forma financial statements
were not prepared for the proposed reorganizations of the Acquired Funds into
the Acquiring Fund, since the net asset value of each Acquired Fund did not
exceed ten percent of the net asset value of the Acquiring Fund on February 12,
2002.
Additional Information About the Acquiring Fund
General Information and History
For additional information about the Acquiring Fund generally and its history,
see "Organization of the Fund" in the Acquiring Fund SAI attached hereto as
Exhibit A.
Investment Objective and Policies
For additional information about the Acquiring Fund's investment objective,
policies and restrictions, see "Investment Objective and Policies" and
"Investment Restrictions" in the Acquiring Fund SAI attached hereto as Exhibit
A.
Management of the Acquiring Funds
For additional information about the Acquiring Fund's Board of Trustees,
officers and management personnel, see "Those Responsible for Management" in the
Acquiring Fund SAI attached hereto as Exhibit A.
Control Persons and Principal Holders of Shares
For additional information about control persons of the Acquiring Fund and
principal holders of shares of the Acquiring Fund, see "Those Responsible for
Management" in the Acquiring Fund SAI attached hereto as Exhibit A.
Investment Advisory and Other Services
For additional information about the Acquiring Fund's investment adviser,
sub-adviser, custodian, transfer agent and independent accounts, see "Investment
Advisory and Other Services", "Distribution Contracts", "Transfer Agent
Services", "Custody of Portfolio", and "Independent Auditors" in the Acquiring
Fund SAI attached hereto as Exhibit A.
Brokerage Allocation and Other Practices
For additional information about the Acquiring Fund's brokerage allocation
practices, see "Brokerage Allocation" in the Acquiring Fund SAI attached hereto
as Exhibit A.
Capital Stock and Other Securities
For additional information about the voting rights and other characteristics of
the Acquiring Fund's shares of beneficial interest, see "Description of the
Fund's Shares" in the Acquiring Fund SAI attached hereto as Exhibit A.
3
Purchase, Redemption and Pricing of Acquiring Fund Shares
For additional information about the purchase, redemption and pricing of the
Acquiring Fund's shares, see "Net Asset Value", "Sales Compensation", "Special
Redemptions", "Additional Services and Programs", and "Purchase and Redemptions
through Third Parties" in the Acquiring Fund SAI attached hereto as Exhibit A.
Tax Status
For additional information about the tax status of the Acquiring Funds, see "Tax
Status" in the Acquiring Fund SAI, attached hereto as Exhibit A.
Underwriters
For additional information about the Acquiring Fund's principal underwriter and
the distribution contract between the principal underwriter and the Acquiring
Fund, see "Distribution Contracts" in the Acquiring Fund SAI attached hereto as
Exhibit A.
Calculation of Performance Data
For additional information about the investment performance of the Acquiring
Fund, see "Calculation of Performance" in the Acquiring Fund SAI attached hereto
as Exhibit A.
Financial Statements
Audited annual financial statements of the Acquiring Fund at December 31, 2001
are attached to the Acquiring Fund SAI, which is attached hereto as Exhibit A.
Additional Information About the Acquired Funds
General Information and History
For additional information about the Acquired Funds generally and their history,
see "Organization of the Fund" in each Acquired Fund's SAI attached hereto as
Exhibit B.
Investment Objective and Policies
For additional information about the Acquired Funds' investment objectives,
policies and restrictions, see "Investment Objective and Policies" and
"Investment Restrictions" in each Acquired Fund's SAI attached hereto as Exhibit
B.
Management of Acquired Funds
For additional information about the Acquired Funds' Board of Trustees, officers
and management personnel, see "Those Responsible for Management" in each
Acquired Fund's SAI attached hereto as Exhibit B.
Investment Advisory and Other Services
For additional information about the Acquired Funds' investment adviser,
subadviser, custodian, transfer agent and independent accountants, see
"Investment Advisory and Other Services", "Distribution Contracts", "Transfer
Agent Services", "Custody of Portfolio" and "Independent Auditors" in each
Acquired Fund's SAI attached hereto as Exhibit B.
Brokerage Allocation and Other Practices
For additional information about the Acquired Funds' brokerage allocation
practices, see "Brokerage Allocation" in each Acquired Fund's SAI attached
hereto as Exhibit B.
Capital Stock and Other Securities
For additional information about the voting rights and other characteristics of
the Acquired Funds' shares of beneficial interest, see "Description of the
Fund's Shares" in each Acquired Fund's SAI attached hereto as Exhibit B.
4
Purchase, Redemption and Pricing of Acquired Fund Shares
For additional information about the purchase, redemption and pricing of the
Acquired Fund's shares, see "Net Asset Value", "Sales Compensation", "Additional
Services and Programs", "Special Redemptions" and "Purchases and Redemptions
Through Third Parties" in each Acquired Fund's SAI attached hereto as Exhibit B.
Tax Status
For additional information about the tax status of the Acquired Funds, see "Tax
Status" in each Acquired Fund's SAI attached hereto as Exhibit B.
Underwriters
For additional information about the Acquired Funds' principal underwriter and
the distribution contract between the principal underwriter and the Acquired
Funds, see "Distribution Contracts" in each Acquired Fund's SAI attached hereto
as Exhibit B.
Calculation of Performance Data
For additional information about the investment performance of the Acquired
Funds, see "Calculation of Performance" in each Acquired Fund's SAI attached
hereto as Exhibit B.
Financial Statements
Audited annual financial statements of the Acquired Funds at February 28, 2001
and unaudited semi-annual financial statements as of August 31, 2001 are
attached to each Acquired Fund's SAI, which are attached hereto as Exhibit B.
5
JOHN HANCOCK CORE EQUITY FUND
Class I Shares
Statement of Additional Information
March 1, 2002
This Statement of Additional Information provides information about John Hancock
Core Equity Fund (the "Fund"), in addition to the information that is contained
in the combined Equity Funds' current Prospectus (the "Prospectus"). The Fund is
a diversified series of John Hancock Capital Series (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
1-(888)-972-8696
TABLE OF CONTENTS
Page
Organization of the Fund............................................... 2
Investment Objective and Policies...................................... 2
Investment Restrictions................................................ 10
Those Responsible for Management....................................... 13
Investment Advisory and Other Services................................. 19
Distribution Contracts................................................. 22
Sales Compensation..................................................... 22
Net Asset Value........................................................ 23
Special Redemptions.................................................... 24
Additional Services and Programs....................................... 24
Purchase and Recemptions Through Third Parties......................... 24
Description of the Fund's Shares....................................... 24
Tax Status............................................................. 26
Calculation of Performance ............................................ 30
Brokerage Allocation................................................... 32
Transfer Agent Services................................................ 34
Custody of Portfolio................................................... 35
Independent Auditors................................................... 35
Appendix A -More about Risk............................................ A-1
Appendix B - Description of Bond Ratings............................... B-1
Financial Statements................................................... F-1
1
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust under the laws of The Commonwealth
of Massachusetts.
John Hancock Advisers, LLC (prior to February 1, 2002, John Hancock Advisers,
Inc.) (the "Adviser") is the Fund's investment adviser. The Adviser is an
indirect, wholly-owned subsidiary of John Hancock Life Insurance Company
(formerly John Hancock Mutual Life Insurance Company) (the "Life Company"), a
Massachusetts life insurance company chartered in 1862 with national
headquarters at John Hancock Place, Boston, Massachusetts. The Life Company is
wholly owned by John Hancock Financial Services, Inc., a Delaware corporation
organized in February, 2000.
On June 3, 1996, the Fund changed its name from John Hancock Independence
Diversified Core Equity Fund to John Hancock Independence Equity Fund. Prior to
May 1, 1999, the Fund was called John Hancock Independence Equity Fund.
The Fund has one sub-adviser: Independence Investment LLC ("Independence" or
"Sub-Adviser") (formerly Independence Investment Associates, Inc.) which is a
subsidiary of the Life Company.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus. Appendix A contains further
information describing investment risk. The investment objective of the Fund is
fundamental and may only be changed by the Trustees with shareholder approval.
There is no assurance that the Fund will achieve its investment objective.
The investment objective of the Fund is to seek above-average total return,
consisting of capital appreciation and income. The Fund will diversify its
investments to create a portfolio with a risk profile and characteristics
similar to the Standard & Poor's 500 Index. Consequently, the Fund will invest
in a number of industry groups without concentration in any particular industry.
The Fund's investments will be subject to the market fluctuation and risks
inherent in all securities. Under normal circumstances, the Fund invests at
least 80% of its Assets in equity securities. Equity securities include common
and preferred stocks and their equivalents (including warrants to purchase and
securities convertible into such stocks).
In abnormal circumstances, such as situations where the Fund experiences
unusually large cash inflows or anticipates unusually large redemptions, and in
adverse market, economic, political, or other conditions, the Fund may
temporarily invest more than 20% of its Asses in investment-grade short-term
securities, cash, and cash equivalents.
With respect to the Fund's investment policy of investing at least 80% of its
Assets in equity securities, "Assets" is defined as net assets plus the amount
of any borrowings for investment purposes. In addition, the Fund will notify
shareholders at least 60 days prior to any change in this policy.
Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent
the opinions of these agencies as to the quality of the securities which they
rate. It should be emphasized, however,
2
that such ratings are relative and subjective and are not absolute standards of
quality. These ratings will be used by the Fund as initial criteria for the
selection of debt securities. Among the factors which will be considered are the
long-term ability of the issuer to pay principal and interest and general
economic trends. Appendix B contains further information concerning the ratings
of Moody's and S&P and their significance.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund.
Fixed Income Securities. Under normal market conditions, the Fund may invest in
fixed income securities (including debt securities and preferred stocks) that
are rated Baa or better by Moody's or BBB or better by S&P or, if unrated,
determined to be of comparable quality by the Adviser and the Sub-Adviser
("investment grade debt securities"). The value of fixed income securities
varies inversely with changes in the prevailing levels of interest rates. In
addition, debt securities rated BBB or Baa and unrated debt securities of
comparable quality are considered medium grade obligations and have speculative
characteristics. Adverse changes in economic conditions or other circumstances
are more likely to lead to weakened capacity to make principal and interest
payment than in the case of higher grade obligations.
For temporary defensive purposes, the Fund may invest up to 100% of its assets
in investment grade debt securities of any type or maturity.
Investment in Foreign Securities. The Fund may invest in the securities of
foreign issuers in the form of sponsored and unsponsored American Depository
Receipts ("ADRs") and U.S. dollar-denominated securities of foreign issuers
traded on U.S. exchanges. ADRs (sponsored and unsponsored) are receipts,
typically issued by U.S. banks, which evidence ownership of underlying
securities issued by a foreign corporation. ADRs are publicly traded on a U.S.
stock exchange or in the over-the-counter market. An investment in foreign
securities including ADRs may be affected by changes in currency rates and in
exchange control regulations. Issuers of unsponsored ADRs are not contractually
obligated to disclose material information including financial information, in
the United States and, therefore, there may not be a correlation between such
information and the market value of the unsponsored ADR. Foreign companies may
not be subject to accounting standards or government supervision comparable to
U.S. companies, and there is often less publicly available information about
their operations. Foreign companies may also be affected by political or
financial inability abroad. These risk considerations may be intensified in the
case of investments in ADRs of foreign companies that are located in emerging
market countries. ADRs of companies located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price, plus accrued interest.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government securities.
The Adviser will continuously monitor the creditworthiness of the parties with
whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other
3
default by a seller of a repurchase agreement, the Fund could experience delays
in liquidating the underlying securities and during the period in which the Fund
seeks to enforce its rights thereto, possible subnormal levels of income, lack
of access to income during this period, and the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will require those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain a separate
account consisting of liquid securities, of any type or maturity, in an amount
at least equal to the repurchase prices of the securities (plus any accrued
interest thereon) under such agreements. In addition, the Fund will not enter
into reverse repurchase agreements or borrow money, except from banks as a
temporary measure for extraordinary emergency purposes in amounts not to exceed
33 1/3% of the value of the Fund's total assets (including the amount borrowed)
taken at market value. The Fund will not leverage to attempt to increase income.
The Fund will not purchase securities while outstanding borrowings exceed 5% of
the Fund's total assets. The Fund will enter into reverse repurchase agreements
only with federally insured banks or savings and loan associations which are
approved in advance as being creditworthy by the Trustees. Under procedures
established by the Trustees, the Adviser will monitor the creditworthiness of
the banks involved.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. The Fund will not invest more than 15% of its net
assets in illiquid investments. If the Trustees determine, based upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, they will not be subject to the 15% limit
on illiquid investments. The Trustees have adopted guidelines and delegated to
the Adviser the daily function of determining the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
Options on Securities and Securities Indices. The Fund may purchase and write
(sell) call and put options on securities in which it may invest or on any
securities index based on securities in which it may invest. These options may
be listed on national domestic securities exchanges or traded in the
over-the-counter market. The Fund may write covered put and call options and
purchase put and call options to enhance total return, as a substitute for the
purchase or sale of securities, or to protect against declines in the value of
portfolio securities and against increases in the cost of securities to be
acquired.
4
Writing Covered Options. A call option on securities written by the Fund
obligates the Fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. A put option on securities written by the Fund obligates the Fund to
purchase specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash settlement payments and does
not involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations in
a single security. Writing covered call options may deprive the Fund of the
opportunity to profit from an increase in the market price of the securities in
its portfolio. Writing covered put options may deprive the Fund of the
opportunity to profit from a decrease in the market price of the securities to
be acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities in a
segregated account with a value at least equal to the Fund's obligation under
the option, (ii) entering into an offsetting forward commitment and/or (iii)
purchasing an offsetting option or any other option which, by virtue of its
exercise price or otherwise, reduces the Fund's net exposure on its written
option position. A written call option on securities is typically covered by
maintaining the securities that are subject to the option in a segregated
account. The Fund may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index.
The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts") in the market value of securities of the type in which it
may invest. The Fund may also sell call and put options to close out its
purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities at a specified price during the option
period. The Fund would ordinarily realize a gain on the purchase of a call
option if, during the option period, the value of such securities exceeded the
sum of the exercise price, the premium paid and transaction costs; otherwise the
Fund would realize either no gain or a loss on the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities at a specified price during the option
period. The purchase of protective puts is designed to offset or hedge against a
decline in the market value of the Fund's portfolio securities. Put options may
also be purchased by the Fund for the purpose of affirmatively benefiting from a
decline in the price of securities which it does not own. The Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying securities decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
5
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates or securities prices, the Fund
may purchase and sell various kinds of futures contracts and purchase and write
call and put options on these futures contracts. The Fund may also enter into
closing purchase and sale transactions with respect to any of these contracts
and options. The futures contracts may be based on various securities,
securities indices and any other financial instruments and indices. All futures
contracts entered into by the
6
Fund are traded on U.S. exchanges or boards of trade that are licensed,
regulated or approved by the Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments for an
agreed price during a designated month (or to deliver the final cash settlement
price, in the case of a contract relating to an index or otherwise not calling
for physical delivery at the end of trading in the contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities will usually be liquidated in
this manner, the Fund may instead make, or take, delivery of the underlying
securities whenever it appears economically advantageous to do so. A clearing
corporation associated with the exchange on which futures contracts are traded
guarantees that, if still open, the sale or purchase will be performed on the
settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire. When
securities prices are falling, the Fund can seek to offset a decline in the
value of its current portfolio securities through the sale of futures contracts.
When securities prices are rising, the Fund, through the purchase of futures
contracts, can attempt to secure better rates or prices than might later be
available in the market when it effects anticipated purchases.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated decline
in market prices that would adversely affect the value of the Fund's portfolio
securities. Such futures contracts may include contracts for the future delivery
of securities held by the Fund or securities with characteristics similar to
those of the Fund's portfolio securities.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices then available in the applicable market to be less favorable
than prices that are currently available. The Fund may also purchase futures
contracts as a substitute for transactions in securities, to alter the
investment characteristics of portfolio securities or to gain or increase its
exposure to a particular securities market.
7
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
protect against a decline in the price of securities that the Fund owns or
futures contracts will be purchased to protect the Fund against an increase in
the price of securities it intends to purchase. The Fund will determine that the
price fluctuations in the futures contracts and options on futures used for
hedging purposes are substantially related to price fluctuations in securities
held by the Fund or securities or instruments which it expects to purchase. As
evidence of its hedging intent, the Fund expects that on 75% or more of the
occasions on which it takes a long futures or option position (involving the
purchase of futures contracts), the Fund will have purchased, or will be in the
process of purchasing, equivalent amounts of related securities in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities, require the Fund to establish a
segregated account consisting of cash or liquid securities in an amount equal to
the underlying value of such contracts and options.
8
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices may result
in a poorer overall performance for the Fund than if it had not entered into any
futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. In the event of an imperfect correlation between
a futures position and a portfolio position which is intended to be protected,
the desired protection may not be obtained and the Fund may be exposed to risk
of loss.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers and financial institutions if the loan is collateralized by cash or U.S.
Government securities according to applicable regulatory requirements. The Fund
may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrant and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
Short Sales. The Fund may engage in short sales "against the box". In a short
sale against the box, the Fund agrees to sell at a future date a security that
it either contemporaneously owns or has the right to acquire at no extra cost.
If the price of the security has declined at the time the Fund is required to
deliver the security, the Fund will benefit from the difference in the price. If
the price of the security has increased, the Fund will be required to pay the
difference.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
9
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income.
Short-term trading may have the effect of increasing portfolio turnover rate. A
high rate of portfolio turnover (100% or greater) involves correspondingly
greater brokerage expenses. The Fund's portfolio turnover rate is set forth in
the table under the caption "Financial Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, means the approval by the lesser of (1) the holders of
67% or more of the Fund's shares represented at a meeting if more than 50% of
the Fund's outstanding shares are present in person or by proxy at that meeting
or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
(1) Issue senior securities, except as permitted by paragraphs (2), (6) and
(7) below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts, forward commitments and repurchase agreements
entered into in accordance with the Fund's investment policies, and the
pledge, mortgage or hypothecation of the Fund's assets within the meaning
of paragraph (3) below, are not deemed to be senior securities.
(2) Borrow money, except from banks as a temporary measure for extraordinary
emergency purposes in amounts not to exceed 33 1/3% of the value of the
Fund's total assets (including the amount borrowed) taken at market value.
The Fund will not leverage to
10
attempt to increase income. The Fund will not purchase securities while
outstanding borrowings exceed 5% of the Fund's total assets.
(3) Pledge, mortgage or hypothecate its assets, except to secure indebtedness
permitted by paragraph (2) above and then only if such pledging,
mortgaging or hypothecating does not exceed 33 1/3% of the Fund's total
assets taken at market value.
(4) Act as an underwriter, except to the extent that in connection with the
disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purposes of the 1933 Act.
(5) Purchase or sell real estate or any interest therein, except that the Fund
may invest in securities of corporate or governmental entities secured by
real estate or marketable interests therein or securities issued by
companies that invest in real estate or interests therein.
(6) Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the Fund's
total assets taken at market value, (2) enter into repurchase agreements,
and (3) purchase all or a portion of an issue of publicly distributed debt
securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or
not the purchase is made upon the original issuance of the securities.
(7) Invest in commodities or in commodity contracts or in puts, calls, or
combinations of both, except options on securities, securities indices and
currency, futures contracts on securities, securities indices and currency
and options on such futures, forward foreign currency exchange contracts,
forward commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment policies.
(8) Purchase the securities of issuers conducting their principal activity in
the same industry if, immediately after such purchase, the value of its
investments in such industry would exceed 25% of its total assets taken at
market value at the time of such investment. This limitation does not
apply to investments in obligations of the U.S. Government or any of its
agencies or instrumentalities.
(9) Purchase securities of an issuer (other than the U.S. Government, its
agencies or instrumentalities), if
(a) such purchase would cause more than 5% of the Fund's total assets
taken at market value to be invested in the securities of such
issuer, or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the Fund.
In connection with the lending of portfolio securities under paragraph (6)
above, such loans must at all times be fully collateralized and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Securities used as collateral must be marked to market daily.
11
Non-Fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management
of the Adviser or Sub-Adviser to save commissions or to average prices
among them is not deemed to result in a joint securities trading account.
(b) Purchase securities on margin or make short sales, except in connection
with arbitrage transactions or unless, by virtue of its ownership of other
securities, the Fund has the right to obtain securities equivalent in kind
and amount to the securities sold and, if the right is conditional, the
sale is made upon the same conditions, except that the Fund may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities.
(c) Purchase a security if, as a result, (i) more than 10% of the Fund's total
assets would be invested in the securities of other investment companies,
(ii) the Fund would hold more than 3% of the total outstanding voting
securities of any one investment company, or (iii) more than 5% of the
Fund's total assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the investment
of cash collateral, received by the Fund in connection with lending the
Fund's portfolio securities, in the securities of open- end investment
companies or (b) the purchase of shares of any investment company in
connection with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company. Subject to
the above percentage limitations, the Fund may, in connection with the
John Hancock Group of Funds Deferred Compensation Plan for Independence
Trustees/ Directors, purchase securities of other investment companies
within the John Hancock Group of Funds.
(d) Invests more than 15% of its net assets in illiquid securities.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction.
The Funds will invest only in countries on the Adviser's Approved Country
Listing. The Approved Country Listing is a list maintained by the Adviser's
investment department that outlines all countries, including the United States,
that have been approved for investment by Funds managed by the Adviser.
In addition, no Fund may invest either directly or indirectly in any Russian
equity. Only certain funds can invest in certain types of Russian debt. These
funds are: Active Bond, Income, Investors, High Income, Bond, High Yield Bond,
Strategic Income and VA Strategic Income. Each of these funds may invest only up
to 5% of total assets in: (1) Sovereign Russian Debt and Municipal Fixed Income
Securities; (2) that are NOT ruble-denominated; (3) that are held physically
outside of Russia; and (4) have Euroclear settlement.
12
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 or Directors of the Adviser, or officers and Directors of the
Fund's principal distributor, John Hancock Funds, LLC (prior to February 1,
2002, John Hancock Funds, Inc.) ("John Hancock Funds").
- --------------------------------------------------------------------------------------------------------------------
Number of
John
Hancock
Position(s) Trustee/ Principal Occupation(s) and other Funds
Name, Address (1) Held with Officer Directorships Overseen by
And Age Fund since(2) During Past 5 Years Trustee
- ---------------------------------------------------------------------------------------------------------------------
Independent Trustees
- ---------------------------------------------------------------------------------------------------------------------
Dennis S. Aronowitz Trustee 1998 Professor of Law, Emeritus, Boston 30
Born: 1931 University School of Law (as of 1996);
Director, Brookline Bancorp.
- ---------------------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. Trustee 1996 Chairman, President and Chief Executive 30
Born: 1935 Officer, Brookline Bancorp. (lending)
(since 1972); Trustee, Northeastern
University (education); Chairman and
Director, Lumber Insurance Co. (insurance)
(until 2000); Chairman and Director,
Northeast Retirement Services, Inc.
(retirement administration) (since 1998).
- ---------------------------------------------------------------------------------------------------------------------
William J. Cosgrove Trustee 1991 Vice President, Senior Banker and Senior 30
Born: 1933 Credit Officer, Citibank, N.A. (retired
1991); Executive Vice President, Citadel
Group Representatives, Inc.; Director,
Hudson City Bancorp; Trustee, Scholarship
Fund for Inner City Children (since 1986).
- ---------------------------------------------------------------------------------------------------------------------
Richard A. Farrell Trustee 1996 President, Farrell, Healer & Co., Inc., 30
Born: 1932 (venture capital management firm)(since
1980) and General Partner of the Venture
Capital Fund of NE (since 1980); Prior to
1980, headed the venture capital group
at Bank of Boston Corporation.
- ---------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02119.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
13
- --------------------------------------------------------------------------------------------------------------------
Number of
John
Hancock
Position(s) Trustee/ Principal Occupation(s) and other Funds
Name, Address (1) Held with Officer Directorships Overseen by
And Age Fund since(2) During Past 5 Years Trustee
- ---------------------------------------------------------------------------------------------------------------------
Gail D. Fosler Trustee 1994 Senior Vice President and Chief Economist, 30
Born: 1947 The Conference Board (non-profit economic
and business research)(since 1989);
Director, Unisys Corp. (since 1993);
Director, H.B. Fuller Company (since 1992)
and DBS Holdings (Singapore) (banking
and financial services)(since 1999);
Director, National Bureau of Economic
Research (academic)(since 1989);
Director, Baxter International
(medical health care) (since 2001).
- ---------------------------------------------------------------------------------------------------------------------
William F. Glavin Trustee 1996 President Emeritus, Babson College (as 30
Born: 1932 of 1998); Vice Chairman, Xerox Corporation
(until 1989); Director, Reebok, Inc. (since
1994) and Inco Ltd.
- ---------------------------------------------------------------------------------------------------------------------
John A. Moore Trustee 1996 President and Chief Executive Officer, 36
Born: 1939 Institute for Evaluating Health Risks,
(nonprofit institution) (until 2001);
Senior Scientist, Sciences International
(health research)(since 1998);
Principal, Hollyhouse (consulting)(since
2000); Director, CIIT(nonprofit
research) (since 2002).
- ---------------------------------------------------------------------------------------------------------------------
Patti McGill Peterson Trustee 1995 Executive Director, Council for 36
Born: 1943 International Exchange of Scholars (since
1998); Vice President, Institute of
International Education (since 1998);
Senior Fellow, Cornell Institute of
Public Affairs, Cornell University
(until 1997); President Emerita of
Wells College and St. Lawrence University;
Director, Niagara Mohawk Power
Corporation (electric utility).
- ---------------------------------------------------------------------------------------------------------------------
John W. Pratt Trustee 1996 Professor of Business Administration Emeritus, 30
Born: 1931 Harvard University Graduate School of
Business Administration (as of 1998).
- ---------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02119.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
14
- --------------------------------------------------------------------------------------------------------------------
Number of
John
Hancock
Position(s) Trustee/ Principal Occupation(s) and other Funds
Name, Address (1) Held with Officer Directorships Overseen by
And Age Fund since(2) During Past 5 Years Trustee
- ---------------------------------------------------------------------------------------------------------------------
Interested Trustees
- ---------------------------------------------------------------------------------------------------------------------
John M. DeCiccio (3) Trustee 2001 Executive Vice President and Chief Investment 66
Born: 1948 Officer, John Hancock Financial Services,
Inc.; Director, Executive Vice President and
Chief Investment Officer, John Hancock Life
Insurance Company; Chairman of the Committee
of Finance of John Hancock Life Insurance
Company; Director, John Hancock Subsidiaries,
LLC, Hancock Natural Resource Group,
Independence Investment LLC, Independence
Fixed Income LLC, John Hancock Advisers, LLC
(the "Adviser") and The Berkeley Financial
Group, LLC ("The Berkeley Group"), John
Hancock Funds, LLC ("John Hancock Funds"),
Massachusetts Business Development
Corporation; Director, John Hancock Insurance
Agency, Inc. ("Insurance Agency, Inc.") (until
1999) and John Hancock Signature Services,
Inc. ("Signature Services") (until 1997).
- ---------------------------------------------------------------------------------------------------------------------
Maureen R. Ford (3) Trustee, 2000 Executive Vice President, John Hancock 66
Born: 1955 Chairman, Financial Services, Inc., John Hancock Life
President Insurance Company; Chairman, Director,
and Chief President and Chief Executive Officer, the
Executive Advisers and The Berkeley Group; Chairman,
Officer Director and Chief Executive Officer, John
Hancock Funds, Chairman, Director and
President, Insurance Agency, Inc.; Chairman,
Director and Chief Executive Officer,
Sovereign Asset Management Corporation
("SAMCorp."); Director, Independence
Investment LLC, Independence Fixed Income LLC
and Signature Services; Senior Vice President,
MassMutual Insurance Co. (until 1999); Senior
Vice President, Connecticut Mutual Insurance
Co. (until 1996).
- ---------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02119.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
15
- --------------------------------------------------------------------------------------------------------------------
Number of
John
Hancock
Position(s) Trustee/ Principal Occupation(s) and other Funds
Name, Address (1) Held with Officer Directorships Overseen by
And Age Fund since(2) During Past 5 Years Trustee
- ---------------------------------------------------------------------------------------------------------------------
Principal Officers who
are not Trustees
- ---------------------------------------------------------------------------------------------------------------------
William L. Braman Executive 2000 Executive Vice President and Chief
Born: 1953 Vice Investment Officer, the Adviser and each
President of the John Hancock funds; Director,
and Chief SAMCorp., Executive Vice President and
Investment Chief Investment Officer, Baring Asset
Officer Management, London U.K. (until 2000).
- ---------------------------------------------------------------------------------------------------------------------
Richard A. Brown Senior Vice 2000 Senior Vice President, Chief Financial
Born: 1949 President Officer and Treasurer, the Adviser, John
and Chief Hancock Funds, and The Berkeley Group;
Financial Second Vice President and Senior Associate
Officer Controller, Corporate Tax Department, John
Hancock Financial Services, Inc. (until
2001).
- ---------------------------------------------------------------------------------------------------------------------
Thomas H. Connors Vice 1992 Vice President and Compliance Officer, the
Born: 1959 President Adviser and each of the John Hancock
and funds; Vice President, John Hancock Funds.
Compliance
Officer
- ---------------------------------------------------------------------------------------------------------------------
William H. King Vice 1992 Vice President and Assistant Treasurer,
Born: 1952 President the Adviser; Vice President and
and Treasurer of each of the John Hancock
Treasurer funds; Assistant Treasurer of each of
the John Hancock funds (until 2001).
- ---------------------------------------------------------------------------------------------------------------------
Susan S. Newton Senior Vice 1986 Senior Vice President, Secretary and Chief
Born: 1950 President, Legal Officer, SAMCorp., the Adviser and
Secretary each of the John Hancock funds, John
and Chief Hancock Funds and The Berkeley Group; Vice
Legal Officer President, Signature Services (until
2000), Director, Senior Vice President and
Secretary, NM Capital.
- ---------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02119.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
16
The Fund's Board of Trustees currently has five standing Committees: the Audit
Committee, the Administration Committee, the Contracts/Operations Committee, the
Investment Performance Committee and the Coordinating Committee. Each Committee
is comprised of Independent Trustees who are not "interested persons". The Audit
Committee members are Messrs. Moore, Farrell and Ms. Fosler. The Audit Committee
recommends to the full board auditors for the Fund, monitors and oversees the
audits of the Fund, communicates with both independent auditors and internal
auditors on a regular basis and provides a forum for the auditors to report and
discuss any matters they deem appropriate at any time. The Audit Committee held
four meetings during the fiscal year ended December 31, 2001.
The Administration Committee's members are all of the Independent Trustees of
the Fund. The Administration Committee reviews the activities of the other four
standing committees and makes the final selection and nomination of candidates
to serve as Independent Trustees. The Administration Committee will consider
nominees recommended by shareholders to serve as Independent Trustees, provided
that shareholders submit recommendations in compliance with all of the pertinent
provisions of Rule 14a-8 under the Securities Exchange Act of 1934. The
Administration Committee also works with all Trustees on the selection and
election of officers of the Fund. The Administration Committee held four
meetings during the fiscal year ended December 31, 2001.
The Contracts/Operations Committee members are Messrs. Chapman, Cosgrove and
Pratt. The Contracts/Operations Committee oversees the initiation, operation,
and renewal of contracts between the Fund and other entities. These contracts
include advisory and subadvisory agreements, custodial and transfer agency
agreements and arrangements with other service providers. The
Contracts/Operations Committee held five meetings during the fiscal year ended
December 31, 2001.
The Investment Performance Committee consists of Messrs. Aronowitz, Glavin and
Ms. Peterson. The Investment Performance Committee monitors and analyzes the
performance of the Fund generally, consults with the adviser as necessary if the
Fund requires special attention, and reviews peer groups and other comparative
standards as necessary. The Investment Performance Committee held four meetings
during the fiscal year ended October 31, 2001.
The Coordinating Committee members are the chairpersons of the other four
standing committees. The Coordinating Committee assures consistency of action
among committees, reviews Trustee compensation, evaluates Trustee performance
and considers committee membership rotations as well as relevant corporate
governance issues.
The following table provides a dollar range indicating each Trustee's ownership
of equity securities of the Fund, as well as aggregate holdings of shares of
equity securities of all John Hancock Funds overseen by the Trustee, as of
December 31, 2001.
17
- -------------------------------------------------------------------------------------------------
Aggregate Dollar Range of
Dollar Range of Fund Shares holdings in John Hancock funds
Name of Trustee Owned by Trustee overseen by Trustee
- -------------------------------------------------------------------------------------------------
Independent Trustees
- -------------------------------------------------------------------------------------------------
Dennis S. Aronowitz $1-$10,000 $50,001-$100,000
- -------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------
William J. Cosgrove $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------
Richard A. Farrell $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------
Gail D. Fosler $1-$10,000 $10,001-$50,000
- -------------------------------------------------------------------------------------------------
William F. Glavin None $10,001-$50,000
- -------------------------------------------------------------------------------------------------
Dr. John A. Moore $10,001-$50,000 Over $100,000
- -------------------------------------------------------------------------------------------------
Patti McGill Peterson $10,001-$50,000 Over $100,000
- -------------------------------------------------------------------------------------------------
John W. Pratt $10,000-$50,000 Over $100,000
- -------------------------------------------------------------------------------------------------
Interested Trustees
- -------------------------------------------------------------------------------------------------
John M. DeCiccio $50,000-$100,000 Over $100,000
- -------------------------------------------------------------------------------------------------
Maureen R. Ford $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Mr. DeCiccio and Ms. Ford, each a
non-Independent Trustee, and each of the officers of the Fund who are interested
persons of the Adviser, are compensated by the Adviser and/or affiliates and
receive no compensation from the Fund for their services.
Aggregate Total Compensation From the
Compensation Fund and John Hancock Fund
Independent Trustees From the Fund(1) Complex to Trustees(2)
- -------------------- ---------------- ----------------------
Dennis S. Aronowitz $ 5,198 $ 75,000
Richard P. Chapman, Jr+ 5,394 78,100
William J. Cosgrove+ 5,009 72,000
Leland O. Erdahl* 1,275 18,000
Richard A. Farrell 5,009 72,000
Gail D. Fosler 5,198 75,000
William F. Glavin+ 5,010 72,000
Dr. John A. Moore+ 5,205 75,100
Patti McGill Peterson 5,009 72,000
John W. Pratt 5,009 72,000
------- --------
Total $47,316 $681,200
-------
(1) Compensation is for the current fiscal year ending October 31, 2001.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 2001. As of this date, there were sixty-six funds
in the John Hancock Fund Complex, with Mr. Moore and Ms. Peterson serving on
thirty-six funds and each other Independent Trustees serving on thirty funds.
18
(+) As of December 31, 2001, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for Mr.
Chapman was $71,309, Mr. Cosgrove was $207,842, Mr. Glavin was $280,472 and for
Dr. Moore was $238,982 under the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees (the "Plan").
+ As of February 28, 2001, Mr. Erdahl resigned as Trustee of the Complex.
All of the officers listed are officers or employees of the Adviser or
Affiliated Companies. Some of the Trustees and officers may also be officers or
Trustees of one or more of the other funds for which the Adviser serves as
investment adviser.
The officers and Trustees of the Fund as a group beneficially owned less than 1%
of the outstanding shares of the Fund and no shareholders of record beneficially
owned 5% or more of the outstanding Class I shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has approximately $30 billion in assets under
management in its capacity as investment adviser to the Fund and the other funds
in the John Hancock group of funds as well as retail and institutional privately
managed accounts. The Adviser is an affiliate of the Life Company, one of the
most recognized and respected financial institutions in the nation. With total
assets under management of more than $100 billion, the Life Company is one of
the ten largest life insurance companies in the United States, and carries a
high rating from Standard & Poor's and A. M. Best. Founded in 1862, the Life
Company has been serving clients for over 130 years.
The Sub-Adviser, Independence (formerly Independence Investment Associates,
Inc.), located at 53 State Street, Boston, Massachusetts 02109, was organized in
1982 and currently manages over $38 billion in assets for primarily
institutional clients. The Sub-Adviser is a wholly-owned indirect subsidiary of
the Life Company.
The Fund has entered into an investment management contract with the Adviser
(the "Advisory Agreement") which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, the Adviser, in conjunction with the
Sub-Adviser will: (a) furnish continuously an investment program for the Fund
and determine, subject to the overall supervision and review of the Trustees,
which investments should be purchased, held, sold or exchanged and (b) provide
supervision over all aspects of the Fund's operations except those which are
delegated to a custodian, transfer agent or other agent.
The Adviser has entered into a Sub-Advisory Agreement with the Sub-Adviser under
which the Sub-Adviser, subject to the review of the Trustees and the overall
supervision of the Adviser, is responsible for managing the investment
operations of the Fund and the composition of the Fund's portfolio and
furnishing the Fund with advice and recommendations with respect to investments,
investment policies and the purchase and sale of securities.
The Fund bears all costs of its organization and operation, including but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices, prospectuses, proxy statements and reports to regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders
19
their account statements; taxes; expenses of redeeming shares; brokerage and
other expenses connected with the execution of portfolio securities
transactions; expenses pursuant to the Fund's plan of distribution; fees and
expenses of custodians including those for keeping books and accounts
maintaining a committed line of credit and calculating the net asset value of
shares; fees and expenses of transfer agents and dividend disbursing agents;
legal, accounting, financial, management, tax and auditing fees and expenses of
the Fund (including an allocable portion of the cost of the Adviser's employees
rendering such services to the Fund; the compensation and expenses of Trustees
who are not otherwise affiliated with the Trust, the Adviser or any of their
affiliates; expenses of Trustees' and shareholders' meetings; trade association
memberships; insurance premiums; and any extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
Average Daily Net Assets Annual Rate
------------------------ -----------
First $750,000,000 0.75%
Amount over $750,000,000 0.70%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to reimpose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser, the Sub-Adviser or their respective
affiliates provide investment advice. Because of different investment objectives
or other factors, a particular security may be bought for one or more funds or
clients when one or more are selling the same security. If opportunities for
purchase or sale of securities by the Adviser or Sub-Adviser for the Fund or for
other funds or clients for which the Adviser or Sub-Adviser renders investment
advice arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds or
clients in a manner deemed equitable to all of them. To the extent that
transactions on behalf of more than one client of the Adviser, the Sub-Adviser
or their respective affiliates may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
Pursuant to the Advisory Agreement and Sub-Advisory Agreement, the Adviser and
Sub-Adviser are not liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matters to which their
respective Agreements relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Adviser or Sub-Adviser in the
performance of their duties or from their reckless disregard of the obligations
and duties under the applicable Agreements.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Advisory
Agreement is no longer in effect, the Fund (to the extent that it lawfully can)
will cease to use such name or any other name indicating that it is advised by
or otherwise connected with the Adviser. In addition, the Adviser or the Life
Company may grant the nonexclusive right to use the name "John Hancock" or any
similar name to any other corporation or entity, including but not limited to
any investment
20
company of which the Life Company or any subsidiary or affiliate thereof or any
successor to the business of any subsidiary or affiliate thereof shall be the
investment adviser.
Under the Sub-Advisory Agreement, the Fund may use the name "Independence" or
any name derived from or similar to it only for so long as the Sub-Advisory
Agreement or any extension, renewal or amendment thereof remains in effect. If
the Sub-Advisory Agreement is no longer in effect, the Fund (to the extent that
it lawfully can) will cease to use such name or any other name indicating that
it is advised by or otherwise connected with the Sub-Adviser. In addition, the
Sub-Adviser or the Life Company may grant the nonexclusive right to use the name
"Independence" or any similar name to any other corporation or entity, including
but not limited to any investment company of which the Sub-Adviser or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
The Fund's Board of Trustees is responsible for overseeing the performance of
the Fund's investment Adviser and Sub-adviser and determining whether to approve
and renew the Fund's Advisory Agreement and Sub-Advisory Agreement. The Board
has a standing request that the Adviser provide the Board with certain
information the Board has deemed important to evaluating the short- and
long-term performance of the Adviser and Sub-Adviser. This information includes
periodic performance analysis and status reports from the Adviser and quarterly
Portfolio and Investment Performance Reports. The Fund's portfolio managers meet
with the Board from time to time to discuss the management and performance of
the Fund and respond to the Board's questions concerning the performance of the
Adviser. When the Board considers whether to renew an investment advisory
contract, the Board takes into account numerous factors, including: (1) the
nature, extent and quality of the services provided by the Adviser and
Sub-adviser; (2) the investment performance of the Fund; (3) the fair market
value of the services provided by the Adviser and Sub-Adviser; (4) a comparative
analysis of expense ratios of, and advisory fees paid by, similar funds; (5) the
extent to which the Adviser has realized or will realize economies of scale as
the Fund grows; (6) other sources of revenue to the Adviser or its affiliates
from its relationship with the Fund and intangible or "fall-out" benefits that
accrue to the adviser and its affiliates, if relevant; and (7) the Adviser's
control of the operating expenses of the fund, such as transaction costs,
including ways in which portfolio transactions for the fund are conducted and
brokers are selected.
The primary factors underlying the Board's decision to renew the Fund's Advisory
Agreement and Sub-Advisory Agreement were as follows:
o The Board determined that the performance results of the Fund and the
Adviser and Sub-Adviser's responsive actions were reasonable, as compared
with relevant performance standards, including the performance results of
comparable large-cap core funds derived from data provided by Lipper Inc.
and appropriate market indexes.
o The Board decided that the advisory fee paid by the Fund was reasonable
based on the average advisory fee for comparable funds. The Board also
took into account the nature of the fee arrangements which include
breakpoints that will adjust the fee downward as the size of the Fund's
portfolio increases.
o The Board evaluated the Adviser and Sub-Adviser's investment staff and
portfolio management process, and reviewed the composition and overall
performance of the Fund's portfolio on both a short-term and long-term
basis. The Board considered whether the Fund should obtain alternative
portfolio management services and concluded that, under all the
circumstances and based on its informed business judgement, the most
appropriate course of
21
action in the best interest of the Fund's shareholders was to renew the
agreements with the Adviser and Sub-Adviser.
The continuation of the Advisory Agreement was approved by all Trustees. The
Advisory Agreement and Sub-Advisory Agreement discussed below, will continue in
effect from year to year, provided that its continuance is approved annually
both by (i) by the holders of a majority of the outstanding voting securities of
the Trust or by the Trustees, and (ii) by a majority of the Trustees who are not
parties to the Agreement or "interested persons" of any such parties. Both
agreements may be terminated on 60 days written notice by any party or by a vote
of a majority of the outstanding voting securities of the Fund and will
terminate automatically if it is assigned. The Sub-Advisory Agreement terminates
automatically upon the termination of the Advisory Agreement.
As provided in the Sub-Advisory Agreement, the Adviser (not the Fund) pays the
Sub-Adviser a quarterly subadvisory fee at the annual rate of 55% of the
management fee paid by the Fund to the Adviser for the preceding three months.
For the fiscal years ended December 31, 1999, 2000 and 2001, the Adviser
received fees of $6,706,432, $7,228,394 and $5,665,542, respectively.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal years ended December 31, 1999, 2000 and 2001,
the Fund paid the Adviser $163,633, $183,911 and $153,343 for services under
this Agreement.
Personnel of the Adviser, and its affiliates may trade securities for their
personal accounts. The Fund also may hold, or may be buying or selling, the same
securities. To prevent the Fund from being disadvantaged, the adviser(s),
principal underwriter and the Fund have adopted a code of ethics which restricts
the trading activity of those personnel.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
Agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of the Fund. Shares of the Fund are also sold by selected broker-dealers
(the "Selling Brokers") which have entered into selling agency agreements with
John Hancock Funds. These Selling Brokers are authorized to designate other
intermediaries to receive purchase and redemption orders on behalf of the Fund.
John Hancock Funds accepts orders for the purchase of the shares of the Funds
which are continually offered at net asset value next determined.
SALES COMPENSATION
As part of their business strategies, John Hancock Funds, may pay compensation
to financial services firms that sell the Fund's shares. These firms pass along
a portion of this compensation to your broker or financial representative.
John Hancock Funds may make a one-time payment at the time of initial purchase
out of its own resources to a Selling Broker who sells shares of the Fund. This
payment may not exceed 0.15% of the amount invested.
22
In addition, from time to time, John Hancock Funds, at its expense, may provide
significant additional compensation to financial services firms in connection
with their promotion of the Fund and sale of shares of the Fund. Such
compensation provided by John Hancock Funds may include, for example, financial
assistance to financial services firms in connection with their marketing and
sales development programs for their registered representatives and other
employees, as well as payment for travel expenses, including lodging, incurred
by registered representatives and other employees for such marketing and sales
development programs, as well as assistance for seminars for the public,
advertising and sales campaigns regarding one or more Funds, and other
financial services firms-sponsored events or activities. From time to time, John
Hancock Funds may provide expense reimbursements for special training of a
financial services firm's registered representatives and other employees in
group meetings. Other compensation, such as asset retention fees, finder's fees
and reimbursement for wire transfer fees, may be offered to the extent not
prohibited by law or any self-regulatory agency, such as the NASD.
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by the
events occurring after the closing of a foreign market, assets are valued by a
method that the Trustees believe accurately reflects fair value.
The NAV of each Fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing the a class's net assets by the number of it shares
outstanding. On any day an international market is closed and the New York Stock
Exchange is open, any foreign securities will be valued at the prior day's close
with the current day's exchange rate. Trading of foreign securities may take
place on Saturdays and U.S. business holidays on which the Fund's NAV is not
calculated. Consequently, the Fund's portfolio securities may trade and the NAV
of the Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
23
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholder will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Fund has
elected to be governed by Rule 18f-1 under the Investment Company Act. Under
that rule, the Fund must redeem its shares for cash except to the extent that
the redemption payments to any shareholder during any 90-day period would exceed
the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of
such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain broker-dealers
or Service Agents ("Brokers"). Brokers may charge for their services or place
limitations on the extent to which you may use the services of the Fund. The
Fund will be deemed to have received a purchase or redemption order when an
authorized broker, or if applicable, a broker's authorized designee, receives
the order. If a broker is an agent or designee of the Fund, orders are processed
at the NAV next calculated after the broker receives the order. The broker must
segregate any orders it receives after the close of regular trading on the New
York Stock Exchange and transmit those orders to the Fund for execution at NAV
next determined. Some brokers that maintain nominee accounts with the Fund for
their clients charge an annual fee on the average net assets held in such
accounts for accounting, servicing, and distribution services they provide with
respect to the underlying Fund shares. The Adviser, the Fund, and/or John
Hancock Funds, Inc. (the Fund's principal distributor), share in the expense of
these fees.
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series and classes
without further action by shareholders. As of the date of this Statement of
Additional Information, the Trustees have authorized shares of the Fund.
Additional series may be added in
24
the future. The Trustees have also authorized the issuance of four classes of
shares of the Fund, designated as Class A, Class B, Class C and Class I. Class
A, class B and Class C shares are discussed in a separate Statement of
Additional Information.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
each Class of shares have certain exclusive voting rights on matters relating to
their respective distribution plans. The different classes of the Fund may bear
different expenses relating to the cost of holding shareholder meetings
necessitated by the exclusive voting rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to each class will be borne exclusively
by that class, (ii) Class B and Class C shares will pay higher distribution and
service fees than Class A shares and (iii) each class of shares will bear any
class expenses properly allocable to that class of shares, subject to the
conditions the Internal Revenue Service imposes with respect to the
multiple-class structures. Similarly, the net asset value per share may vary
depending on which class of shares are purchased. No interest will be paid on
uncashed dividend or redemption checks.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts, obligations or affairs of the Fund. The
Declaration of Trust also provides for indemnification out of the Fund's assets
for all losses and expenses of any shareholder held personally liable by reason
of being or having been a shareholder. The Declaration of Trust also provides
that no series of the Trust shall be liable for the liabilities of any other
series. Furthermore, no fund included in this Fund's prospectus shall be liable
for the liabilities of any other John Hancock fund. Liability is therefore
limited to circumstances in which the Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Information provided on the account application may be used by the Fund to
verify the
25
accuracy of the information or for background or financial history purposes. A
joint account will be administered as a joint tenancy with right of
survivorship, unless the joint owners notify Signature Services of a different
intent. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts. For telephone transactions, the transfer agent will take measures
to verify the identity of the caller, such as asking for name, account number,
Social Security or other taxpayer ID number and other relevant information. If
appropriate measures are taken, the transfer agent is not responsible for any
loss that may occur to any account due to an unauthorized telephone call. Also
for your protection telephone transactions are not permitted on accounts whose
names or addresses have changed within the past 30 days. Proceeds from telephone
transactions can only be mailed to the address of record.
Selling activities for the Fund may not take place outside the U.S. except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
TAX STATUS
The Fund is treated as a separate entity for accounting and tax purposes, has
qualified 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 qualify for each taxable year. As such and by complying
with the applicable provisions of the Code regarding the sources of its income,
the timing of its distributions and the diversification of its assets, the Fund
will not be subject to Federal income tax on its taxable income (including net
realized capital gains) which is distributed to shareholders in accordance with
the timing requirements of the Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
this tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than those gains and losses included in
computing net capital gain, after reduction by deductible expenses.). Some
distributions may be paid in January but may be taxable to shareholders as if
they had been received on December 31 of the previous year. The tax treatment
described above will apply without regard to whether distributions are received
in cash or reinvested in additional shares of the Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
26
If the Fund invests in stock (including an option to acquire stock such as is
inherent in a convertible bond) of certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, certain rents and royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Fund is timely distributed to its shareholders.
The Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. An election may be available to ameliorate these
adverse tax consequences, but could require the Fund to recognize taxable income
or gain without the concurrent receipt of cash. These investments could also
result in the treatment of associated capital gains as ordinary income. The Fund
may limit and/or manage its holdings in passive foreign investment companies to
minimize its tax liability or maximize its return from these investments.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Some tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. The Fund does not expect to qualify to pass such taxes
through to its shareholders, who consequently will not take such taxes into
account on their own tax returns. However, the Fund will deduct such taxes in
determining the amount it has available for distribution to shareholders.
The amount of the Fund's net realized capital gains, if any, in any given year
will vary depending upon the Adviser's current investment strategy and whether
the Adviser believes it to be in the best interest of the Fund to dispose of
portfolio securities and /or engage in options, futures or forward transactions
will generate capital gains. At the time of an investor's purchase of shares of
the Fund, a portion of the purchase price is often attributed to realized or
unrealized appreciation in the Fund's portfolio or undistributed taxable income
of the Fund. Consequently, subsequent distributions from such appreciation or
income may be taxable to such investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares, and the distributions (or portions thereof) in
reality represent a return of a portion of the purchase price.
Upon a redemption or other disposition of shares (including by exercise of the
exchange privilege) in a transaction that is treated as a sale for tax purposes,
a shareholder will ordinarily realize a taxable gain or loss depending upon the
amount of the proceeds and the investor's basis in his shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and will be long-term or short-term, depending upon the
shareholder's tax holding period for the shares and subject to the special rules
described below. A sales charge paid in purchasing shares of the Fund cannot be
taken into account for purposes of determining gain or loss on the redemption or
exchange of such shares within 90 days after their purchase to the extent shares
of the Fund or another John Hancock fund are subsequently acquired without
payment of a sales charge pursuant to the reinvestment or exchange privilege.
This disregarded charge will result in an increase in the shareholder's tax
basis in the shares subsequently acquired. Also, any loss realized on a
redemption or exchange may be disallowed to the extent the shares disposed of
are replaced with other shares of the Fund within a period of 61 days beginning
30 days before and ending 30 days after the shares are disposed of, such as
pursuant to 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
27
with respect to such shares. Shareholders should consult their own tax advisers
regarding their particular circumstances to determine whether a disposition of
Fund shares is properly treated as a sale for tax purposes, as is assumed in the
foregoing discussion.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net long-term capital gains realized in any
year to the extent that a capital loss is carried forward from prior years
against such gain. To the extent such excess was retained and not exhausted by
the carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain income in his tax return for his taxable year in which the last day
of the Fund's taxable year falls, (b) be entitled either to a tax credit on his
return for, or to a refund of, his pro rata share of the taxes paid by the Fund,
and (c) be entitled to increase the adjusted tax basis for his shares in the
Fund by the difference between his pro rata share of such excess and his pro
rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset net capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent net capital gains
are offset by such losses, they would not result in Federal income tax liability
to the Fund and, as noted above, would not be distributed as such to
shareholders. The Fund has a $98,885,432 capital loss carryforward available, to
the extent provided by regulations, to offset future net realized capital gains.
The entire Fund's carryforward expires on December 31, 2009.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) during a prescribed period extending before and after each
dividend and distributed and properly designated by the Fund may be treated as
qualifying dividends. Corporate shareholders must meet the holding period
requirements stated above with respect to their shares of the Fund for each
dividend in order to qualify for the deduction and, if they have any debt that
is deemed under the Code directly attributable to Fund shares, may be denied a
portion of the dividends received deduction. The entire qualifying dividend,
including the otherwise-deductible amount, will be included in determining the
excess (if any) of a corporate shareholder's adjusted current earnings over its
alternative minimum taxable income, which may increase its alternative minimum
tax liability. Additionally, any corporate shareholder should consult its tax
adviser regarding the possibility that its basis in its shares may be reduced,
for Federal income tax purposes, by reason of "extraordinary dividends" received
with respect to the shares and, to the extent such basis would be reduced below
zero, that current recognition of income would be required.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payment. The mark to
market or constructive sale rules applicable to certain options, futures,
forwards, short sales or other transactions and forward contracts may also
require the
28
Fund to recognize income or gain without a concurrent receipt of cash.
Additionally, some countries restrict repatriation which may make it difficult
or impossible for the Fund to obtain cash corresponding to its earnings or
assets in those countries. However, the Fund must distribute to shareholders for
each taxable year substantially all of its net income and net capital gains,
including such income or gain, to qualify as a regulated investment company and
avoid liability for any federal income or excise tax. Therefore, the Fund may
have to dispose of its portfolio securities under disadvantageous circumstances
to generate cash, or may have to leverage itself by borrowing the cash, to
satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. Government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The Fund will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax in the case of non-exempt shareholders
who fail to furnish the Fund with their correct taxpayer identification number
and certain certifications required by the IRS or if the IRS or a broker
notifies the Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding as a result of failure to
report interest or dividend income. A Fund may refuse to accept an application
that does not contain any required taxpayer identification number or
certification that the number provided is correct. If the backup withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in shares, will be reduced by the amounts required to be
withheld. Any amounts withheld may be credited against a shareholder's U.S.
federal income tax liability. Investors should consult their tax advisers about
the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain types of
investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from
29
that described above. These investors may be subject to non- resident alien
withholding tax at the rate of 30% (or a lower rate under an applicable tax
treaty) on amounts treated as ordinary dividends from the Fund and, unless an
effective IRS Form W-8, Form W-8BEN or authorized withholding certificate is on
file and to 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.
The Fund anticipates that provided that the Fund qualifies as a regulated
investment company under the Code, it will also not be required to pay any
Massachusetts income tax.
CALCULATION OF PERFORMANCE
Because Class I shares are new, there is no performance to report. Class A
performance is currently disclosed in the Fund's prospectus for Class I shares.
As of December 31, 2001, the average annual total returns before taxes for Class
A shares of the Fund for the one, five year and ten year periods were -15.32%,
7.88% and 11.65%.
The average annual total return before taxes is computed by finding the average
annual compounded rate of return over the 1-year, 5-year and 10-year periods, or
the period since the commencement of operations, that would equate the initial
amount invested to the ending redeemable value according to the following
formula:
P(1+T)^n = ERV
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return.
n= number of years.
ERV= ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1-year, 5-year or 10-year
periods (or fractional portion).
The Fund discloses average annual total returns after taxes for Class A shares
for the one, fiveand 10 year periods ended December 31, 2001 in the prospectus.
After tax returns are computed using the historical highest individual federal
marginal income-tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on the investor's tax situation and may
differ from those shown. The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
The average annual total return (after taxes on distributions) is computed by
finding the average annual compounded rate of return over the 1-year, 5-year and
10-year periods, or the period since the commencement of operations, that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
P(1+T)^n = ATV(D)
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return (after tax distributions).
30
n= number of years.
ATV(D)= ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1-year, 5-year or 10-year
periods (or fractional portion) after taxes on fund
distributions but not after taxes on redemption.
The average annual total return (after taxes on distributions and redemption) is
computed by finding the average annual compounded rate of return over the
1-year, 5-year, and 10-year periods, or the period since the commencement of
operations, that would equate the initial amount invested to the ending
redeemable value according to the following formula:
P(1+T)^n = ATV(DR)
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return (after taxes distributions and
redemption).
n= number of years.
ATV(DR)= ending value of a hypothetical $1,000 payment made at the
beginning of the 1-year, 5-year or 10-year periods (or
fractional portion), after taxes on fund distributions
and redemption.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of each class, these calculations
assume the maximum sales charge is included in the initial investment or the
CDSC is applied at the end of the period. These calculations assume that all
dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period. The "distribution rate" is determined by
annualizing the result of dividing the declared dividends of the Fund during the
period stated by the maximum offering price or net asset value at the end of the
period. Excluding the Fund's sales charge from the distribution rate produces a
higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
into account. Excluding the Fund's sales charge on Class A shares from a total
return calculation produces a higher total return figure.
The Fund may advertise yield, where appropriate. The Fund's yield is computed by
dividing net investment income per share determined for a 30-day period by the
maximum offering price per share (which includes the full sales charge, if
applicable) on the last day of the period, according to the following standard
formula:
Yield = 2 ( [ ( a-b/cd ) + 1 ] ^6 - 1)
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
31
c = the average daily number of fund shares outstanding during the period
that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period (NAV
where applicable).
From time to time, in reports and promotional literature, the Fund's total
return and/or yield will be compared to indices of mutual funds such as Lipper
Analytical Services, Inc.'s "Lipper-Mutual Performance Analysis," a monthly
publication which tracks net assets, total return, and yield on mutual funds in
the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are
also used for comparison purposes, as well as the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in, and excerpts from,
national financial publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK,
THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may
also be utilized. The Fund's promotional and sales literature may make reference
to the Fund's "beta". Beta is a reflection of the market related risk of the
Fund by showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Sub-Adviser, or the Adviser
pursuant to recommendations made by an investment committee, which consists of
officers and directors of the Adviser and officers and Trustees of the Trust who
are interested persons of the Fund. Orders for purchases and sales of securities
are placed in a manner, which, in the opinion of the officers of the Fund, will
offer the best price and market for the execution of each such transaction.
Purchases from underwriters of portfolio securities may include a commission or
commissions paid by the issuer and transactions with dealers serving as market
maker reflect a "spread." Debt securities are generally traded on a net basis
through dealers acting for their own account as principals and not as brokers;
no brokerage commissions are payable on such transactions.
In the U.S. Government securities market, securities are generally traded on a
"net" basis with dealers acting as principal for their own account without a
stated commission, although the price of the security usually includes a profit
to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
32
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
The policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Conduct Rules of the National Association of Securities Dealers, Inc. and such
other policies as the Trustees may determine, the Adviser and Sub-Adviser may
consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and, to a
lesser extent, statistical assistance furnished to the Adviser and Sub-Adviser
of the Fund. It is not possible to place a dollar value on information and
services to be received from brokers and dealers, since it is only supplementary
to the research efforts of the Adviser and Sub-Adviser. The receipt of research
information is not expected to reduce significantly the expenses of the Adviser
and Sub-Adviser. The research information and statistical assistance furnished
by brokers and dealers may benefit the Life Company or other advisory clients of
the Adviser, and, conversely, brokerage commissions and spreads paid by other
advisory clients of the Adviser may result in research information and
statistical assistance beneficial to the Fund. Similarly, research information
and assistance provided to the Sub-Adviser by brokers and dealers may benefit
other advisory clients or affiliates of the Sub-Adviser, and, conversely,
brokerage commissions and spreads paid by other advisory clients of the
Sub-Adviser may result in research information and statistical assistance
beneficial to the Fund. The Fund will make no commitment to allocate portfolio
transactions upon any prescribed basis. While the Adviser, in conjunction with
the Sub-Adviser, will be primarily responsible for the allocation of the Fund's
brokerage business, the policies and practices of the Adviser in this regard
must be consistent with the foregoing and will at all times be subject to review
by the Trustees. For the years ended December 31, 1999, 2000 and 2001, the Fund
paid negotiated brokerage commission in the amount of $1,685,370, $1,249,160 and
$1,116,725, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended December 31,
2001, the Fund directed no commissions to compensate brokers for research
services such as industry and company reviews and evaluations of the securities
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of shareholder Signator Investors, Inc., a broker-dealer (until
January 1, 1999, the John Hancock Distributors, Inc.) ("Signator" or "Affiliated
Broker"). Pursuant to procedures determined by the Trustees and consistent with
the above policy of obtaining best net results the Fund may execute portfolio
transaction with or through Affiliated Broker. During the year ended December
31, 1999, 2000 and 2001, the Fund did not execute any portfolio transactions
with Affiliated Broker.
Signator may act as broker for the Fund on exchange transactions, subject,
however, to the general policy of the Fund set forth above and the procedures
adopted by the Trustees pursuant to the Investment Company Act. Commissions paid
to an Affiliated Broker must be at least as favorable as those which the
Trustees believe to be contemporaneously charged by other brokers
33
in connection with comparable transactions involving similar securities being
purchased or sold. A transaction would not be placed with an Affiliated Broker
if the Fund would have to pay a commission rate less favorable than the
Affiliated Broker's contemporaneous charges for comparable transactions for its
other most favored, but unaffiliated, customers except for accounts for which
the Affiliated Broker acts as clearing broker for another brokerage firm, and
any customers of the Affiliated Broker not comparable to the Fund as determined
by a majority of the Trustees who are not interested persons (as defined in the
Investment Company Act) of the Fund, the Adviser, the Sub-Adviser or the
Affiliated Broker. Because the Adviser, which is affiliated with the Affiliated
Broker, and the Sub-Adviser have, as investment advisers to the Fund, the
obligation to provide investment management services, which includes elements of
research and related investment skills, such research and related skills will
not be used by the Affiliated Broker as a basis for negotiating commissions at a
rate higher than that determined in accordance with the above criteria.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. Because of
this, client accounts in a particular style may sometimes not sell or acquire
securities as quickly or at the same prices as they might if each were managed
and traded individually.
For purchases of equity securities, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. For high demand issues (for example, initial public offerings), shares
will be allocated pro rata by account size as well as on the basis of account
objective, account size (a small account's allocation may be increased to
provide it with a meaningful position), and the account's other holdings. In
addition, an account's allocation may be increased if that account's portfolio
manager was responsible for generating the investment idea or the portfolio
manager intends to buy more shares in the secondary market. For fixed income
accounts, generally securities will be allocated when appropriate among accounts
based on account size, except if the accounts have different objectives or if an
account is too small to get a meaningful allocation. For new issues, when a
complete order is not filled, a partial allocation will be made to each account
pro rata based on the order size. However, if a partial allocation is too small
to be meaningful, it may be reallocated based on such factors as account
objectives, strategies, duration benchmarks and credit and sector exposure. For
example, value funds will likely not participate in initial public offerings as
frequently as growth funds. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtainable for it. On the other hand, to the extent permitted by law,
the Adviser may aggregate securities to be sold or purchased for the Fund with
those to be sold or purchased for other clients managed by it in order to obtain
best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1001, Boston,
Massachusetts 02217-1001, a wholly-owned indirect subsidiary of the Life
Company, is the transfer and dividend paying agent for the Fund. The Fund pays
Signature Services a fee of 0.05% of its average daily net assets attributable
to Class I shares plus certain out-of-pocket expenses.
34
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and The Bank of New York, One Wall Street, New York, New York
10286. Under the custodian agreement, The Bank of New York is performing
custody, Foreign Custody Manager and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are PricewaterhouseCoopers LLP, 160 Federal
Street, Boston, Massachusetts 02110. PricewaterhouseCoopers LLP audits and
renders an opinion on the Fund's annual financial statements and reviews the
Fund's annual Federal income tax return.
35
APPENDIX-A
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's principal securities and
investment practices. You may find the most concise description of the fund's
risk profile in the prospectus.
A fund is permitted to utilize -- within limits established by the trustees --
certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that the fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them, with examples of related securities and
investment practices included in brackets. See the "Investment Objectives and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the fund will earn income or
show a positive total return over any period of time -- days, months or years.
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). (e.g. short sales, financial
futures and options; securities and index options, currency contracts).
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. (e.g. Borrowing; reverse repurchase agreements, repurchase
agreements, securities lending, non-investment-grade debt securities, financial
futures and options; securities and index options).
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. (e.g. Foreign
securities, financial futures and options; securities and index options,
currency contracts).
Extension risk The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.
Information risk The risk that key information about a security or market is
inaccurate or unavailable. (e.g. non-investment-grade debt securities, foreign
securities).
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values. (e.g.
Non investment-grade debt securities, financial futures and options; securities
and index options).
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.
Borrowing; reverse repurchase agreements, short-
A-1
sales, when-issued securities and forward commitments; financial futures and
options; securities and index options, currency contracts).
o Hedged When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
o Speculative To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
Liquidity risk The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. (e.g. short sales,
non-investment-grade debt securities; restricted and illiquid securities,
financial futures and options; securities and index options, currency
contracts).
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. Common to all stocks and bonds and the
mutual funds that invest in them. (e.g. Short sales, short-term trading,
when-issued securities and forward commitments, non-investment-grade securities,
foreign securities, financial futures and options; securities and index options,
restricted and illiquid securities).
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events. (e.g. Foreign securities).
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments. (e.g. Short sales, when-issued securities and forward commitments,
financial futures and options; securities and index options, currency
contracts).
Political risk The risk of losses directly attributable to government or
political actions of any sort. (e.g. Foreign securities)
Prepayment risk The risk that unanticipated prepayments may occur during periods
of falling interest rates, reducing the value of mortgage-backed securities.
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g. Non-investment-grade debt
securities, restricted and illiquid securities).
A-2
APPENDIX B - Description of Bond Ratings
RATINGS
Bonds.
Standard & Poor's Bond Ratings
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal, and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
To provide more detailed indications of credit quality, the ratings AA to BBB
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
A provisional rating, indicated by "p" following a rating, is sometimes used by
Standard & Poor's. It assumes the successful completion of the project being
financed by the issuance of the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion.
Moody's Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Generally speaking, the safety of
obligations of this class is so absolute that with the occasional exception of
oversupply in a few specific instances, characteristically, their market value
is affected solely by money market fluctuations.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities. The market
value of Aa bonds is virtually immune to all but money market influences, with
the occasional exception of oversupply in a few specific instances.
B-1
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical modifier
1 indicates that the security ranks at the high end, 2 in the mid-range, and 3
nearer the low end, of the generic category. These modifiers of rating symbols
Aa, A and Baa are to give investors a more precise indication of relative debt
quality in each of the historically defined categories.
Conditional ratings, indicated by "Con", are sometimes given when the security
for the bond depends upon the completion of some act or the fulfillment of some
condition. Such bonds, are given a conditional rating that denotes their
probably credit statute upon completion of that act or fulfillment of that
condition.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical modifier
1 indicates that the security ranks at the high end, 2 in the mid-range, and 3
nearer the low end, of the generic category. These modifiers are to give
investors a more precise indication of relative debt quality in each of the
historically defined categories.
B-2
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 2001 Annual
Report to Shareholders for the year ended December 31, 2001; (filed
electronically on February 28, 2002, accession number 0000928816-0x-000xxx) and
are included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Core Equity Fund (file nos. 811-1677 and 2-29502).
John Hancock Capital Series
John Hancock Core Equity Fund
Statement of Assets and Liabilities as of December 31, 2001
Statement of Operations for the year ended of December 31, 2001.
Statement of Changes in Net Asset for the period ended December 31, 2001.
Financial Highlights for the period ended December 31, 2001.
Schedule of Investments as of December 31, 2001
Notes to Financial Statements.
Report of Independent Auditors.
F-1
JOHN HANCOCK CORE EQUITY FUND
Class A, Class B and Class C Shares
Statement of Additional Information
March 1, 2002
This Statement of Additional Information provides information about John Hancock
Core Equity Fund (the "Fund"), in addition to the information that is contained
in the combined Equity Funds' current Prospectus (the "Prospectus"). The Fund is
a diversified series of John Hancock Capital Series (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
1-(800)-225-5291
TABLE OF CONTENTS
Page
----
Organization of the Fund.............................................. 2
Investment Objective and Policies..................................... 2
Investment Restrictions............................................... 10
Those Responsible for Management...................................... 13
Investment Advisory and Other Services................................ 19
Distribution Contracts................................................ 23
Sales Compensation.................................................... 25
Net Asset Value....................................................... 27
Initial Sales Charge on Class A and Class C Shares.................... 27
Deferred Sales Charge on Class B and Class C Shares................... 30
Special Redemptions................................................... 34
Additional Services and Programs...................................... 34
Purchase and Recemptions Through Third Parties.............. ......... 36
Description of the Fund's Shares...................................... 36
Tax Status............................................................ 38
Calculation of Performance ........................................... 42
Brokerage Allocation.................................................. 44
Transfer Agent Services............................................... 46
Custody of Portfolio.................................................. 47
Independent Auditors.................................................. 47
Appendix A -More about Risk........................................... A-1
Appendix B - Description of Bond Ratings.............................. B-1
Financial Statements.................................................. F-1
1
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust under the laws of The Commonwealth
of Massachusetts.
John Hancock Advisers, LLC (prior to February 1, 2002, John Hancock Advisers,
Inc.) (the "Adviser") is the Fund's investment adviser. The Adviser is an
indirect, wholly-owned subsidiary of John Hancock Life Insurance Company
(formerly John Hancock Mutual Life Insurance Company) (the "Life Company"), a
Massachusetts life insurance company chartered in 1862 with national
headquarters at John Hancock Place, Boston, Massachusetts. The Life Company is
wholly owned by John Hancock Financial Services, Inc., a Delaware corporation
organized in February, 2000.
On June 3, 1996, the Fund changed its name from John Hancock Independence
Diversified Core Equity Fund to John Hancock Independence Equity Fund. Prior to
May 1, 1999, the Fund was called John Hancock Independence Equity Fund.
The Fund has one sub-adviser: Independence Investment LLC ("Independence" or
"Sub-Adviser") (formerly Independence Investment Associates, Inc.) which is a
subsidiary of the Life Company.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus. Appendix A contains further
information describing investment risk. The investment objective of the Fund is
fundamental and may only be changed by the Trustees with shareholder approval.
There is no assurance that the Fund will achieve its investment objective.
The investment objective of the Fund is to seek above-average total return,
consisting of capital appreciation and income. The Fund will diversify its
investments to create a portfolio with a risk profile and characteristics
similar to the Standard & Poor's 500 Index. Consequently, the Fund will invest
in a number of industry groups without concentration in any particular industry.
The Fund's investments will be subject to the market fluctuation and risks
inherent in all securities. Under normal circumstances, the Fund invests at
least 80% of its Assets in equity securities. Equity securities include common
and preferred stocks and their equivalents (including warrants to purchase and
securities convertible into such stocks).
In abnormal circumstances, such as situations where the Fund experiences
unusually large cash inflows or anticipates unusually large redemptions, and in
adverse market, economic, political, or other conditions, the Fund may
temporarily invest more than 20% of its Assets in investment-grade short-term
securities, cash and cash equivlents.
With respect to the Fund's investment policy of investing at least 80% of its
Assets in equity securities, "Assets" is defined as net assets plus the amount
of any borrowings for investment purposes. In addition, the Fund will notify
shareholders at least 60 days prior to any change in this policy.
Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent
the opinions of these agencies as to the quality of the securities which they
rate. It should be emphasized, however,
2
that such ratings are relative and subjective and are not absolute standards of
quality. These ratings will be used by the Fund as initial criteria for the
selection of debt securities. Among the factors which will be considered are the
long-term ability of the issuer to pay principal and interest and general
economic trends. Appendix B contains further information concerning the ratings
of Moody's and S&P and their significance.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund.
Fixed Income Securities. Under normal market conditions, the Fund may invest in
fixed income securities (including debt securities and preferred stocks) that
are rated Baa or better by Moody's or BBB or better by S&P or, if unrated,
determined to be of comparable quality by the Adviser and the Sub-Adviser
("investment grade debt securities"). The value of fixed income securities
varies inversely with changes in the prevailing levels of interest rates. In
addition, debt securities rated BBB or Baa and unrated debt securities of
comparable quality are considered medium grade obligations and have speculative
characteristics. Adverse changes in economic conditions or other circumstances
are more likely to lead to weakened capacity to make principal and interest
payment than in the case of higher grade obligations.
For temporary defensive purposes, the Fund may invest up to 100% of its assets
in investment grade debt securities of any type or maturity.
Investment in Foreign Securities. The Fund may invest in the securities of
foreign issuers in the form of sponsored and unsponsored American Depository
Receipts ("ADRs") and U.S. dollar-denominated securities of foreign issuers
traded on U.S. exchanges. ADRs (sponsored and unsponsored) are receipts,
typically issued by U.S. banks, which evidence ownership of underlying
securities issued by a foreign corporation. ADRs are publicly traded on a U.S.
stock exchange or in the over-the-counter market. An investment in foreign
securities including ADRs may be affected by changes in currency rates and in
exchange control regulations. Issuers of unsponsored ADRs are not contractually
obligated to disclose material information including financial information, in
the United States and, therefore, there may not be a correlation between such
information and the market value of the unsponsored ADR. Foreign companies may
not be subject to accounting standards or government supervision comparable to
U.S. companies, and there is often less publicly available information about
their operations. Foreign companies may also be affected by political or
financial inability abroad. These risk considerations may be intensified in the
case of investments in ADRs of foreign companies that are located in emerging
market countries. ADRs of companies located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price, plus accrued interest.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government securities.
The Adviser will continuously monitor the creditworthiness of the parties with
whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other
3
default by a seller of a repurchase agreement, the Fund could experience delays
in liquidating the underlying securities and during the period in which the Fund
seeks to enforce its rights thereto, possible subnormal levels of income, lack
of access to income during this period, and the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will require those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain a separate
account consisting of liquid securities, of any type or maturity, in an amount
at least equal to the repurchase prices of the securities (plus any accrued
interest thereon) under such agreements. In addition, the Fund will not enter
into reverse repurchase agreements or borrow money, except from banks as a
temporary measure for extraordinary emergency purposes in amounts not to exceed
33 1/3% of the value of the Fund's total assets (including the amount borrowed)
taken at market value. The Fund will not leverage to attempt to increase income.
The Fund will not purchase securities while outstanding borrowings exceed 5% of
the Fund's total assets. The Fund will enter into reverse repurchase agreements
only with federally insured banks or savings and loan associations which are
approved in advance as being creditworthy by the Trustees. Under procedures
established by the Trustees, the Adviser will monitor the creditworthiness of
the banks involved.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. The Fund will not invest more than 15% of its net
assets in illiquid investments. If the Trustees determine, based upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, they will not be subject to the 15% limit
on illiquid investments. The Trustees have adopted guidelines and delegated to
the Adviser the daily function of determining the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
Options on Securities and Securities Indices. The Fund may purchase and write
(sell) call and put options on securities in which it may invest or on any
securities index based on securities in which it may invest. These options may
be listed on national domestic securities exchanges or traded in the
over-the-counter market. The Fund may write covered put and call options and
purchase put and call options to enhance total return, as a substitute for the
purchase or sale of securities, or to protect against declines in the value of
portfolio securities and against increases in the cost of securities to be
acquired.
4
Writing Covered Options. A call option on securities written by the Fund
obligates the Fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. A put option on securities written by the Fund obligates the Fund to
purchase specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash settlement payments and does
not involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations in
a single security. Writing covered call options may deprive the Fund of the
opportunity to profit from an increase in the market price of the securities in
its portfolio. Writing covered put options may deprive the Fund of the
opportunity to profit from a decrease in the market price of the securities to
be acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities in a
segregated account with a value at least equal to the Fund's obligation under
the option, (ii) entering into an offsetting forward commitment and/or (iii)
purchasing an offsetting option or any other option which, by virtue of its
exercise price or otherwise, reduces the Fund's net exposure on its written
option position. A written call option on securities is typically covered by
maintaining the securities that are subject to the option in a segregated
account. The Fund may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index.
The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts") in the market value of securities of the type in which it
may invest. The Fund may also sell call and put options to close out its
purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities at a specified price during the option
period. The Fund would ordinarily realize a gain on the purchase of a call
option if, during the option period, the value of such securities exceeded the
sum of the exercise price, the premium paid and transaction costs; otherwise the
Fund would realize either no gain or a loss on the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities at a specified price during the option
period. The purchase of protective puts is designed to offset or hedge against a
decline in the market value of the Fund's portfolio securities. Put options may
also be purchased by the Fund for the purpose of affirmatively benefiting from a
decline in the price of securities which it does not own. The Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying securities decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
5
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates or securities prices, the Fund
may purchase and sell various kinds of futures contracts and purchase and write
call and put options on these futures contracts. The Fund may also enter into
closing purchase and sale transactions with respect to any of these contracts
and options. The futures contracts may be based on various securities,
securities indices and any other financial instruments and indices. All futures
contracts entered into by the Fund are traded on U.S. exchanges or boards of
trade that are licensed, regulated or approved by the Commodity Futures Trading
Commission ("CFTC").
6
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments for an
agreed price during a designated month (or to deliver the final cash settlement
price, in the case of a contract relating to an index or otherwise not calling
for physical delivery at the end of trading in the contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities will usually be liquidated in
this manner, the Fund may instead make, or take, delivery of the underlying
securities whenever it appears economically advantageous to do so. A clearing
corporation associated with the exchange on which futures contracts are traded
guarantees that, if still open, the sale or purchase will be performed on the
settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire. When
securities prices are falling, the Fund can seek to offset a decline in the
value of its current portfolio securities through the sale of futures contracts.
When securities prices are rising, the Fund, through the purchase of futures
contracts, can attempt to secure better rates or prices than might later be
available in the market when it effects anticipated purchases.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated decline
in market prices that would adversely affect the value of the Fund's portfolio
securities. Such futures contracts may include contracts for the future delivery
of securities held by the Fund or securities with characteristics similar to
those of the Fund's portfolio securities.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices then available in the applicable market to be less favorable
than prices that are currently available. The Fund may also purchase futures
contracts as a substitute for transactions in securities, to alter the
investment characteristics of portfolio securities or to gain or increase its
exposure to a particular securities market.
7
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
protect against a decline in the price of securities that the Fund owns or
futures contracts will be purchased to protect the Fund against an increase in
the price of securities it intends to purchase. The Fund will determine that the
price fluctuations in the futures contracts and options on futures used for
hedging purposes are substantially related to price fluctuations in securities
held by the Fund or securities or instruments which it expects to purchase. As
evidence of its hedging intent, the Fund expects that on 75% or more of the
occasions on which it takes a long futures or option position (involving the
purchase of futures contracts), the Fund will have purchased, or will be in the
process of purchasing, equivalent amounts of related securities in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities, require the Fund to establish a
segregated account consisting of cash or liquid securities in an amount equal to
the underlying value of such contracts and options.
8
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices may result
in a poorer overall performance for the Fund than if it had not entered into any
futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. In the event of an imperfect correlation between
a futures position and a portfolio position which is intended to be protected,
the desired protection may not be obtained and the Fund may be exposed to risk
of loss.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers and financial institutions if the loan is collateralized by cash or U.S.
Government securities according to applicable regulatory requirements. The Fund
may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrant and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
Short Sales. The Fund may engage in short sales "against the box". In a short
sale against the box, the Fund agrees to sell at a future date a security that
it either contemporaneously owns or has the right to acquire at no extra cost.
If the price of the security has declined at the time the Fund is required to
deliver the security, the Fund will benefit from the difference in the price. If
the price of the security has increased, the Fund will be required to pay the
difference.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
9
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income.
Short-term trading may have the effect of increasing portfolio turnover rate. A
high rate of portfolio turnover (100% or greater) involves correspondingly
greater brokerage expenses. The Fund's portfolio turnover rate is set forth in
the table under the caption "Financial Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, means the approval by the lesser of (1) the holders of
67% or more of the Fund's shares represented at a meeting if more than 50% of
the Fund's outstanding shares are present in person or by proxy at that meeting
or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
(1) Issue senior securities, except as permitted by paragraphs (2), (6) and
(7) below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts, forward commitments and repurchase agreements
entered into in accordance with the Fund's investment policies, and the
pledge, mortgage or hypothecation of the Fund's assets within the meaning
of paragraph (3) below, are not deemed to be senior securities.
(2) Borrow money, except from banks as a temporary measure for extraordinary
emergency purposes in amounts not to exceed 33 1/3% of the value of the
Fund's total assets (including the amount borrowed) taken at market value.
The Fund will not leverage
10
to attempt to increase income. The Fund will not purchase securities while
outstanding borrowings exceed 5% of the Fund's total assets.
(3) Pledge, mortgage or hypothecate its assets, except to secure indebtedness
permitted by paragraph (2) above and then only if such pledging,
mortgaging or hypothecating does not exceed 33 1/3% of the Fund's total
assets taken at market value.
(4) Act as an underwriter, except to the extent that in connection with the
disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purposes of the 1933 Act.
(5) Purchase or sell real estate or any interest therein, except that the Fund
may invest in securities of corporate or governmental entities secured by
real estate or marketable interests therein or securities issued by
companies that invest in real estate or interests therein.
(6) Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the Fund's
total assets taken at market value, (2) enter into repurchase agreements,
and (3) purchase all or a portion of an issue of publicly distributed debt
securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or
not the purchase is made upon the original issuance of the securities.
(7) Invest in commodities or in commodity contracts or in puts, calls, or
combinations of both, except options on securities, securities indices and
currency, futures contracts on securities, securities indices and currency
and options on such futures, forward foreign currency exchange contracts,
forward commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment policies.
(8) Purchase the securities of issuers conducting their principal activity in
the same industry if, immediately after such purchase, the value of its
investments in such industry would exceed 25% of its total assets taken at
market value at the time of such investment. This limitation does not
apply to investments in obligations of the U.S. Government or any of its
agencies or instrumentalities.
(9) Purchase securities of an issuer (other than the U.S. Government, its
agencies or instrumentalities), if
(a) such purchase would cause more than 5% of the Fund's total
assets taken at market value to be invested in the securities
of such issuer, or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the
Fund.
In connection with the lending of portfolio securities under paragraph (6)
above, such loans must at all times be fully collateralized and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Securities used as collateral must be marked to market daily.
11
Non-Fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management
of the Adviser or Sub-Adviser to save commissions or to average prices
among them is not deemed to result in a joint securities trading account.
(b) Purchase securities on margin or make short sales, except in connection
with arbitrage transactions or unless, by virtue of its ownership of other
securities, the Fund has the right to obtain securities equivalent in kind
and amount to the securities sold and, if the right is conditional, the
sale is made upon the same conditions, except that the Fund may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities.
(c) Purchase a security if, as a result, (i) more than 10% of the Fund's total
assets would be invested in the securities of other investment companies,
(ii) the Fund would hold more than 3% of the total outstanding voting
securities of any one investment company, or (iii) more than 5% of the
Fund's total assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the investment
of cash collateral, received by the Fund in connection with lending the
Fund's portfolio securities, in the securities of open- end investment
companies or (b) the purchase of shares of any investment company in
connection with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company. Subject to
the above percentage limitations, the Fund may, in connection with the
John Hancock Group of Funds Deferred Compensation Plan for Independence
Trustees/ Directors, purchase securities of other investment companies
within the John Hancock Group of Funds.
(d) Invests more than 15% of its net assets in illiquid securities.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction.
The Funds will invest only in countries on the Adviser's Approved Country
Listing. The Approved Country Listing is a list maintained by the Adviser's
investment department that outlines all countries, including the United States,
that have been approved for investment by Funds managed by the Adviser.
In addition, no Fund may invest either directly or indirectly in any Russian
equity. Only certain funds can invest in certain types of Russian debt. These
funds are: Active Bond, Income, Investors, High Income, Bond, High Yield Bond,
Strategic Income and VA Strategic Income. Each of these funds may invest only up
to 5% of total assets in: (1) Sovereign Russian Debt and Municipal Fixed Income
Securities; (2) that are NOT ruble-denominated; (3) that are held physically
outside of Russia; and (4) have Euroclear settlement.
12
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 or Directors of the Adviser, or officers and Directors of the
Fund's principal distributor, John Hancock Funds, LLC (prior to February 1,
2002, John Hancock Funds, Inc.) ("John Hancock Funds").
- -------------------------------------------------------------------------------------------------------------------
Number of
John Hancock
Position(s) Trustee/ Principal Occupation(s) Funds
Name, Address (1) Held with Officer and other Directorships Overseen by
And Age Fund since(2) During Past 5 Years Trustee
- -------------------------------------------------------------------------------------------------------------------
Independent Trustees
- -------------------------------------------------------------------------------------------------------------------
Dennis S. Aronowitz Trustee 1998 Professor of Law, Emeritus, Boston 30
Born: 1931 University School of Law (as of 1996);
Director, Brookline Bancorp.
- -------------------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. Trustee 1996 Chairman, President and Chief Executive 30
Born: 1935 Officer, Brookline Bancorp. (lending)
(since 1972); Trustee, Northeastern
University (education); Chairman and
Director, Lumber Insurance Co. (insurance)
(until 2000); Chairman and Director,
Northeast Retirement Services, Inc.
(retirement administration) (since 1998).
- -------------------------------------------------------------------------------------------------------------------
William J. Cosgrove Trustee 1991 Vice President, Senior Banker and Senior 30
Born: 1933 Credit Officer, Citibank, N.A. (retired
1991); Executive Vice President, Citadel
Group Representatives, Inc.; Director,
Hudson City Bancorp; Trustee, Scholarship
Fund for Inner City Children (since 1986).
- -------------------------------------------------------------------------------------------------------------------
Richard A. Farrell Trustee 1996 President, Farrell, Healer & Co., Inc., 30
Born: 1932 (venture capital management firm)(since
1980) and General Partner of the Venture
Capital Fund of NE (since 1980); Prior to
1980, headed the venture capital group at
Bank of Boston Corporation.
- -------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02119.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
13
- --------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since(2) Directorships During Past 5 Years Trustee
- --------------------------------------------------------------------------------------------------------------------
Gail D. Fosler Trustee 1994 Senior Vice President and Chief Economist, 30
Born: 1947 The Conference Board (non-profit economic
and business research)(since 1989);
Director, Unisys Corp. (since 1993);
Director, H.B. Fuller Company (since 1992)
and DBS Holdings (Singapore) (banking and
financial services)(since 1999); Director,
National Bureau of Economic Research
(academic)(since 1989); Director, Baxter
International (medical health care) (since
2001).
- --------------------------------------------------------------------------------------------------------------------
William F. Glavin Trustee 1996 President Emeritus, Babson College (as of 30
Born: 1932 1998); Vice Chairman, Xerox Corporation
(until 1989); Director, Reebok, Inc. (since
1994) and Inco Ltd.
- --------------------------------------------------------------------------------------------------------------------
John A. Moore Trustee 1996 President and Chief Executive Officer, 36
Born: 1939 Institute for Evaluating Health Risks,
(nonprofit institution) (until 2001); Senior
Scientist, Sciences International (health
research)(since 1998); Principal, Hollyhouse
(consulting)(since 2000); Director,
CIIT(nonprofit research) (since 2002).
- --------------------------------------------------------------------------------------------------------------------
Patti McGill Peterson Trustee 1995 Executive Director, Council for 36
Born: 1943 International Exchange of Scholars (since
1998); Vice President, Institute of
International Education (since 1998); Senior
Fellow, Cornell Institute of Public Affairs,
Cornell University (until 1997); President
Emerita of Wells College and St. Lawrence
University; Director, Niagara Mohawk Power
Corporation (electric utility).
- --------------------------------------------------------------------------------------------------------------------
John W. Pratt Trustee 1996 Professor of Business Administration 30
Born: 1931 Emeritus, Harvard University Graduate School
of Business Administration (as of 1998).
- --------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02119.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
14
- ---------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Principal Occupation(s) and other Hancock Funds
Name, Address (1) Held with Officer Directorships Overseen by
And Age Fund since(2) During Past 5 Years Trustee
- ---------------------------------------------------------------------------------------------------------------------
Interested Trustees
- ---------------------------------------------------------------------------------------------------------------------
John M. DeCiccio (3) Trustee 2001 Executive Vice President and Chief Investment 66
Born: 1948 Officer, John Hancock Financial Services,
Inc.; Director, Executive Vice President and
Chief Investment Officer, John Hancock Life
Insurance Company; Chairman of the Committee
of Finance of John Hancock Life Insurance
Company; Director, John Hancock Subsidiaries,
LLC, Hancock Natural Resource Group,
Independence Investment LLC, Independence
Fixed Income LLC, John Hancock Advisers, LLC
(the "Adviser") and The Berkeley Financial
Group, LLC ("The Berkeley Group"), John
Hancock Funds, LLC ("John Hancock Funds"),
Massachusetts Business Development
Corporation; Director, John Hancock Insurance
Agency, Inc. ("Insurance Agency, Inc.") (until
1999) and John Hancock Signature Services,
Inc. ("Signature Services") (until 1997).
- ---------------------------------------------------------------------------------------------------------------------
Maureen R. Ford (3) Trustee, 2000 Executive Vice President, John Hancock 66
Born: 1955 Chairman, Financial Services, Inc., John Hancock Life
President Insurance Company; Chairman, Director,
and Chief President and Chief Executive Officer, the
Executive Advisers and The Berkeley Group; Chairman,
Officer Director and Chief Executive Officer, John
Hancock Funds, Chairman, Director and
President, Insurance Agency, Inc.; Chairman,
Director and Chief Executive Officer,
Sovereign Asset Management Corporation
("SAMCorp."); Director, Independence
Investment LLC, Independence Fixed Income LLC
and Signature Services; Senior Vice President,
MassMutual Insurance Co. (until 1999); Senior
Vice President, Connecticut Mutual Insurance
Co. (until 1996).
- ----------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02119.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
15
- ---------------------------------------------------------------------------------------------------------------------
Number of
John Hancock
Position(s) Trustee/ Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since(2) Directorships During Past 5 Years Trustee
- ---------------------------------------------------------------------------------------------------------------------
Principal Officers who
are not Trustees
- ---------------------------------------------------------------------------------------------------------------------
William L. Braman Executive 2000 Executive Vice President and Chief
Born: 1953 Vice Investment Officer, the Adviser and each
President of the John Hancock funds; Director,
and Chief SAMCorp., Executive Vice President and
Investment Chief Investment Officer, Baring Asset
Officer Management, London U.K. (until 2000).
- ---------------------------------------------------------------------------------------------------------------------
Richard A. Brown Senior Vice 2000 Senior Vice President, Chief Financial
Born: 1949 President Officer and Treasurer, the Adviser, John
and Chief Hancock Funds, and The Berkeley Group;
Financial Second Vice President and Senior Associate
Officer Controller, Corporate Tax Department, John
Hancock Financial Services, Inc. (until
2001).
- ---------------------------------------------------------------------------------------------------------------------
Thomas H. Connors Vice 1992 Vice President and Compliance Officer, the
Born: 1959 President Adviser and each of the John Hancock
and funds; Vice President, John Hancock Funds.
Compliance
Officer
- ---------------------------------------------------------------------------------------------------------------------
William H. King Vice 1992 Vice President and Assistant Treasurer, the
Born: 1952 President Adviser; Vice President and Treasurer
and of each of the John Hancock funds; Assistant
Treasurer Treasurer of each of the John Hancock funds
(until 2001).
- -------------------------------------------------------------------------------------------------------------------
Susan S. Newton Senior Vice 1986 Senior Vice President, Secretary and Chief
Born: 1950 President, Legal Officer, SAMCorp., the Adviser and
Secretary each of the John Hancock funds, John
and Chief Hancock Funds and The Berkeley Group; Vice
Legal President, Signature Services (until
Officer 2000), Director, Senior Vice President and
Secretary, NM Capital.
- -------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02119.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
16
The Fund's Board of Trustees currently has five standing Committees: the Audit
Committee, the Administration Committee, the Contracts/Operations Committee, the
Investment Performance Committee and the Coordinating Committee. Each Committee
is comprised of Independent Trustees who are not "interested persons". The Audit
Committee members are Messrs. Moore, Farrell and Ms. Fosler. The Audit Committee
recommends to the full board auditors for the Fund, monitors and oversees the
audits of the Fund, communicates with both independent auditors and internal
auditors on a regular basis and provides a forum for the auditors to report and
discuss any matters they deem appropriate at any time. The Audit Committee held
four meetings during the fiscal year ended December 31, 2001.
The Administration Committee's members are all of the Independent Trustees of
the Fund. The Administration Committee reviews the activities of the other four
standing committees and makes the final selection and nomination of candidates
to serve as Independent Trustees. The Administration Committee will consider
nominees recommended by shareholders to serve as Independent Trustees, provided
that shareholders submit recommendations in compliance with all of the pertinent
provisions of Rule 14a-8 under the Securities Exchange Act of 1934. The
Administration Committee also works with all Trustees on the selection and
election of officers of the Fund. The Administration Committee held four
meetings during the fiscal year ended December 31, 2001.
The Contracts/Operations Committee members are Messrs. Chapman, Cosgrove and
Pratt. The Contracts/Operations Committee oversees the initiation, operation,
and renewal of contracts between the Fund and other entities. These contracts
include advisory and subadvisory agreements, custodial and transfer agency
agreements and arrangements with other service providers. The
Contracts/Operations Committee held five meetings during the fiscal year ended
December 31, 2001.
The Investment Performance Committee consists of Messrs. Aronowitz, Glavin and
Ms. Peterson. The Investment Performance Committee monitors and analyzes the
performance of the Fund generally, consults with the adviser as necessary if the
Fund requires special attention, and reviews peer groups and other comparative
standards as necessary. The Investment Performance Committee held four meetings
during the fiscal year ended December 31, 2001.
The Coordinating Committee members are the chairpersons of the other four
standing committees. The Coordinating Committee assures consistency of action
among committees, reviews Trustee compensation, evaluates Trustee performance
and considers committee membership rotations as well as relevant corporate
governance issues.
The following table provides a dollar range indicating each Trustee's ownership
of equity securities of the Fund, as well as aggregate holdings of shares of
equity securities of all John Hancock Funds overseen by the Trustee, as of
December 31, 2001.
17
- -------------------------------------------------------------------------------------------------------------
Aggregate Dollar Range of holdings
Dollar Range of Fund Shares in John Hancock funds overseen by
Name of Trustee Owned by Trustee Trustee
- -------------------------------------------------------------------------------------------------------------
Independent Trustees
- -------------------------------------------------------------------------------------------------------------
Dennis S. Aronowitz $1-$10,000 $50,001-$100,000
- -------------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
William J. Cosgrove $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
Richard A. Farrell $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
Gail D. Fosler $1-$10,000 $10,001-$50,000
- -------------------------------------------------------------------------------------------------------------
William F. Glavin None $10,001-$50,000
- -------------------------------------------------------------------------------------------------------------
Dr. John A. Moore $10,001-$50,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
Patti McGill Peterson $10,001-$50,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
John W. Pratt $10,000-$50,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
Interested Trustees
- -------------------------------------------------------------------------------------------------------------
John M. DeCiccio $50,000-$100,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
Maureen R. Ford $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Mr. DeCiccio and Ms. Ford, each a
non-Independent Trustee, and each of the officers of the Fund who are interested
persons of the Adviser, are compensated by the Adviser and/or affiliates and
receive no compensation from the Fund for their services.
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Ms. Ford and Mr. DeCicco, each a
non-Independent Trustee, and each of the officers of the Fund are interested
persons of the Adviser, and/or affiliates are compensated by the Adviser and
receive no compensation from the Fund for their services.
Total Compensation
Aggregate From the Fund and
Compensation John Hancock Fund
Independent Trustees From the Fund(1) Complex to Trustees(2)
- -------------------- ---------------- ----------------------
Dennis S. Aronowitz $ 5,198 $ 75,000
Richard P. Chapman, Jr+ 5,394 78,100
William J. Cosgrove+ 5,009 72,000
Leland O. Erdahl* 1,275 18,000
Richard A. Farrell 5,009 72,000
Gail D. Fosler 5,198 75,000
William F. Glavin+ 5,010 72,000
Dr. John A. Moore+ 5,205 75,100
Patti McGill Peterson 5,009 72,000
John W. Pratt 5,009 72,000
------- ---------
Total $47,316 $681,200
(1) Compensation is for the current fiscal year ending October 31, 2001.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 2001. As of this date, there were sixty-six funds
in the John Hancock
18
Fund Complex, with Mr. Moore and Ms. Peterson serving on thirty-six funds and
each other Independent Trustees serving on thirty funds.
(+) As of December 31, 2001, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for Mr.
Chapman was $71,309, Mr. Cosgrove was $207,842, Mr. Glavin was $280,472 and for
Dr. Moore was $238,982 under the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees (the "Plan").
+ As of February 28, 2001, Mr. Erdahl resigned as Trustee of the Complex.
All of the officers listed are officers or employees of the Adviser or
Affiliated Companies. Some of the Trustees and officers may also be officers or
Trustees of one or more of the other funds for which the Adviser serves as
investment adviser.
As of February 4, 2002, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund. As of
that date, the following shareholders beneficially owned 5% or more of
outstanding shares of the Fund.
Percentage of Total
Class Outstanding Shares of
Name and Address of Shareholders of Shares the Class of the Fund
- -------------------------------- --------- ---------------------
MLPF&S For The B 12.56%
Sole Benefit of its Customers
Attn Fund Administration 97HP2
4800 Deer Lake Drive East
2nd Floor
Jacksonville FL 32246-6484
C 14.77%
MLPF&S For The
Sole Benefit of its Customers
Attn Fund Administration
4800 Deer Lake Drive East
2nd Floor
Jacksonville FL 32246-6484
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has approximately $30 billion in assets under
management in its capacity as investment adviser to the Fund and the other funds
in the John Hancock group of funds as well as retail and institutional privately
managed accounts. The Adviser is an affiliate of the Life Company, one of the
most recognized and respected financial institutions in the nation. With total
assets under management of more than $100 billion, the Life Company is one of
the ten largest life insurance companies in the United States, and carries a
high rating from Standard & Poor's and A. M. Best. Founded in 1862, the Life
Company has been serving clients for over 130 years.
19
The Sub-Adviser, Independence (formerly Independence Investment Associates,
Inc.), located at 53 State Street, Boston, Massachusetts 02109, was organized in
1982 and currently manages over $38 billion in assets for primarily
institutional clients. The Sub-Adviser is a wholly-owned indirect subsidiary of
the Life Company.
The Fund has entered into an investment management contract with the Adviser
(the "Advisory Agreement") which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, the Adviser, in conjunction with the
Sub-Adviser will: (a) furnish continuously an investment program for the Fund
and determine, subject to the overall supervision and review of the Trustees,
which investments should be purchased, held, sold or exchanged and (b) provide
supervision over all aspects of the Fund's operations except those which are
delegated to a custodian, transfer agent or other agent.
The Adviser has entered into a Sub-Advisory Agreement with the Sub-Adviser under
which the Sub-Adviser, subject to the review of the Trustees and the overall
supervision of the Adviser, is responsible for managing the investment
operations of the Fund and the composition of the Fund's portfolio and
furnishing the Fund with advice and recommendations with respect to investments,
investment policies and the purchase and sale of securities.
The Fund bears all costs of its organization and operation, including but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices, prospectuses, proxy statements and reports to regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders their account statements; taxes; expenses of redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodians including those for keeping books and accounts
maintaining a committed line of credit and calculating the net asset value of
shares; fees and expenses of transfer agents and dividend disbursing agents;
legal, accounting, financial, management, tax and auditing fees and expenses of
the Fund (including an allocable portion of the cost of the Adviser's employees
rendering such services to the Fund; the compensation and expenses of Trustees
who are not otherwise affiliated with the Trust, the Adviser or any of their
affiliates; expenses of Trustees' and shareholders' meetings; trade association
memberships; insurance premiums; and any extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
Average Daily Net Assets Annual Rate
------------------------ -----------
First $750,000,000 0.75%
Amount over $750,000,000 0.70%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to reimpose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser, the Sub-Adviser or their respective
affiliates provide investment advice. Because of different investment objectives
or other factors, a particular security may be bought
20
for one or more funds or clients when one or more are selling the same security.
If opportunities for purchase or sale of securities by the Adviser or
Sub-Adviser for the Fund or for other funds or clients for which the Adviser or
Sub-Adviser renders investment advice arise for consideration at or about the
same time, transactions in such securities will be made, insofar as feasible,
for the respective funds or clients in a manner deemed equitable to all of them.
To the extent that transactions on behalf of more than one client of the
Adviser, the Sub-Adviser or their respective affiliates may increase the demand
for securities being purchased or the supply of securities being sold, there may
be an adverse effect on price.
Pursuant to the Advisory Agreement and Sub-Advisory Agreement, the Adviser and
Sub-Adviser are not liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matters to which their
respective Agreements relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Adviser or Sub-Adviser in the
performance of their duties or from their reckless disregard of the obligations
and duties under the applicable Agreements.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Advisory
Agreement is no longer in effect, the Fund (to the extent that it lawfully can)
will cease to use such name or any other name indicating that it is advised by
or otherwise connected with the Adviser. In addition, the Adviser or the Life
Company may grant the nonexclusive right to use the name "John Hancock" or any
similar name to any other corporation or entity, including but not limited to
any investment company of which the Life Company or any subsidiary or affiliate
thereof or any successor to the business of any subsidiary or affiliate thereof
shall be the investment adviser.
Under the Sub-Advisory Agreement, the Fund may use the name "Independence" or
any name derived from or similar to it only for so long as the Sub-Advisory
Agreement or any extension, renewal or amendment thereof remains in effect. If
the Sub-Advisory Agreement is no longer in effect, the Fund (to the extent that
it lawfully can) will cease to use such name or any other name indicating that
it is advised by or otherwise connected with the Sub-Adviser. In addition, the
Sub-Adviser or the Life Company may grant the nonexclusive right to use the name
"Independence" or any similar name to any other corporation or entity, including
but not limited to any investment company of which the Sub-Adviser or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
The Fund's Board of Trustees is responsible for overseeing the performance of
the Fund's investment Adviser and Sub-adviser and determining whether to approve
and renew the Fund's Advisory Agreement and Sub-Advisory Agreement. The Board
has a standing request that the Adviser provide the Board with certain
information the Board has deemed important to evaluating the short- and
long-term performance of the Adviser and Sub-Adviser. This information includes
periodic performance analysis and status reports from the Adviser and quarterly
Portfolio and Investment Performance Reports. The Fund's portfolio managers meet
with the Board from time to time to discuss the management and performance of
the Fund and respond to the Board's questions concerning the performance of the
Adviser. When the Board considers whether to renew an investment advisory
contract, the Board takes into account numerous factors, including: (1) the
nature, extent and quality of the services provided by the Adviser and
Sub-adviser; (2) the investment performance of the Fund; (3) the fair market
value of the services provided by the Adviser and Sub-Adviser; (4) a comparative
analysis of expense ratios of, and advisory fees paid by, similar funds; (5) the
extent to which the Adviser has realized or will realize economies of scale as
the Fund grows; (6) other sources of revenue to the
21
Adviser or its affiliates from its relationship with the Fund and intangible or
"fall-out" benefits that accrue to the adviser and its affiliates, if relevant;
and (7) the Adviser's control of the operating expenses of the fund, such as
transaction costs, including ways in which portfolio transactions for the fund
are conducted and brokers are selected.
The primary factors underlying the Board's decision to renew the Fund's Advisory
Agreement and Sub-Advisory Agreement were as follows:
o The Board determined that the performance results of the Fund and the
Adviser and Sub-Adviser's responsive actions were reasonable, as compared
with relevant performance standards, including the performance results of
comparable large-cap core funds derived from data provided by Lipper Inc.
and appropriate market indexes.
o The Board decided that the advisory fee paid by the Fund was reasonable
based on the average advisory fee for comparable funds. The Board also
took into account the nature of the fee arrangements which include
breakpoints that will adjust the fee downward as the size of the Fund's
portfolio increases.
o The Board evaluated the Adviser and Sub-Adviser's investment staff and
portfolio management process, and reviewed the composition and overall
performance of the Fund's portfolio on both a short-term and long-term
basis. The Board considered whether the Fund should obtain alternative
portfolio management services and concluded that, under all the
circumstances and based on its informed business judgement, the most
appropriate course of action in the best interest of the Fund's
shareholders was to renew the agreements with the Adviser and Sub-Adviser.
The continuation of the Advisory Agreement was approved by all Trustees. The
Advisory Agreement and Sub-Advisory Agreement discussed below, will continue in
effect from year to year, provided that its continuance is approved annually
both by (i) by the holders of a majority of the outstanding voting securities of
the Trust or by the Trustees, and (ii) by a majority of the Trustees who are not
parties to the Agreement or "interested persons" of any such parties. Both
agreements may be terminated on 60 days written notice by any party or by a vote
of a majority of the outstanding voting securities of the Fund and will
terminate automatically if it is assigned. The Sub-Advisory Agreement terminates
automatically upon the termination of the Advisory Agreement.
As provided in the Sub-Advisory Agreement, the Adviser (not the Fund) pays the
Sub-Adviser a quarterly subadvisory fee at the annual rate of 55% of the
management fee paid by the Fund to the Adviser for the preceding three months.
For the fiscal years ended December 31, 1999, 2000 and 2001, the Adviser
received fees of $6,706,432, $7,228,394 and $5,665,542, respectively.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal years ended December 31, 1999, 2000 and 2001,
the Fund paid the Adviser $163,633, $183,911 and $153,343 for services under
this Agreement.
Personnel of the Adviser and its affiliates may trade securities for their
personal accounts. The Fund also may hold, or may be buying or selling, the same
securities. To prevent the Fund from
22
being disadvantaged, the adviser(s), principal underwriter and the Fund have
adopted a code of ethics which restricts the trading activity of those
personnel.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. These Selling Brokers are authorized to
designate other intermediaries to receive purchase and redemption orders on
behalf of the Fund. John Hancock Funds accepts orders for the purchase of the
shares of the Fund which are continually offered at net asset value next
determined, plus any applicable sales charge, if any. In connection with the
sale of shares, John Hancock Funds and Selling Brokers receive compensation from
a sales charge imposed, in the case of Class A and Class C shares, at the time
of sale. In the case of Class B or Class C shares, the broker receives
compensation immediately but John Hancock Funds is compensated on a deferred
basis.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal years ended December 31, 1999, 2000 and 2001 were $2,540,595, $1,710,397
and $557,600, respectively. Of such amounts $229,219, $254,649 and $30,951,
respectively, were retained by John Hancock Funds. The underwriting commissions
for sales of the Fund's Class C shares for the fiscal year ended December 31,
2001 was $85,743. The remainder of the underwriting commissions were reallowed
to Selling Brokers.
The Fund's Trustees adopted Distribution Plans with respect to each class of
shares (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of
1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% for Class A shares and 1.00% for Class B
and Class C shares of the Fund's average daily net assets attributable to shares
of that class. However, the service fees will not exceed 0.25% of the Fund's
average daily net assets attributable to each class of shares. The distribution
fees will be used to reimburse John Hancock Funds for its distribution expenses,
including but not limited to: (i) initial and ongoing sales compensation to
Selling Brokers and others (including affiliates of John Hancock Funds) engaged
in the sale of Fund shares; (ii) marketing, promotional and overhead expenses
incurred in connection with the distribution of Fund shares; and (iii) with
respect to Class B and Class C shares only, interest expenses on unreimbursed
distribution expenses. The service fees will be used to compensate Selling
Brokers and others for providing personal and account maintenance services to
shareholders. In the event that John Hancock Funds is not fully reimbursed for
payments or expenses it incurs under the Class A Plan, these expenses will not
be carried beyond twelve months from the date they were incurred. Unreimbursed
expenses under the Class B and Class C Plans will be carried forward together
with interest on the balance of these unreimbursed expenses. The Fund does not
treat unreimbursed expenses under the Class B and Class C Plans as a liability
of the Fund because the Trustees may terminate the Class B and /or Class C Plans
at any time with no additional liability for these expenses to the shareholders
of the Fund. For the fiscal year ended December 31, 2001 an aggregate of
$202,270 of distribution expenses or .05% 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. For the fiscal year December 31, 2001, an aggregate of $0 of
distribution expenses or 0% of the average net assets of the Fund's Class C
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.
23
The Plans and all amendments were approved by the Trustees, including a majority
of the Trustees who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plans (the
"Independent Trustees"), by votes cast in person at meetings called for the
purpose of voting on these Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plan and the purpose for
which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. The Plans provide that they may be terminated without
penalty (a) by a vote of a majority of the Independent Trustees, (b) by a vote
of a majority of the Fund's outstanding shares of the applicable class in each
case upon 60 days' written notice to John Hancock Funds, and (c) automatically
in the event of assignment. The Plans further provide that they may not be
amended to increase the maximum amount of the fees for the services described
therein without the approval of a majority of the outstanding shares of the
class of the Fund which has voting rights with respect to the Plan. Each Plan
provides that no material amendment to the Plan will be effective unless it is
approved by a majority vote of the Trustees and the Independent Trustees of the
Fund. The holders of Class A, Class B and Class C shares have exclusive voting
rights with respect to the Plan applicable to their respective class of shares.
In adopting the Plans, the Trustees concluded that, in their judgment, there is
a reasonable likelihood that the Plans will benefit the holders of the
applicable class of shares of the Fund.
Amounts paid to the John Hancock Funds by any class of shares of the Fund will
not be used to pay the expenses incurred with respect to any other class of
shares of the Fund; provided, however, that expenses attributable to the Fund as
a whole will be allocated, to the extent permitted by law, according to the
formula based upon gross sales dollars and/or average daily net assets of each
such class, as may be approved from time to time by vote of a majority of the
Trustees. From time to time, the Fund may participate in joint distribution
activities with other Funds and the costs of those activities will be borne by
each Fund in proportion to the relative net asset value of the participating
Funds.
During the fiscal year ended December 31, 2001, the Funds paid John Hancock
Funds the following amounts of expenses in connection with their services for
the Fund.
Expense Items
-------------
Printing and
Mailing of Expenses of Interest Carrying
Prospectus to Compensation to John Hancock or Other Finance
Advertising New Shareholders Selling Brokers Funds Charges
----------- ---------------- --------------- ----- -------
Class A $133,457 $ 4,846 $ 416,802 $ 346,745 $ 0
Class B $419,648 $16,539 $2,722,313 $1,083,484 $5,252
Class C $ 27,948 $ 1,784 $ 198,078 $ 76,706 $ 0
24
SALES COMPENSATION
As part of their business strategies, the Fund, along with John Hancock Funds,
pays compensation to financial services firms that sell the Fund's shares. These
firms typically pass along a portion of this compensation to your broker
financial representative.
The two primary sources of broker compensation payments are: (1) the 12b-1 fees
that are paid out of the Fund's assets and (2) sales charges paid by investors.
The sales charges and 12b-1 fees are detailed in the prospectus and under the
"Distribution Contracts" in this Statement of Additional Information. The
portions of these expenses that are paid to financial services firms are shown
on the next page.
Whenever you make an investment in the Fund, the financial services firm
receives a reallowance/payment, as described below. The firm also receives the
first year's 12b-1 service fee at this time. Beginning with the second year
after an investment is made, the financial services firm receives an annual
12b-1 service fee of 0.25% of its total eligible fund net assets. This fee is
paid quarterly in arrears by the Fund.
In addition, from time to time, John Hancock Funds, at its expense, may provide
significant additional compensation to financial services firms in connection
with their promotion of the Fund and sale of shares of the Fund. Such
compensation provided by John Hancock Funds may include, for example, financial
assistance to financial services firms in connection with their marketing and
sales development programs for their registered representatives and other
employees, as well as payment for travel expenses, including lodging, incurred
by registered representatives and other employees for such marketing and sales
development programs, as well as assistance for seminars for the public,
advertising and sales campaigns regarding one or more Funds, and other financial
services firms-sponsored events or activities. From time to time, John Hancock
Funds may provide expense reimbursements for special training of a financial
services firm's registered representatives and other employees in group
meetings. Other compensation, such as asset retention fees, finder's fees and
reimbursement for wire transfer fees, may be offered to the extent not
prohibited by law or any self-regulatory agency, such as the NASD.
25
Broker Receives Broker Receives
Sales charge Maximum 12b-1 Service Total Broker
paid by investors Reallowance fee (% of net Compensation (1)
Class A investments (% of offering price) (% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- --------------------- --------------- ---------------------
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Investments of
Class A shares of
$1 million or more (4)
- ----------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Broker Receives Broker Receives
Maximum 12b-1Service fee Total Broker
Reallowance (% of net Compensation (1)
Class B investments (% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- --------------- ---------------------
All amounts -- 3.75% 0.25% 4.00%
Broker Receives Broker Receives
Maximum 12b-1Service fee Total Broker
Reallowance (% of net Compensation (1)
Class C investments (% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- --------------- ---------------------
Over $1,00,000 or amounts
purchased -- 0.75% 0.25% 1.00%
At NAV
All other amounts 1.00% 1.75% 0.25% 2.00%
(1) Broker percentages and 12b-1 service fee percentages are calculated from
different amounts, and therefore may not equal total boker compensation
percentages if combined using simple addition.
(2) For Group Investment Programs sales, the maximum totalbroker compensation
for investments of $1 million or more is 1.00% of the offering price (one year
CDSC of 1.00% applies for each sale).
(3) After first year broker receives 12b-1 service fees quarterly in arrears.
(4) John Hancock Funds may reduce ggregate investments by the amount of recent
redemptions.
CDSC revenues collected by John Hancock Funds may be used to pay broker
commissions when there is no initial sales charge.
26
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by the
events occurring after the closing of a foreign market, assets are valued by a
method that the Trustees believe accurately reflects fair value.
The NAV of each Fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing the a class's net assets by the number of it shares
outstanding. On any day an international market is closed and the New York Stock
Exchange is open, any foreign securities will be valued at the prior day's close
with the current day's exchange rate. Trading of foreign securities may take
place on Saturdays and U.S. business holidays on which the Fund's NAV is not
calculated. Consequently, the Fund's portfolio securities may trade and the NAV
of the Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A AND CLASS C SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). The Fund no longer
issues share certificates, all shares are electronically recorded. The Trustees
reserve the right to change or waive the Fund's minimum investment requirements
and to reject any order to purchase shares (including purchase by exchange) when
in the judgment of the Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A and Class C shares of the
Fund are described in the Prospectus. Methods of obtaining reduced sales charges
referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current
27
purchases of Class A shares of the Fund, the investor is entitled to cumulate
current purchases with the greater of the current value (at offering price) of
the Class A shares of the Fund, or if John Hancock Signature Services, Inc.
("Signature Services") is notified by the investor's dealer or the investor at
the time of the purchase, the cost of the Class A shares owned.
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or contingent deferred sales charges ("CDSC") to various individuals and
institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates, sub-adviser or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, grandparents, grandchildren, mother, father, sister,
brother, mother-in-law, father-in-law, daughter-in-law, son-in-law, niece,
nephew and same sex domestic partner) of any of the foregoing; or any
fund, pension, profit sharing or other benefit plan for the individuals
described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into a signed agreement with John Hancock Funds
providing specifically for the use of fund shares in fee-based investment
products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Retirement plans participating in Merrill Lynch servicing programs, if the
Plan has more than $3 million in assets or 500 eligible employees at the
date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement. See your Merrill Lynch financial consultant for further
information.
o Retirement plans investing through the PruArray Program sponsored by
Prudential Securities.
o Pension plans transferring assets from a John Hancock variable annuity
contract to the Fund pursuant to an exemptive application approved by the
Securities and Exchange Commission.
o Participant directed retirement plans with at least 100 eligible employees
at the inception of the Fund account. Each of these investors may purchase
Class A shares with no initial sales charge. However, for each Fund, if
the shares are redeemed within 12 months after the end of the calendar
year in which the purchase was made, a CDSC will be imposed at the
following rate:
Amount Invested CDSC RATE
--------------- ---------
$1 to $4,999,000 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
28
Class C shares may be offered without a front-end sales charge to:
o Investments of redemption proceeds from a non-John Hancock mutual fund.
o Group Retirement plan products for which John Hancock Signature Services
performs recordkeeping and administrative services. (These plans include
403(b), Simple IRA, SEP and SARSEP plans.) Also included are plans
formerly record kept by John Hancock Signature Services (including
401(k)).
o Group Retirement plan products sold through third party administrators
under the John Hancock SELECT retirement plan program. (These plans
include 401(k), Money Purchase and Profit Sharing plans.)
o An investor who buys through Merrill Lynch omnibus account. However, a
CDSC may apply if the shares are sold within 12 months of purchase.
Class A and Class C shares may also be purchased without an initial sales charge
in connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). A company's (not an individual's) qualified and non-qualified retirement
plan investments can be combined to take advantage of this privilege. Further
information about combined purchases, including certain restrictions on combined
group purchases, is available from Signature Services or a Selling Broker's
representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount being invested but also
the investor's purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares. Retirement plan investors may include the value of Class
B shares if Class B shares held are greater than $1 million. Retirement plans
must notify Signature Services to utilize. A company's (not an individual's)
qualified and non-qualified retirement plan investments can be combined to take
advantage of this privilege.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
29
Letter of Intention. Reduced sales charges are also applicable to investments
made pursuant to a Letter of Intention (the "LOI"), which should be read
carefully prior to its execution by an investor. The Fund offers two options
regarding the specified period for making investments under the LOI. All
investors have the option of making their investments over a specified period of
thirteen (13) months. Investors who are using the Fund as a funding medium for a
retirement plan, however, may opt to make the necessary investments called for
by the LOI over a forty-eight (48) month period. These retirement plans include
traditional, Roth and Education IRAs, SEP, SARSEP, 401(k), 403(b) (including
TSAs), SIMPLE IRA, SIMPLE (401(k), Money purchase pension, Profit Sharing and
Section 457 plans. An individual's non-qualified and qualified retirement plan
investments cannot be combined to satisfy an LOI of 48 months. Such an
investment (including accumulations and combinations but not including
reinvested dividends) must aggregate $50,000 or more during the specified period
from the date of the LOI or from a date within ninety (90) days prior thereto,
upon written request to Signature Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate amount intended
to be invested had been invested immediately. If such aggregate amount is not
actually invested, the difference in the sales charge actually paid and the
sales charge payable had the LOI not been in effect is due from the investor.
However, for the purchases actually made within the specified period (either 13
or 48 months) the sales charge applicable will not be higher than that which
would have applied (including accumulations and combinations) had the LOI been
for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrow shares will be released. If the total investment specified in the LOI
is not completed, the Class A shares held in escrow may be redeemed and the
proceeds used as required to pay such sales charge as may be due. By signing the
LOI, the investor authorizes Signature Services to act as his attorney-in-fact
to redeem any escrowed Class A shares and adjust the sales charge, if necessary.
A LOI does not constitute a binding commitment by an investor to purchase, or by
the Fund to sell, any additional Class A shares and may be terminated at any
time.
DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed
within six years or one year of purchase, respectively will be subject to a CDSC
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
or Class C shares being redeemed. No CDSC will be imposed on increases in
account value above the initial purchase price or on shares derived from
reinvestment of dividends or capital gains distributions.
Class B shares are not available to retirement plans that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase
30
of both Class B and Class C shares, all payments during a month will be
aggregated and deemed to have been made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period for Class B or one year CDSC
redemption period for Class C or those you acquired through dividend and capital
gain reinvestment, and next from the shares you have held the longest during the
six-year period for Class B shares. For this purpose, the amount of any increase
in a share's value above its initial purchase price is not subject to a CDSC.
Thus, when a share that has appreciated in value is redeemed during the CDSC
period, a CDSC is assessed only on its initial purchase price.
When requesting a redemption for a specific dollar amount please indicate if you
require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 Class B 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:
o Proceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o *Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC (dividend
reinvestment) (120.00)
--------
o Amount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the account not just the
shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C shares without a sales charge being deducted at
the time of the purchase.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B and Class C shares and of Class A shares that are subject
to a CDSC, unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
31
* Redemptions due to death or disability. (Does not apply to trust accounts
unless trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B and Class C shares made under a periodic withdrawal
plan or redemptions for fees charged by planners or advisors for advisory
services, as long as your annual redemptions do not exceed 12% of your
account value, including reinvested dividends, at the time you established
your periodic withdrawal plan and 12% of the value of subsequent
investments (less redemptions) in that account at the time you notify
Signature Services. (Please note that this waiver does not apply to
periodic withdrawal plan redemptions of Class A shares that are subject to
a CDSC).
* Redemptions by Retirement plans participating in Merrill Lynch servicing
programs, if the Plan has less than $3 million in assets or 500 eligible
employees at the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for further information.
* Redemptions of Class A shares by retirement plans that invested through
the PruArray Program sponsored by Prudential Securities.
* Redemptions of Class A shares made after one year from the inception date
of a retirement plan at John Hancock.
For Retirement Accounts (such as traditional, Roth and Education IRAs, SIMPLE
IRAs, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase
Pension Plan, Profit-Sharing Plan and other plans as described in the Internal
Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code. (Waiver based on required minimum
distribution calculations for John Hancock Mutual Fund IRA assets only.)
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans under sections 401(a) (such as
Money Purchase Pension Plans and Profit-Sharing/401(k) Plans), 457 and 408
(SEPs and SIMPLE IRAs) of the Internal Revenue Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA accounts that purchased shares
prior to May 15, 1995.
Please see matrix for some examples.
32
- ---------------------------------------------------------------------------------------------------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP) 457 & 408
(SEPs & Simple
IRAs)
- ---------------------------------------------------------------------------------------------------------------
Death or Disability Waived Waived Waived Waived Waived
- ---------------------------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
required value annually
minimum in periodic
distributions* payments
or 12% of
account value
annually in
periodic
payments.
- ---------------------------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or value annually
12% of account in periodic
value annually payments
in periodic
payments.
- ---------------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of account
(Class B and annuity annuity annuity annuity value annually
Class C only) payments (72t) payments (72t) payments (72t) payments (72t) in periodic
or 12% of or 12% of or 12% of or 12% of payments
account value account value account value account value
annually in annually in annually in annually in
periodic periodic periodic periodic
payments. payments. payments. payments.
- ---------------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
- ---------------------------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
- ---------------------------------------------------------------------------------------------------------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
- ---------------------------------------------------------------------------------------------------------------
Return of Excess Waived Waived Waived Waived N/A
- ---------------------------------------------------------------------------------------------------------------
*Required minimum distributions based on John Hancock Mutual Fund IRA assets
only.
33
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholder will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Fund has
elected to be governed by Rule 18f-1 under the Investment Company Act. Under
that rule, the Fund must redeem its shares for cash except to the extent that
the redemption payments to any shareholder during any 90-day period would exceed
the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of
such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a Fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock 500 Index Fund will retain the
exchanged fund's CDSC schedule). For purposes of computing the CDSC payable upon
redemption of shares acquired in an exchange, the holding period of the original
shares is added to the holding period of the shares acquired in an exchange.
If a retirement plan exchanges the plan's Class A account in its entirety from
the Fund to a non-John Hancock investment, the one-year CDSC applies.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994 for
Class B shares of any other John Hancock fund, the acquired shares will continue
to be subject to the CDSC schedule that was in effect when the exchanged shares
were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of the Fund shares. Since the redemption price of the Fund shares may
be more or less than the shareholder's
34
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 shares of the Fund could be disadvantageous to a
shareholder because of the initial sales charge payable on such purchases of
Class A shares and the CDSC imposed on redemptions of Class B and Class C shares
and because redemptions are taxable events. Therefore, a shareholder should not
purchase shares at the same time that a Systematic Withdrawal Plan is in effect.
The Fund reserves the right to modify or discontinue the Systematic Withdrawal
Plan of any shareholder on 30 days' prior written notice to such shareholder, or
to discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the nonpayment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the due date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit of that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of 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.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a
35
shareholder on the redemption or other disposition of Fund shares will be
treated for tax purposes as described under the caption "TAX STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years, or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain broker-dealers
or Service Agents ("Brokers"). Brokers may charge for their services or place
limitations on the extent to which you may use the services of the Fund. The
Fund will be deemed to have received a purchase or redemption order when an
authorized broker, or if applicable, a broker's authorized designee, receives
the order. If a broker is an agent or designee of the Fund, orders are processed
at the NAV next calculated after the broker receives the order. The broker must
segregate any orders it receives after the close of regular trading on the New
York Stock Exchange and transmit those orders to the Fund for execution at NAV
next determined. Some brokers that maintain nominee accounts with the Fund for
their clients charge an annual fee on the average net assets held in such
accounts for accounting, servicing, and distribution services they provide with
respect to the underlying Fund shares. The Adviser, the Fund, and/or John
Hancock Funds, Inc. (the Fund's principal distributor), share in the expense of
these fees.
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series and classes
without further action by shareholders. As of the date of this Statement of
Additional Information, the Trustees have authorized shares of the Fund.
Additional series may be added in the future. The Trustees have also authorized
the issuance of four classes of shares of the Fund, designated as Class A, Class
B, Class C and Class I. Class I shares are discussed in a separate Statement of
Additional Information.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
each Class of shares have certain exclusive voting rights on matters relating to
their respective distribution plans. The different classes of the Fund may bear
different expenses relating to the cost of holding shareholder meetings
necessitated by the exclusive voting rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to each class will be borne exclusively
by that class, (ii) Class B and Class C shares will pay higher distribution and
service fees than Class A shares and (iii) each class of shares will bear any
class
36
expenses properly allocable to that class of shares, subject to the conditions
the Internal Revenue Service imposes with respect to the multiple-class
structures. Similarly, the net asset value per share may vary depending on which
class of shares are purchased. No interest will be paid on uncashed dividend or
redemption checks.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts, obligations or affairs of the Fund. The
Declaration of Trust also provides for indemnification out of the Fund's assets
for all losses and expenses of any shareholder held personally liable by reason
of being or having been a shareholder. The Declaration of Trust also provides
that no series of the Trust shall be liable for the liabilities of any other
series. Furthermore, no fund included in this Fund's prospectus shall be liable
for the liabilities of any other John Hancock fund. Liability is therefore
limited to circumstances in which the Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Information provided on the account application may be used by the Fund to
verify the accuracy of the information or for background or financial history
purposes. A joint account will be administered as a joint tenancy with right of
survivorship, unless the joint owners notify Signature Services of a different
intent. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts. For telephone transactions, the transfer agent will take measures
to verify the identity of the caller, such as asking for name, account number,
Social Security or other taxpayer ID number and other relevant information. If
appropriate measures are taken, the transfer agent is not responsible for any
loss that may occur to any account due to an unauthorized telephone call. Also
for your protection telephone transactions are not permitted on accounts whose
names or addresses have changed within the past 30 days. Proceeds from telephone
transactions can only be mailed to the address of record.
Selling activities for the Fund may not take place outside the U.S. except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and
37
in the future will occur, only in the U.S. A foreign corporation may purchase
shares of the Fund only if it has a U.S. mailing address.
TAX STATUS
The Fund is treated as a separate entity for accounting and tax purposes, has
qualified 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 qualify for each taxable year. As such and by complying
with the applicable provisions of the Code regarding the sources of its income,
the timing of its distributions and the diversification of its assets, the Fund
will not be subject to Federal income tax on its taxable income (including net
realized capital gains) which is distributed to shareholders in accordance with
the timing requirements of the Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
this tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than those gains and losses included in
computing net capital gain, after reduction by deductible expenses.). Some
distributions may be paid in January but may be taxable to shareholders as if
they had been received on December 31 of the previous year. The tax treatment
described above will apply without regard to whether distributions are received
in cash or reinvested in additional shares of the Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
If the Fund invests in stock (including an option to acquire stock such as is
inherent in a convertible bond) of certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, certain rents and royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Fund is timely distributed to its shareholders.
The Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. An election may be available to ameliorate these
adverse tax consequences, but could require the Fund to recognize taxable income
or gain without the concurrent receipt of cash. These investments could also
result in the treatment of associated capital gains as ordinary income. The Fund
may limit and/or manage its holdings in passive foreign investment companies to
minimize its tax liability or maximize its return from these investments.
38
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Some tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. The Fund does not expect to qualify to pass such taxes
through to its shareholders, who consequently will not take such taxes into
account on their own tax returns. However, the Fund will deduct such taxes in
determining the amount it has available for distribution to shareholders.
The amount of the Fund's net realized capital gains, if any, in any given year
will vary depending upon the Adviser's current investment strategy and whether
the Adviser believes it to be in the best interest of the Fund to dispose of
portfolio securities and/or engage in options, futures or forward transactions
will generate capital gains. At the time of an investor's purchase of shares of
the Fund, a portion of the purchase price is often attributed to realized or
unrealized appreciation in the Fund's portfolio or undistributed taxable income
of the Fund. Consequently, subsequent distributions from such appreciation or
income may be taxable to such investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares, and the distributions (or portions thereof) in
reality represent a return of a portion of the purchase price.
Upon a redemption or other disposition of shares (including by exercise of the
exchange privilege) in a transaction that is treated as a sale for tax purposes,
a shareholder will ordinarily realize a taxable gain or loss depending upon the
amount of the proceeds and the investor's basis in his shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and will be long-term or short-term, depending upon the
shareholder's tax holding period for the shares and subject to the special rules
described below. A sales charge paid in purchasing shares of the Fund cannot be
taken into account for purposes of determining gain or loss on the redemption or
exchange of such shares within 90 days after their purchase to the extent shares
of the Fund or another John Hancock fund are subsequently acquired without
payment of a sales charge pursuant to the reinvestment or exchange privilege.
This disregarded charge will result in an increase in the shareholder's tax
basis in the shares subsequently acquired. Also, any loss realized on a
redemption or exchange may be disallowed to the extent the shares disposed of
are replaced with other shares of the Fund within a period of 61 days beginning
30 days before and ending 30 days after the shares are disposed of, such as
pursuant to an election to reinvest dividends in additional shares. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be treated as a long-term capital loss
to the extent of any amounts treated as distributions of long-term capital gain
with respect to such shares. Shareholders should consult their own tax advisers
regarding their particular circumstances to determine whether a disposition of
Fund shares is properly treated as a sale for tax purposes, as is assumed in the
foregoing discussion.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net long-term capital gains realized in any
year to the extent that a capital loss is carried forward from prior years
against such gain. To the extent such excess was retained and not exhausted by
the carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the
39
remainder in the Fund. Accordingly, each shareholder would (a) include his pro
rata share of such excess as long-term capital gain income in his tax return for
his taxable year in which the last day of the Fund's taxable year falls, (b) be
entitled either to a tax credit on his return for, or to a refund of, his pro
rata share of the taxes paid by the Fund, and (c) be entitled to increase the
adjusted tax basis for his shares in the Fund by the difference between his pro
rata share of such excess and his pro rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset net capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent net capital gains
are offset by such losses, they would not result in Federal income tax liability
to the Fund and, as noted above, would not be distributed as such to
shareholders. The Fund has $98,885,432 capital loss carryforward available, to
the extent provided by regulations, to offset future net realized capital gains.
The entire Fund's carryforward expires on December 31, 2009.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) during a prescribed period extending before and after each
dividend and distributed and properly designated by the Fund may be treated as
qualifying dividends. Corporate shareholders must meet the holding period
requirements stated above with respect to their shares of the Fund for each
dividend in order to qualify for the deduction and, if they have any debt that
is deemed under the Code directly attributable to Fund shares, may be denied a
portion of the dividends received deduction. The entire qualifying dividend,
including the otherwise-deductible amount, will be included in determining the
excess (if any) of a corporate shareholder's adjusted current earnings over its
alternative minimum taxable income, which may increase its alternative minimum
tax liability. Additionally, any corporate shareholder should consult its tax
adviser regarding the possibility that its basis in its shares may be reduced,
for Federal income tax purposes, by reason of "extraordinary dividends" received
with respect to the shares and, to the extent such basis would be reduced below
zero, that current recognition of income would be required.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payment. The mark to
market or constructive sale rules applicable to certain options, futures,
forwards, short sales or other transactions and forward contracts may also
require the Fund to recognize income or gain without a concurrent receipt of
cash. Additionally, some countries restrict repatriation which may make it
difficult or impossible for the Fund to obtain cash corresponding to its
earnings or assets in those countries. However, the Fund must distribute to
shareholders for each taxable year substantially all of its net income and net
capital gains, including such income or gain, to qualify as a regulated
investment company and avoid liability for any federal income or excise tax.
Therefore, the Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or may have to leverage itself
by borrowing the cash, to satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. Government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The Fund will not seek to satisfy
any
40
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax in the case of non-exempt shareholders
who fail to furnish the Fund with their correct taxpayer identification number
and certain certifications required by the IRS or if the IRS or a broker
notifies the Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding as a result of failure to
report interest or dividend income. A Fund may refuse to accept an application
that does not contain any required taxpayer identification number or
certification that the number provided is correct. If the backup withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in shares, will be reduced by the amounts required to be
withheld. Any amounts withheld may be credited against a shareholder's U.S.
federal income tax liability. Investors should consult their tax advisers about
the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain types of
investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above. These investors may be
subject to non-resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from the Fund and, unless an effective IRS Form W-8, Form W-8BEN or authorized
withholding certificate is on file and to 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.
The Fund anticipates that provided that the Fund qualifies as a regulated
investment company under the Code, it will also not be required to pay any
Massachusetts income tax.
41
CALCULATION OF PERFORMANCE
As of December 31, 2001, the average annual total returns before taxes for Class
A shares of the Fund for the one, five and ten year periods were -15.32%, 7.88%
and 11.65%.
As of December 31, 2001, the average annual returns before taxes for Class B
shares of the Fund for the one and five year periods and since the commencement
of operations on September 7, 1995 were -15.91% , 7.96% and 11.01%,
respectively.
As of December 31, 2001, the average annual returns before taxes for Class C
shares of the Fund for the one year period and since the commencement of
operations on May 1, 1998 were -13.24% and -0.53%, respectively.
The average annual total return before taxes is computed by finding the average
annual compounded rate of return over the 1-year, 5-year, and 10-year periods,
or period since the commencement of operations, that would equate the initial
amount invested to the ending redeemable value according to the following
formula:
P(1+T)^n = ERV
Where:
P = a hypothetical payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1 year, 5 year or 10-year periods (or
fractional portion).
The Fund discloses average annual total returns after taxes for Class A shares
for the one, fiveand 10 year periods ended December 31, 2001 in the prospectus.
After tax returns are computed using the historical highest individual federal
marginal income-tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on the investor's tax situation and may
differ from those shown. The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
The average annual total return (after taxes on distributions) is computed by
finding the average annual compounded rate of return over the 1-year, 5-year and
10-year periods, or the period since the commencement of operations, that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
P(1+T)^n = ATV(D)
Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return (after tax distributions).
n = number of years.
ATV(D) = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1-year, 5-year or 10-year periods (or
fractional portion) after taxes on fund distributions but not
after taxes on redemption.
42
The average annual total return (after taxes on distributions and redemption) is
computed by finding the average annual compounded rate of return over the
1-year, 5-year and 10-year periods, or the period since the commencement of
operations, that would equate the initial amount invested to the ending
redeemable value according to the following formula:
P(1+T)^n = ATV(DR)
Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return (after taxes distributions and .
redemption)
n = number of years.
ATV(DR) = ending value of a hypothetical $1,000 payment made at the
beginning of the 1-year, 5-year or 10-year periods (or
fractional portion), after taxes on fund distributions and
redemption.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of each class, these calculations
assume the maximum sales charge is included in the initial investment or the
CDSC is applied at the end of the period. These calculations also assume that
all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period. The "distribution rate" is determined by
annualizing the result of dividing the declared dividends of the Fund during the
period stated by the maximum offering price or net asset value at the end of the
period. Excluding the Fund's sales charge from the distribution rate produces a
higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
or the CDSC on Class B or Class C shares into account. Excluding the Fund's
sales charge on Class A shares and the CDSC on Class B or Class C shares from a
total return calculation produces a higher total return figure.
The Fund may advertise yield, where appropriate. The Fund's yield is computed by
dividing net investment income per share determined for a 30-day period by the
maximum offering price per share (which includes the full sales charge, if
applicable) on the last day of the period, according to the following standard
formula:
Yield = 2 ( [ ( a-b/cd ) + 1 ] ^6 - 1)
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the period that
would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period (NAV
where applicable).
43
From time to time, in reports and promotional literature, the Fund's total
return and/or yield will be compared to indices of mutual funds such as Lipper
Analytical Services, Inc.'s "Lipper-Mutual Performance Analysis," a monthly
publication which tracks net assets, total return, and yield on mutual funds in
the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are
also used for comparison purposes, as well as the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in, and excerpts from,
national financial publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK,
THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may
also be utilized. The Fund's promotional and sales literature may make reference
to the Fund's "beta". Beta is a reflection of the market related risk of the
Fund by showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Sub-Adviser, or the Adviser
pursuant to recommendations made by an investment committee, which consists of
officers and directors of the Adviser and officers and Trustees of the Trust who
are interested persons of the Fund. Orders for purchases and sales of securities
are placed in a manner, which, in the opinion of the officers of the Fund, will
offer the best price and market for the execution of each such transaction.
Purchases from underwriters of portfolio securities may include a commission or
commissions paid by the issuer and transactions with dealers serving as market
maker reflect a "spread." Debt securities are generally traded on a net basis
through dealers acting for their own account as principals and not as brokers;
no brokerage commissions are payable on such transactions.
In the U.S. Government securities market, securities are generally traded on a
"net" basis with dealers acting as principal for their own account without a
stated commission, although the price of the security usually includes a profit
to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
The policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Conduct Rules of the National Association of Securities Dealers, Inc. and such
other
44
policies as the Trustees may determine, the Adviser and Sub-Adviser may
consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and, to a
lesser extent, statistical assistance furnished to the Adviser and Sub-Adviser
of the Fund. It is not possible to place a dollar value on information and
services to be received from brokers and dealers, since it is only supplementary
to the research efforts of the Adviser and Sub-Adviser. The receipt of research
information is not expected to reduce significantly the expenses of the Adviser
and Sub-Adviser. The research information and statistical assistance furnished
by brokers and dealers may benefit the Life Company or other advisory clients of
the Adviser, and, conversely, brokerage commissions and spreads paid by other
advisory clients of the Adviser may result in research information and
statistical assistance beneficial to the Fund. Similarly, research information
and assistance provided to the Sub-Adviser by brokers and dealers may benefit
other advisory clients or affiliates of the Sub-Adviser, and, conversely,
brokerage commissions and spreads paid by other advisory clients of the
Sub-Adviser may result in research information and statistical assistance
beneficial to the Fund. The Fund will make no commitment to allocate portfolio
transactions upon any prescribed basis. While the Adviser, in conjunction with
the Sub-Adviser, will be primarily responsible for the allocation of the Fund's
brokerage business, the policies and practices of the Adviser in this regard
must be consistent with the foregoing and will at all times be subject to review
by the Trustees. For the years ended December 31, 1999, 2000 and 2001, the Fund
paid negotiated brokerage commission in the amount of $1,685,370, $1,249,160 and
$1,116,725, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended December 31,
2001, the Fund directed no commissions to compensate brokers for research
services such as industry and company reviews and evaluations of the securities
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of shareholder Signator Investors, Inc., a broker-dealer (until
January 1, 1999, the John Hancock Distributors, Inc.) ("Signator" or "Affiliated
Broker"). Pursuant to procedures determined by the Trustees and consistent with
the above policy of obtaining best net results the Fund may execute portfolio
transaction with or through Affiliated Broker. During the year ended December
31, 1999, 2000 and 2001, the Fund did not execute any portfolio transactions
with Affiliated Broker.
Signator may act as broker for the Fund on exchange transactions, subject,
however, to the general policy of the Fund set forth above and the procedures
adopted by the Trustees pursuant to the Investment Company Act. Commissions paid
to an Affiliated Broker must be at least as favorable as those which the
Trustees believe to be contemporaneously charged by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold. A transaction would not be placed with an Affiliated Broker if the Fund
would have to pay a commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers except for accounts for which the Affiliated Broker
acts as clearing broker for another brokerage firm, and
45
any customers of the Affiliated Broker not comparable to the Fund as determined
by a majority of the Trustees who are not interested persons (as defined in the
Investment Company Act) of the Fund, the Adviser, the Sub-Adviser or the
Affiliated Broker. Because the Adviser, which is affiliated with the Affiliated
Broker, and the Sub-Adviser have, as investment advisers to the Fund, the
obligation to provide investment management services, which includes elements of
research and related investment skills, such research and related skills will
not be used by the Affiliated Broker as a basis for negotiating commissions at a
rate higher than that determined in accordance with the above criteria.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. Because of
this, client accounts in a particular style may sometimes not sell or acquire
securities as quickly or at the same prices as they might if each were managed
and traded individually.
For purchases of equity securities, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. For high demand issues (for example, initial public offerings), shares
will be allocated pro rata by account size as well as on the basis of account
objective, account size (a small account's allocation may be increased to
provide it with a meaningful position), and the account's other holdings. In
addition, an account's allocation may be increased if that account's portfolio
manager was responsible for generating the investment idea or the portfolio
manager intends to buy more shares in the secondary market. For fixed income
accounts, generally securities will be allocated when appropriate among accounts
based on account size, except if the accounts have different objectives or if an
account is too small to get a meaningful allocation. For new issues, when a
complete order is not filled, a partial allocation will be made to each account
pro rata based on the order size. However, if a partial allocation is too small
to be meaningful, it may be reallocated based on such factors as account
objectives, strategies, duration benchmarks and credit and sector exposure. For
example, value funds will likely not participate in initial public offerings as
frequently as growth funds. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtainable for it. On the other hand, to the extent permitted by law,
the Adviser may aggregate securities to be sold or purchased for the Fund with
those to be sold or purchased for other clients managed by it in order to obtain
best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
Massachusetts 02217-1000, a wholly-owned indirect subsidiary of the Life
Company, is the transfer and dividend paying agent for the Fund. The Fund pays
Signature Services an annual fee of $20.00 for each Class A shareholder account
and $22.50 for each Class B shareholder account and $21.50 for each Class C
shareholder account. For Class A, B and C, the Fund also pays certain
out-of-pocket expenses. These expenses are charged to the Fund by account,
aggregatged and allocated to each class on the basis of their relative net asset
values.
46
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and The Bank of New York, One Wall Street, New York, New York
10286. Under the custodian agreement, The Bank of New York is performing
custody, Foreign Custody Manager and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are PricewaterhouseCoopers LLP, 160 Federal
Street, Boston, Massachusetts 02110. PricewaterhouseCoopers LLP audits and
renders an opinion on the Fund's annual financial statements and reviews the
Fund's annual Federal income tax return.
47
APPENDIX-A
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's principal securities and
investment practices. You may find the most concise description of the fund's
risk profile in the prospectus.
A fund is permitted to utilize -- within limits established by the trustees --
certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that the fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them, with examples of related securities and
investment practices included in brackets. See the "Investment Objectives and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the fund will earn income or
show a positive total return over any period of time -- days, months or years.
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). (e.g. short sales, financial
futures and options; securities and index options, currency contracts).
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. (e.g. Borrowing; reverse repurchase agreements, repurchase
agreements, securities lending, non-investment-grade debt securities, financial
futures and options; securities and index options).
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. (e.g. Foreign
securities, financial futures and options; securities and index options,
currency contracts).
Extension risk The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.
Information risk The risk that key information about a security or market is
inaccurate or unavailable. (e.g. non-investment-grade debt securities, foreign
securities).
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values. (e.g.
Non investment-grade debt securities, financial futures and options; securities
and index options).
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.
Borrowing; reverse repurchase agreements, short-
A-1
sales, when-issued securities and forward commitments; financial futures and
options; securities and index options, currency contracts).
o Hedged When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
o Speculative To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
Liquidity risk The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. (e.g. short sales,
non-investment-grade debt securities; restricted and illiquid securities,
financial futures and options; securities and index options, currency
contracts).
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. Common to all stocks and bonds and the
mutual funds that invest in them. (e.g. Short sales, short-term trading,
when-issued securities and forward commitments, non-investment-grade securities,
foreign securities, financial futures and options; securities and index options,
restricted and illiquid securities).
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events. (e.g. Foreign securities).
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments. (e.g. Short sales, when-issued securities and forward commitments,
financial futures and options; securities and index options, currency
contracts).
Political risk The risk of losses directly attributable to government or
political actions of any sort. (e.g. Foreign securities)
Prepayment risk The risk that unanticipated prepayments may occur during periods
of falling interest rates, reducing the value of mortgage-backed securities.
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g. Non-investment-grade debt
securities, restricted and illiquid securities).
A-2
APPENDIX B - Description of Bond Ratings
RATINGS
Bonds.
Standard & Poor's Bond Ratings
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal, and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
To provide more detailed indications of credit quality, the ratings AA to BBB
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
A provisional rating, indicated by "p" following a rating, is sometimes used by
Standard & Poor's. It assumes the successful completion of the project being
financed by the issuance of the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion.
Moody's Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Generally speaking, the safety of
obligations of this class is so absolute that with the occasional exception of
oversupply in a few specific instances, characteristically, their market value
is affected solely by money market fluctuations.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities. The market
value of Aa bonds is virtually immune to all but money market influences, with
the occasional exception of oversupply in a few specific instances.
B-1
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical modifier
1 indicates that the security ranks at the high end, 2 in the mid-range, and 3
nearer the low end, of the generic category. These modifiers of rating symbols
Aa, A and Baa are to give investors a more precise indication of relative debt
quality in each of the historically defined categories.
Conditional ratings, indicated by "Con", are sometimes given when the security
for the bond depends upon the completion of some act or the fulfillment of some
condition. Such bonds, are given a conditional rating that denotes their
probably credit statute upon completion of that act or fulfillment of that
condition.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical modifier
1 indicates that the security ranks at the high end, 2 in the mid-range, and 3
nearer the low end, of the generic category. These modifiers are to give
investors a more precise indication of relative debt quality in each of the
historically defined categories.
B-2
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 2001 Annual
Report to Shareholders for the year ended December 31, 2001; (filed
electronically on February 28, 2002, accession number 0000928816-xx-0000xx) and
are included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Core Equity Fund (file nos. 811-1677 and 2-29502).
John Hancock Capital Series
John Hancock Core Equity Fund
Statement of Assets and Liabilities as of December 31, 2001
Statement of Operations for the year ended of December 31, 2001.
Statement of Changes in Net Asset for the period ended December 31, 2001.
Financial Highlights for the period ended December 31, 2001.
Schedule of Investments as of December 31, 2001 Notes to
Financial Statements.
Report of Independent Auditors.
F-1
JOHN HANCOCK
- --------------------------------------------------------------------------------
Prospectus 3.1.02 Equity funds
Core Growth Fund
Core Value Fund
[LOGO](R) As with all mutual funds, the Securities and Exchange
- ------------------ Commission has not approved or disapproved these funds
JOHN HANCOCK FUNDS or determined whether the information in this prospectus
is adequate and accurate. Anyone who indicates otherwise
is committing a federal crime.
Contents
- --------------------------------------------------------------------------------
A fund-by-fund summary Core Growth Fund 4
of goals, strategies, risks,
performance and expenses. Core Value Fund 6
Policies and instructions for Your account
opening, maintaining and
closing an account in any Choosing a share class 8
equity fund. How sales charges are calculated 8
Sales charge reductions and waivers 9
Opening an account 10
Buying shares 11
Selling shares 12
Transaction policies 14
Dividends and account policies 14
Additional investor services 15
Further information on the Fund details
equity funds.
Business structure 16
Financial highlights 17
For more information back cover
Overview
- --------------------------------------------------------------------------------
JOHN HANCOCK EQUITY FUNDS
These funds seek long-term growth by investing primarily in common stocks. Each
fund has its own strategy and its own risk profile.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
o have longer time horizons
o want to diversify their portfolios
o are seeking funds for the equity portion of an asset allocation portfolio
o are investing for retirement or other goals that are many years in the
future
Equity funds may NOT be appropriate if you:
o are investing with a shorter time horizon in mind
o are uncomfortable with an investment that may go up and down in value
RISKS OF MUTUAL FUNDS
Mutual funds are not bank deposits and are not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Because
you could lose money by investing in these funds, be sure to read all risk
disclosure carefully before investing.
THE MANAGEMENT FIRM
All John Hancock equity funds are managed by John Hancock Advisers, LLC. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Financial Services, Inc. and manages approximately $30 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Clip Art] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clip Art] Main risks The major risk factors associated with the fund.
[Clip Art] Past performance The fund's total return, measured year-by-year and
over time.
[Clip Art] Your expenses The overall costs borne by an investor in the fund,
including sales charges and annual expenses.
3
Core Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks capital appreciation. To pursue this goal, the fund
invests in a diversified portfolio of primarily large-capitalization stocks and
emphasizes stocks of companies with relatively high potential long-term earnings
growth. The portfolio's risk profile is substantially similar to that of the
Russell 1000 Growth Index.
The managers select from a menu of stocks of approximately 600 companies that
evolves over time. Approximately 40% to 50% of these companies also are included
in the Russell 1000 Growth Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
use this in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o improving fundamentals, meaning they show potential for strong growth
This process, together with a risk/return analysis against the Russell 1000
Growth Index, results in a portfolio of approximately 90 to 130 of the stocks
from the top 60% of the menu. The fund generally sells stocks that fall into the
bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks. The
fund may, however, invest in certain other types of equity securities, including
dollar-denominated foreign securities.
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
SUBADVISER
Independence Investment LLC
- -------------------------------------
Team responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1982
Supervised by the adviser
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. All
figures assume dividend reinvestment. Past performance does not indicate future
results.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
2000 2001
-17.48% -18.93%
Best quarter: Q4 '99, 18.24% Worst quarter: Q1 '01, -21.33%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/01
- --------------------------------------------------------------------------------
Life of Life of Life of
1 year Class A Class B Class C
Class A - began 7/1/99 -22.96% -13.21% -- --
Class B - began 7/1/99 -23.56% -- -13.06% --
Class C - began 7/1/99 -21.13% -- -- -12.36%
Index -20.42% -11.40% -11.40% -11.40%
Index: Russell 1000 Growth Index, an unmanaged index of growth stocks in the
Russell 1000 Index of the 1,000 largest-capitalization U.S. stocks.
4
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on small- or
medium-capitalization stocks. Similarly, growth stocks could underperform value
stocks.
The fund's management strategy has a significant influence on fund performance.
If the investment research team's earnings estimates or projections turn out to
be inaccurate, or if the proprietary computer models do not perform as expected,
the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially
inadequate or inaccurate financial information and social or political
instability.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) 5.00% 5.00% 2.00%
Maximum front-end sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price, whichever is less none(2) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses(3) Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.48% 0.48% 0.48%
Total fund operating expenses 1.58% 2.28% 2.28%
Expense reimbursement (at least until 6/30/02) 0.09% 0.09% 0.09%
Net annual operating expenses 1.49% 2.19% 2.19%
The hypothetical example below shows what your expenses would be after the
expense reimbursement (first year only) if you invested $10,000 over the time
frames indicated, assuming you reinvested all distributions and that the
average annual return was 5%. The example is for comparison only, and does not
represent the fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $644 $ 965 $1,309 $2,277
Class B - with redemption $722 $1,004 $1,412 $2,433
- without redemption $222 $ 704 $1,212 $2,433
Class C - with redemption $419 $ 797 $1,300 $2,682
- without redemption $320 $ 797 $1,300 $2,682
(1) A $4.00 fee will be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
(3) Expense figures show the expenses for the past year adjusted to reflect
any changes.
FUND CODES
Class A
- ------------------------------
Ticker JACGX
CUSIP 410132849
Newspaper CoreGrA
SEC number 811-8852
JH fund number 79
Class B
- ------------------------------
Ticker JBCGX
CUSIP 410132831
Newspaper CoreGrB
SEC number 811-8852
JH fund number 179
Class C
- ------------------------------
Ticker JCCGX
CUSIP 410132823
Newspaper --
SEC number 811-8852
JH fund number 579
5
Core Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return (capital appreciation plus
income). To pursue this goal, the fund invests in a diversified portfolio of
primarily large-capitalization stocks and emphasizes relatively undervalued
stocks and high dividend yields. The portfolio's risk profile is substantially
similar to that of the Russell 1000 Value Index.
The managers select from a menu of stocks of approximately 600 companies that
evolves over time. Approximately 50% to 60% of these companies also are included
in the Russell 1000 Value Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
use this in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o improving fundamentals, meaning they show potential for strong growth
This process, together with a risk/return analysis against the Russell 1000
Value Index, results in a portfolio of approximately 100 to 130 of the stocks
from the top 60% of the menu. The fund generally sells stocks that fall into the
bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks. The
fund may, however, invest in certain other types of equity securities, including
dollar-denominated foreign securities.
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
SUBADVISER
Independence Investment LLC
- ------------------------------------------------------
Team responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1982
Supervised by the adviser
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. Class A average annual figures reflect sales charges.
Year-by-year and index figures do not reflect these charges and would be lower
if they did. In addition, 12b-1 fees were imposed beginning July 1, 2000 for
Class A shares and would result in lower returns if reflected in these figures.
All figures assume dividend reinvestment. Past performance does not indicate
future results.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
20.66% 30.63% 18.79% 4.65% 6.46% -8.10%
Best quarter: Q4 '98, 18.79% Worst quarter: Q3 '98, -13.99%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/01
- --------------------------------------------------------------------------------
Life of Life of Life of
1 year 5 year Class A Class B Class C
Class A - began 10/2/95 -12.67% 8.57% 11.39% -- --
Class B - began 7/1/99 -13.34% -- -- -5.38% --
Class C - began 7/1/99 -10.59% -- -- -- -4.62%
Index -5.59% 11.13% 13.52% -1.84% -1.84%
Index: Russell 1000 Value Index, an unmanaged index of value stocks in the
Russell 1000 Index of the 1,000 largest-capitalization U.S. stocks.
6
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on small- or
medium-capitalization stocks. Similarly, value stocks could underperform growth
stocks.
The fund's management strategy has a significant influence on fund performance.
If the investment research team's earnings estimates or projections turn out to
be inaccurate, or if the proprietary computer models do not perform as expected,
the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially
inadequate or inaccurate financial information and social or political
instability.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) 5.00% 5.00% 2.00%
Maximum front-end sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price, whichever is less none(2) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses(3) Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.67% 0.67% 0.67%
Total fund operating expenses 1.77% 2.47% 2.47%
Expense reimbursement (at least until 6/30/02) 0.32% 0.32% 0.32%
Net annual operating expenses 1.45% 2.15% 2.15%
The hypothetical example below shows what your expenses would be after the
expense reimbursement (first year only) if you invested $10,000 over the time
frames indicated, assuming you reinvested all distributions and that the average
annual return was 5%. The example is for comparison only, and does not represent
the fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $640 $1,000 $1,383 $2,455
Class B - with redemption $718 $1,039 $1,487 $2,609
- without redemption $218 $ 739 $1,287 $2,609
Class C - with redemption $415 $ 832 $1,374 $2,854
- without redemption $316 $ 832 $1,374 $2,854
(1) A $4.00 fee will be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
(3) Expense figures show the expenses for the past year adjusted to reflect
any changes.
FUND CODES
Class A
- ---------------------------------
Ticker JHIVX
CUSIP 410132807
Newspaper --
SEC number 811-8852
JH fund number 88
Class B
- ---------------------------------
Ticker JHVBX
CUSIP 410132815
Newspaper CoreValB
SEC number 811-8852
JH fund number 188
Class C
- ---------------------------------
Ticker JHVCX
CUSIP 410132799
Newspaper --
SEC number 811-8852
JH fund number 588
7
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
Each share class has its own cost structure, including a Rule 12b-1 plan that
allows it to pay fees for the sale, distribution and service of its shares. Your
financial representative can help you decide which share class is best for you.
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
o A front-end sales charge, as described at right.
o Distribution and service (12b-1) fees of 0.30%.
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
o No front-end sales charge; all your money goes to work for you right away.
o Distribution and service (12b-1) fees of 1.00%.
o A deferred sales charge, as described on following page.
o Automatic conversion to Class A shares after eight years, thus reducing
future annual expenses.
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
o A front-end sales charge, as described at right.
o Distribution and service (12b-1) fees of 1.00%.
o A 1.00% contingent deferred sales charge on shares sold within one year of
purchase.
o No automatic conversion to Class A shares, so annual expenses continue at
the Class C level throughout the life of your investment.
For actual past expenses of each share class, see the fund-by-fund information
earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, they may cost share-holders
more than other types of sales charges.
Investors purchasing $1 million or more of Class B or Class C shares may want to
consider the lower operating expenses of Class A shares.
Your broker receives a percentage of these sales charges and fees. In addition,
John Hancock Funds may pay significant compensation out of its own resources to
your broker.
Your broker or agent may charge you a fee to effect transactions in fund shares.
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Class A and Class C Sales charges are as follows:
- --------------------------------------------------------------------------------
Class A sales charges
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $49,999 5.00% 5.26%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
- --------------------------------------------------------------------------------
Class C sales charges
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $1,000,000 1.00% 1.01%
$1,000,000 and over none
Investments of $1 million or more Class A and Class C shares are available with
no front-end sales charge. However, there is a contingent deferred sales charge
(CDSC) on any Class A shares sold within one year of purchase, as follows:
- --------------------------------------------------------------------------------
CDSC on $1 million+ investments
- --------------------------------------------------------------------------------
CDSC on shares
Your investment being sold
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the first day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
8 YOUR ACCOUNT
Class B Shares are offered at their net asset value per share, without any
initial sales charge.
Class B and Class C A CDSC may be charged if you sell Class B or Class C shares
within a certain time after you bought them, as described in the tables below.
There is no CDSC on shares acquired through reinvestment of dividends. The CDSC
is based on the original purchase cost or the current market value of the shares
being sold, whichever is less. The CDSCs are as follows:
- --------------------------------------------------------------------------------
Class B deferred charges
- --------------------------------------------------------------------------------
CDSC on shares
Years after purchase being sold
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6th year none
- --------------------------------------------------------------------------------
Class C deferred charges
- --------------------------------------------------------------------------------
Years after purchase CDSC
1st year 1.00%
After 1st year none
For purposes of these CDSCs, all purchases made during a calendar month are
counted as having been made on the first day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
o Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge. Retirement plans investing $1 million in
Class B shares may add that value to Class A purchases to calculate
charges.
o Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had
been purchased at once.
o Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Signature Services, or consult the SAI (see the
back cover of this prospectus).
Group Investment Program A group may be treated as a single purchaser under the
accumulation and combination privileges. Each investor has an individual
account, but the group's investments are lumped together for sales charge
purposes, making the investors potentially eligible for reduced sales charges.
There is no charge or obligation to invest (although initial investments must
total at least $250), and individual investors may close their accounts at any
time.
To utilize: contact your financial representative or Signature Services to find
out how to qualify, or consult the SAI (see the back cover of this prospectus).
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for each share class will generally be waived in the following cases:
o to make payments through certain systematic withdrawal plans
o to make certain distributions from a retirement plan
o because of shareholder death or disability
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI (see the back
cover of this prospectus).
YOUR ACCOUNT 9
Reinstatement privilege If you sell shares of a John Hancock fund, you may
reinvest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge, as long as Signature Services is
notified before you reinvest. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must have
the same registration.
To utilize: contact your financial representative or Signature Services.
Waivers for certain investors Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
o selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under signed agreement with John Hancock Funds
o fund trustees and other individuals who are affiliated with these or other
John Hancock funds
o individuals transferring assets from an employee benefit plan into a John
Hancock fund
o participants in certain retirement plans with at least 100 eligible
employees (one-year CDSC applies)
Class C shares may be offered without front-end sales charges to various
individuals and institutions.
To utilize: if you think you may be eligible for a sales charge waiver, contact
Signature Services or consult the SAI (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
o non-retirement account: $1,000
o retirement account: $250
o group investments: $250
o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must
invest at least $25 a month
o fee-based clients of selling brokers who have placed at least $2
billion in John Hancock funds: $250
3 Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. You must notify
your financial representative or Signature Services if this information
changes. For more details, please contact your financial representative or
call Signature Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges
later.
5 Make your initial investment using the table on the next page. You and
your financial representative can initiate any purchase, exchange or sale
of shares.
10 YOUR ACCOUNT
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clip Art] o Make out a check for the o Make out a check for the
investment amount, payable to investment amount payable to
"John Hancock Signature "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to your investment slip from an
financial representative, or account statement. If no
mail them to Signature slip is available,
Services (address below). include a note specifying
the fund name, your share
class, your account number
and the name(s) in which
the account is registered.
o Deliver the check and your
investment slip or note to
your financial representative,
or mail them to Signature
Services (address below).
By exchange
[Clip Art] o Call your financial o Log on to www.jhfunds.com
representative or to process exchanges
Signature Services to between funds.
request an exchange.
o Call EASI-Line for
automated service 24 hours
a day using your touch-tone
phone at 1-800-338-8080.
o Call your financial
representative or Signature
Services to request an
exchange.
By wire
[Clip Art] o Deliver your completed o Instruct your bank to wire
application to your financial the amount of your
representative, or mail investment to:
it to Signature Services. First Signature Bank & Trust
Account # 900000260
o Obtain your account number by Routing # 211475000
calling your financial
representative or Signature Specify the fund name, your
Services. share class, your account number
and the name(s) in which the
o Instruct your bank to wire account is registered.
the amount of your investment Your bank may charge a fee to
to: wire funds.
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s)
in which the account is
registered. Your bank may
charge a fee to wire funds.
By Internet
[Clip Art] See "By exchange" and "By wire." o Verify that your bank
or credit union is a
member of the Automated
Clearing House (ACH)
system.
o Complete the "Bank
Information" section on
your account application.
o Log on to www.jhfunds.com
to initiate purchases using
your authorized bank account.
By phone
[Clip Art] See "By exchange" and "By wire." o Verify that your bank
or credit union is a
member of the Automated
Clearing House (ACH)
system.
o Complete the "Bank
Information" section on
your account application.
o Call EASI-Line for
automated service 24
hours a day using your
touch-tone phone at
1-800-338-8080.
o Call your financial
representative or
Signature Services between
8 A.M. and 4 P.M. Eastern
Time on most business days.
- ---------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone Number: 1-800-225-5291
Or contact your financial representative for
instructions and assistance.
- ---------------------------------------------
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
YOUR ACCOUNT 11
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clip Art] o Accounts of any type. o Write a letter of instruction
or complete a stock power
o Sales of any amount. indicating the fund name, your
share class, your account number,
the name(s) in which the account
is registered and the dollar
value or number of shares you
wish to sell.
o Include all signatures and any
additional documents that may be
required (see next page).
o Mail the materials to Signature
Services.
o A check will be mailed to the
name(s) and address in which the
account is registered, or otherwise
according to your letter of
instruction.
By Internet
[Clip Art] o Most accounts. o Log on to www.jhfunds.com to
initiate redemptions from your
o Sales of up to $100,000. funds.
By phone
[Clip Art] o Most accounts. o Call EASI-Line for automated
service 24 hours a day using
o Sales of up to $100,000. your touch-tone phone at
1-800-338-8080.
o Call your financial
representative or Signature
Services between 8 A.M. and
4 P.M. Eastern Time on most
business days.
By wire or electronic funds transfer (EFT)
[Clip Art] o Requests by letter to o To verify that the Internet
sell any amount. or telephone redemption
privilege is in place on an
o Requests by Internet or account, or to request the
phone to sell up to form to add it to an existing
$100,000. account, call Signature
Services.
o Amounts of $1,000 or more
will be wired on the next
business day. A $4 fee will
be deducted from your account.
o Amounts of less than $1,000
may be sent by EFT or by check.
Funds from EFT transactions
are generally available by the
second business day. Your bank
may charge a fee for this
service.
By exchange
[Clip Art] o Accounts of any type. o Obtain a current prospectus
for the fund into which you
o Sales of any amount. are exchanging by Internet
or by calling your financial
representative or Signature
Services.
o Log on to www.jhfunds.com to
process exchanges between
your funds.
o Call EASI-Line for automated
service 24 hours a day using
your touch-tone phone at
1-800-338-8080.
o Call your financial
representative or Signature
Services to request an
exchange.
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
12 YOUR ACCOUNT
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request unless they were previously provided to Signature Services and are
still accurate. These items are shown in the table below. You may also need to
include a signature guarantee, which protects you against fraudulent orders. You
will need a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling more than $100,000 worth of shares
o you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You will need to obtain your signature guarantee from
a member of the Signature Guarantee Medallion Program. Most brokers and
securities dealers are members of this program. A notary public CANNOT provide a
signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
- --------------------------------------------------------------------------------
[Clip Art]
Owners of individual, joint or o Letter of instruction.
UGMA/UTMA accounts (custodial
accounts for minors). o On the letter, the signatures of
all persons authorized to sign for the
account, exactly as the account is
registered.
o Signature guarantee if applicable
(see above).
Owners of corporate, sole o Letter of instruction.
proprietorship, general partner
or association accounts. o Corporate business/organization
resolution, certified within the past 12
months, or a John Hancock Funds business/
organization certification form.
o On the letter and the resolution, the
signature of the person(s) authorized to
sign for the account.
o Signature guarantee if applicable (see
above).
Owners or trustees of trust o Letter of instruction.
accounts.
o On the letter, the signature(s) of
the trustee(s).
o Copy of the trust document certified
within the past 12 months or a John
Hancock Funds trust certification form.
o Signature guarantee if applicable (see
above).
Joint tenancy shareholders with o Letter of instruction signed by
rights of survivorship whose surviving tenant.
co-tenants are deceased.
o Copy of death certificate.
o Signature guarantee if applicable (see
above).
Executors of shareholder estates. o Letter of instruction signed by executor.
o Copy of order appointing executor,
certified within the past 12 months.
o Signature guarantee if applicable (see
above).
Administrators, conservators, o Call 1-800-225-5291 for instructions.
guardians and other sellers or
account types not listed above.
- ---------------------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone Number: 1-800-225-5291
Or contact your financial representative for instructions
and assistance.
- ---------------------------------------------------------
YOUR ACCOUNT 13
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value (NAV) per share for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time). The funds use market prices in
valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable. The funds may also value securities at fair value
if the value of these securities has been materially affected by events
occurring after the close of a foreign market. Foreign stock or other portfolio
securities held by the funds may trade on U.S. holidays and weekends, even
though the funds' shares will not be priced on those days. This may change a
fund's NAV on days when you cannot buy or sell shares.
Buy and sell prices When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
Execution of requests Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after Signature Services receives your
request in good order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line, accessing www.jhfunds.com, or
sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. Also for your protection, telephone
redemption transactions are not permitted on accounts whose names or addresses
have changed within the past 30 days. Proceeds from telephone transactions can
only be mailed to the address of record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical. Class B and Class
C shares will continue to age from the original date and will retain the same
CDSC rate. However, if the new fund's CDSC rate is higher, then the rate will
increase. A CDSC rate that has increased will drop again with a future exchange
into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties who, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may also refuse any exchange order.
A fund may change or cancel its exchange policies at any time, upon 60 days'
notice to its shareholders.
Certificated shares The funds no longer issue share certificates. Shares are
electronically recorded. Any existing certificated shares can only be sold by
returning the certificated shares to Signature Services, along with a letter of
instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The funds generally distribute most or all of their net earnings
annually in the form of dividends. Any capital gains are distributed annually.
The funds declare and pay any income dividends annually.
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends and capital gains in the amount of more than $10 mailed to you.
However, if the check is not deliverable or the combined dividend and capital
gains amount is $10 or less,
14 YOUR ACCOUNT
your proceeds will be reinvested. If five or more of your dividend or capital
gains checks remain uncashed after 180 days, all subsequent dividends and
capital gains will be reinvested.
Taxability of dividends Dividends you receive from a fund, whether reinvested or
taken as cash, are generally considered taxable. Dividends from a fund's
short-term capital gains are taxable as ordinary income. Dividends from a fund's
long-term capital gains are taxable at a lower rate. Whether gains are
short-term or long-term depends on the fund's holding period. Some dividends
paid in January may be taxable as if they had been paid the previous December.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
o Complete the appropriate parts of your account application.
o If you are using MAAP to open an account, make out a check ($25 minimum)
for your first investment amount payable to "John Hancock Signature
Services, Inc." Deliver your check and application to your financial
representative or Signature Services.
Systematic withdrawal plan This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account
(buying shares during a period when you are also selling shares of the
same fund is not advantageous to you, because of sales charges).
o Specify the payee(s). The payee may be yourself or any other party, and
there is no limit to the number of payees you may have, as long as they
are all on the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial
representative or Signature Services.
Retirement plans John Hancock Funds offers a range of retirement plans,
including traditional, Roth and Education IRAs, SIMPLE plans and SEPs. Using
these plans, you can invest in any John Hancock fund (except tax-free income
funds) with a low minimum investment of $250 or, for some group plans, no
minimum investment at all. To find out more, call Signature Services at
1-800-225-5291.
YOUR ACCOUNT 15
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the John Hancock
equity funds. Each fund's board of trustees oversees the fund's business
activities and retains the services of the various firms that carry out the
fund's operations.
The trustees of the Core Growth and Core Value funds have the power to change
the funds' respective investment goals without shareholderapproval.
Management fees The management fees paid to the investment adviser by the John
Hancock equity funds last fiscal year are as follows:
- --------------------------------------------------------------------------------
Fund % of net assets
- --------------------------------------------------------------------------------
Core Growth 0.71%
Core Value 0.48%
-----------------------
Shareholders
-----------------------
Distribution and
shareholder services
---------------------------------------------------
Financial services firms and
their representatives
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
---------------------------------------------------
---------------------------------------------------
Principal distributor
John Hancock Funds, LLC
Markets the funds and distributes shares
through selling brokers, financial planners
and other financial representatives.
---------------------------------------------------
---------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
Handles shareholder services, including record-
keeping and statements, distribution of dividends
and processing of buy and sell requests.
---------------------------------------------------
Asset
management
---------------------------------------------------
Subadviser
Independence Investment LLC
53 State Street
Boston, MA 02109
Provides portfolio management
to the funds.
---------------------------------------------------
---------------------------------------------------
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
---------------------------------------------------
---------------------------------------------------
Custodian
The Bank of New York
One Wall Street
New York, New York 10286
Holds the funds' assets, settles all
portfolio trades and collects most of
the valuation data required for
calculating each fund's NAV.
---------------------------------------------------
---------------------------------------------------
Trustees
Oversee the funds' activities.
---------------------------------------------------
16 FUND DETAILS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
These tables detail the performance of each fund's share classes, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Core Growth Fund
Figures audited by Deloitte & Touche LLP.
- -----------------------------------------------------------------------------------------
Class A - period ended: 2/00(1) 2/01
- -----------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $ 18.14 $ 19.80
Net investment income (loss)(2) (0.05) (0.18)
Net realized and unrealized gain (loss) on investments 1.73 (4.95)
Total from investment operations 1.68 (5.13)
Less distributions:
From net realized gain (0.02) (0.32)
Net asset value, end of period $ 19.80 $ 14.35
Total return(3,4) (%) 9.25(5)
Ratios and supplemental data
Net assets, end of period (in millions) ($) 21 40
Ratio of expenses to average net assets (%) 1.25(6) 1.49
Ratio of adjusted expenses to average net assets(7,8) (%) 1.63(6) 1.58
Ratio of net investment income (loss) to average net assets (%) (0.39)(6) (0.91)
Portfolio turnover rate (%) 72 115
- -----------------------------------------------------------------------------------------
Class B - period ended: 2/00(1) 2/01
- -----------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $ 18.14 $ 19.73
Net investment income (loss)(2) (0.13) (0.31)
Net realized and unrealized gain (loss) on investments 1.74 (4.92)
Total from investment operations 1.61 (5.23)
Less distributions:
From net realized gain (0.02) (0.32)
Net asset value, end of period $ 19.73 $ 14.18
Total return(3,4) (%) 8.86(5) (26.86)
Ratios and supplemental data
Net assets, end of period (in millions) ($) 23 23
Ratio of expenses to average net assets (%) 1.95(6) 2.19
Ratio of adjusted expenses to average net assets(7,8) (%) 2.33(6) 2.28
Ratio of net investment income (loss) to average net assets (%) (1.09)(6) (1.60)
Portfolio turnover rate (%) 72 115
FUND DETAILS 17
Core Growth Fund continued
- -----------------------------------------------------------------------------------------
Class C - period ended: 2/00(1) 2/01
- -----------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $ 18.14 $ 19.73
Net investment income (loss)(2) (0.13) (0.31)
Net realized and unrealized gain (loss) on investments 1.74 (4.91)
Total from investment operations 1.61 (5.22)
Less distributions:
From net realized gain (0.02) (0.32)
Net asset value, end of period $ 19.73 $ 14.19
Total return(3,4) (%) 8.86(5) (26.81)
Ratios and supplemental data
Net assets, end of period (in millions) ($) 0.9 2
Ratio of expenses to average net assets (%) 1.95(6) 2.19
Ratio of adjusted expenses to average net assets(7,8) (%) 2.33(6) 2.28
Ratio of net investment income (loss) to average net assets (%) (1.09)(6) (1.61)
Portfolio turnover rate (%) 72 115
(1) Class A, Class B and Class C shares began operations on July 1, 1999.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods
shown.
(8) Adjusted expenses as a percentage of average net assets are expected to
decrease as the net assets of the fund grow.
================================================================================
The following returns are not audited and are not part of the audited financial
highlights presented above:
Without the expense reductions, returns for Class A for the periods or years
ended February 29, 2000 and February 28, 2001 would have been 8.87% and
(26.35%), respectively. For Class B, the returns would have been 8.48% and
(26.95%), respectively, and for Class C would have been 8.48% and (26.90%),
respectively.
18 FUND DETAILS
Core Value Fund
Figures audited by Deloitte & Touche LLP.
- ----------------------------------------------------------------------------------------------------------------------------
Class A(1) - period ended: 2/97 2/98 2/99 2/00 2/01
- ----------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $9.47 $10.88 $13.93 $12.36 $10.70
Net investment income (loss)(2) 0.23 0.21 0.15 0.13 0.10
Net realized and unrealized gain (loss) on investments 1.77 3.33 1.23 (1.01) 2.04
Total from investment operations 2.00 3.54 1.38 (0.88) 2.14
Distributions to shareholders
From net investment income (0.19) (0.13) (0.18) (0.08) (0.10)
From net realized gain (0.40) (0.36) (2.77) (0.70) (0.03)
(0.59) (0.49) (2.95) (0.78) (0.13)
Net asset value, end of period $10.88 $13.93 $12.36 $10.70 $12.71
Total return(3,4) (%) 21.36 32.97 9.87 (8.08) 20.02
Ratios and supplemental data
Net assets, end of period (in millions) ($) 1 8 7 12 11
Ratio of expenses to average net assets (%) 0.95 0.95 0.95 0.95 1.30
Ratio of adjusted expenses to average net assets(5,6) (%) 6.39 1.90 1.88 1.89 1.62
Ratio of net investment income (loss) to average net assets (%) 2.26 1.60 1.03 1.09 0.79
Portfolio turnover rate (%) 66 119 61 76 131
- ---------------------------------------------------------------------------------------------
Class B - period ended: 2/00(7) 2/01
- ---------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $13.35 $10.69
Net investment income (loss)(2) 0.02 (0.01)
Net realized and unrealized gain (loss) on investments (2.56) 2.05
Total from investment operations (2.54) 2.04
Distributions to shareholders
From net investment income (0.02) (0.01)
From net realized gain (0.10) (0.03)
Total distributions (0.12) (0.04)
Net asset value, end of period $10.69 $12.69
Total return(3,4) (%) (19.19)(8) 19.02
Ratios and supplemental data
Net assets, end of period (in millions) ($) 8 15
Ratio of expenses to average net assets (%) 1.95(9) 2.09
Ratio of adjusted expenses to average net assets(5,6) (%) 2.59(9) 2.41
Ratio of net investment income (loss) to average net assets (%) 0.19(9) (0.05)
Portfolio turnover rate (%) 76 131
FUND DETAILS 19
Core Value Fund continued
- -------------------------------------------------------------------------------------------
Class C - period ended: 2/00(7) 2/01
- -------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $13.35 $10.69
Net investment income (loss)(2) 0.02 (0.01)
Net realized and unrealized gain (loss) on investments (2.56) 2.04
Total from investment operations (2.54) 2.03
Distributions to shareholders
From net investment income (0.02) --(10)
From net realized gain (0.10) (0.03)
Total distributions (0.12) (0.03)
Net asset value, end of period $10.69 $12.69
Total return(3,4) (%) (19.19)(8) 18.98
Ratios and supplemental data
Net assets, end of period (in millions) ($) 0.2 2
Ratio of expenses to average net assets (%) 1.95(9) 2.18
Ratio of adjusted expenses to average net assets(5,6) (%) 2.59(9) 2.50
Ratio of net investment income (loss) to average net assets (%) 0.21(9) (0.16)
Portfolio turnover rate (%) 76 131
(1) Effective July 1, 1999, existing shares of the fund were designated Class
A shares. The Fund, which had previously only been sold to institutional
investors, also became available for sale to individual investors.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(5) Does not take into consideration expense reductions during the periods
shown.
(6) Adjusted expenses as a percentage of average net assets are expected to
decrease as the net assets of the fund grow.
(7) Class B and Class C shares began operations on July 1, 1999.
(8) Not Annualized
(9) Annualized.
(10) Less than $0.01.
================================================================================
The following returns are not audited and are not part of the audited financial
highlights presented above:
Without the expense reductions, returns for Class A for the periods or years
ended February 28, 1997, 1998, 1999, February 29, 2000 and February 28, 2001
would have been 15.92%, 32.02%, 83.94%, (9.02%) and (19.70%), respectively. For
Class B, the returns for the periods or years ended February 29, 2000 and
February 28, 2001 would have been (19.83%) and 18.70%, respectively, and for
Class C would have been (19.83%) and 18.66%, respectively.
20 FUND DETAILS
For more information
Two documents are available that offer further information on John Hancock
equity funds:
Annual/Semiannual Report to Shareholders
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, as well as the
auditors' report (in annual report only).
Statement of Additional Information (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By phone: 1-800-225-5291
By EASI-Line: 1-800-338-8080
By TDD: 1-800-544-6713
On the Internet: www.jhfunds.com
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC. For access to
the Reference Room call 1-202-942-8090
By mail:
Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-0102
(duplicating fee required)
By electronic request: publicinfo@sec.gov
(duplicating fee required)
On the Internet: www.sec.gov
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John Hancock Funds, LLC
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Mutual Funds
Institutional Services
Private Managed Accounts
Retirement Plans
(C)2002 JOHN HANCOCK FUNDS, LLC
7988PN 3/02
John Hancock
Equity Funds
Institutional Class I
Prospectus
July 2, 2001
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Core Growth Fund
Core Value Fund
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these funds or determined whether the information in
this prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
[LOGO](R)
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JOHN HANCOCK FUNDS
Contents
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A fund-by-fund summary Core Growth Fund 4
of goals, strategies,
risks, performance and Core Value Fund 6
expenses.
Policies and instructions Your account
for opening, maintaining
and closing an account. Who can buy shares 8
Opening an account 8
Buying shares 9
Selling shares 10
Transaction policies 12
Dividends and account policies 12
Business structure 13
Further information on the Financial highlights 14
funds.
For more information back cover
Overview
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FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Clip Art] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clip Art] Main risks The major risk factors associated with the fund.
[Clip Art] Past performance The fund's total return, measured year-by-year and
over time.
[Clip Art] Your expenses The overall costs borne by an investor in the fund,
including annual expenses.
JOHN HANCOCK EQUITY FUNDS --
INSTITUTIONAL CLASS I
These funds offer clearly defined investment strategies, each focusing on a
particular market segment and following a disciplined investment process.
Blended together or selected individually, these funds are designed to meet the
needs of investors seeking risk-managed investment strategies from seasoned
professional portfolio managers.
RISKS OF MUTUAL FUNDS
Mutual funds are not bank deposits and are not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Because
you could lose money by investing in these funds, be sure to read all risk
disclosure carefully before investing.
THE MANAGEMENT FIRM
All John Hancock equity funds are managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Financial Services, Inc. and manages more than $30 billion in assets.
3
Core Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks capital appreciation. To pursue this goal, the fund
invests in a diversified portfolio of primarily large-capitalization stocks and
emphasizes stocks of companies with relatively high potential long-term earnings
growth. The portfolio's risk profile is substantially similar to that of the
Russell 1000 Growth Index.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 40% to 50% of these companies also are included
in the Russell 1000 Growth Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
use this in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o improving fundamentals, meaning they show potential for strong growth
This process, together with a risk/return analysis against the Russell 1000
Growth Index, results in a portfolio of approximately 90 to 130 of the stocks
from the top 60% of the menu. The fund generally sells stocks that fall into the
bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks. The
fund may, however, invest in certain other types of equity securities, including
dollardenominated foreign securities.
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
SUBADVISER
Independence Investment LLC
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Team responsible for day-to-day
investment management
A subsidiary of John Hancock
Financial Services, Inc.
Founded in 1982
Supervised by the adviser
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment. Past performance
does not indicate future results.
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Class I year-by-year total returns -- calendar years
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1996 1997 1998 1999 2000
20.52% 36.22% 37.94% 20.00% -17.16%
2001 total return as of March 31: -21.17%
Best quarter: Q4 '98, 27.44% Worst quarter: Q3 '98, -12.00%
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Average annual total returns -- for periods ending 12/31/00
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Class I Index
1 year -17.16% -22.42%
5 year 17.62% 18.15%
Life of Class I - began 10/2/95 17.78% 18.21%
Index: Russell 1000 Growth Index, an unmanaged index of growth stocks in the
Russell 1000 Index of the 1,000 largest-capitalization U.S. stocks.
4
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on small- or
medium-capitalization stocks. Similarly, growth stocks could underperform value
stocks.
The fund's management strategy has a significant influence on fund performance.
If the investment research team's earnings estimates or projections turn out to
be inaccurate, or if the proprietary computer models do not perform as expected,
the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially
inadequate or inaccurate financial information and social or political
instability.
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YOUR EXPENSES
[Clip Art] Operating expenses are paid from the fund's assets, and therefore are
paid by shareholders indirectly.
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Annual operating expenses
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Management fee 0.80%
Other expenses 0.24%
Total fund operating expenses 1.04%
Expense reimbursement (at least until 6/30/02) 0.09%
Net annual operating expenses 0.95%
The hypothetical example below shows what your expenses would be after the
expense reimbursement (first year only) if you invested $10,000 over the time
frames indicated, assuming you reinvested all distributions, that the average
annual return was 5% and that your shares were redeemed at the end of the time
frame. The example is for comparison only, and does not represent the fund's
actual expenses and returns, either past or future.
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Expenses Year 1 Year 3 Year 5 Year 10
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$97 $322 $565 $1,263
FUND CODES
Class I
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Ticker JHIGX
CUSIP 410132880
Newspaper --
JHfund number 420
5
Core Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return (capital appreciation plus
income). To pursue this goal, the fund invests in a diversified portfolio of
primarily large-capitalization stocks and emphasizes relatively undervalued
stocks and high dividend yields. The portfolio's risk profile is substantially
similar to that of the Russell 1000 Value Index.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 50% to 60% of these companies also are included
in the Russell 1000 Value Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
use this in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o improving fundamentals, meaning they show potential for strong growth
This process, together with a risk/ return analysis against the Russell 1000
Value Index, results in a portfolio of approximately 100 to 130 of the stocks
from the top 60% of the menu. The fund generally sells stocks that fall into the
bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks. The
fund may, however, invest in certain other types of equity securities, including
dollardenominated foreign securities.
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
SUBADVISER
Independence Investment LLC
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Team responsible for day-to-day
investment management
A subsidiary of John Hancock
Financial Services, Inc.
Founded in 1982
Supervised by the adviser
PAST PERFORMANCE
[Clip Art] The graph shows the fund's total return, while the table shows
performance over time (along with a broad-based market index for reference).
This information may help provide an indication of the fund's risks. All figures
assume dividend reinvestment. Past performance does not indicate future results.
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Class I year-by-year total returns -- calendar years
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2000
6.84%
2001 total return as of March 31: -5.93%
Best quarter: Q3 '00, 9.02% Worst quarter: Q3 '99, -11.01%
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Average annual total returns -- for periods ending 12/31/00
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Class I Index
1 year 6.84% 7.02%
Life of Class I - began 7/1/99 -0.00% 1.18%
Index: Russell 1000 Value Index, an unmanaged index of value stocks in the
Russell 1000 Index of the 1,000 largest-capitalization U.S. stocks.
6
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on small- or
medium-capitalization stocks. Similarly, value stocks could underperform growth
stocks.
The fund's management strategy has a significant influence on fund performance.
If the investment research team's earnings estimates or projections turn out to
be inaccurate, or if the proprietary computer models do not perform as expected,
the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially inadequate
or inaccurate financial information and social or political instability.
================================================================================
YOUR EXPENSES
[Clip Art] Operating expenses are paid from the fund's assets, and therefore are
paid by shareholders indirectly.
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Annual operating expenses
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Management fee 0.80%
Other expenses 0.56%
Total fund operating expenses 1.36%
Expense reimbursement (at least until 6/30/02) 0.32%
Net annual operating expenses 1.04%
The hypothetical example below shows what your expenses would be after the
expense reimbursement (first year only)if you invested $10,000 over the time
frames indicated, assuming you reinvested all distributions, that the average
annual return was 5% and that your shares were redeemed at the end of the time
frame. The example is for comparison only, and does not represent the fund's
actual expenses and returns, either past or future.
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Expenses Year 1 Year 3 Year 5 Year 10
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$106 $398 $713 $1,604
FUND CODES
Class I
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Ticker JHICX
CUSIP 410132781
Newspaper --
JH fund number 488
7
Your account
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WHO CAN BUY SHARES
Class I shares are offered without any sales charge to certain types of
investors, as noted below:
o Retirement and other benefit plans and their participants
o Rollover assets for participants whose plans are invested in the fund
o Certain trusts, endowment funds and foundations
o Any state, county or city, or its instrumentality, department, authority
or agency
o Insurance companies, trust companies and bank trust departments buying
shares for their own account
o Investment companies not affiliated with the adviser
o Clients of service agents and broker-dealers who have entered into an
agreement with John Hancock Funds, Inc.
o Investors who participate in fee-based, wrap and other investment platform
programs
o Any entity that is considered a corporation for tax purposes
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OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine if you are eligible, by referring to "Who can buy shares" on the
left.
3 Determine how much you want to invest. The minimum initial investment is
$10,000. There is no minimum investment for retirement plans with at least
350 eligible employees.
4 Complete the appropriate parts of the account application, carefully
following the instructions. By applying for privileges now, you can avoid
the delay and inconvenience of having to file an additional application if
you want to add privileges later. You must submit additional documentation
when opening trust, corporate or power of attorney accounts.
5 Make your initial investment using the table on the next page.
6 If you have questions or need more information, please contact your
financial representative or call Signature Services at 1-888-972-8696.
John Hancock Funds may pay significant compensation out of its own resources to
your financial representative.
Your broker or agent may charge you a fee to effect transactions in fund shares.
8 YOUR ACCOUNT
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Buying shares
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Opening an account Adding to an account
By check
[Clip Art] o Make out a check for the o Make out a check for the
investment amount, investment amount payable to
payable to "John Hancock "John Hancock Signature
Signature Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to investment slip from an
your financial representative, account statement. If no
or mail them to Signature slip is available, include
Services (address below). a note specifying the fund
name(s), your share class,
your account number and the
name(s) in which the
account is registered.
o Deliver the check and
investment slip or note to
your financial
representative, or mail them
to Signature Services
(address below).
By exchange
[Clip Art] o Call your financial o Call your financial
representative or representative or
Signature Services to Signature Services to
request an exchange. request an exchange.
o You may only exchange o You may only exchange
for shares of other for shares of other
institutional funds or institutional funds or
Class I shares. Class I shares.
By wire
[Clip Art] o Deliver your completed o Instruct your bank to
application to your wire the amount of your
financial representative investment to:
or mail it to Signature First Signature Bank & Trust
Services. Account # 900022260
Routing # 211475000
o Obtain your account number
by calling your financial Specify the fund name(s), your
representative or share class, your account
Signature Services. number and the name(s)
in which the account is
o Instruct your bank to registered. Your bank may
wire the amount of your charge a fee to wire funds.
investment to:
First Signature Bank & Trust
Account # 900022260
Routing # 211475000
Specify the fund name(s), the
share class, the new account
number and the name(s) in
which the account is
registered. Your bank may
charge a fee to wire funds.
By phone
[Clip Art] See "By exchange" and "By wire." o Verify that your bank or
credit union is a member
of the Automated
Clearing House (ACH)
system.
o Complete the "To Purchase,
Exchange or Redeem Shares
via Telephone" and "Bank
Information" sections on
your account application.
o Call Signature Services to
verify that these features
are in place on your account.
o Call your financial
representative or Signature
Services with the fund
name(s), your share class,
your account number, the
name(s) in which the
account is registered and
the amount of your
investment.
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Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
Phone Number: 1-888-972-8696
Or contact your financial representative for
instructions and assistance.
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YOUR ACCOUNT 9
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Selling shares
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Designed for To sell some or all of your shares
By letter
[Clip Art] o Sales of any amount; o Write a letter of
however, sales of $5 instruction indicating
million or more must the fund name, your account
be made by letter. number, your share class,
the name(s) in which the
o Certain requests will account is registered and
require a Medallion the dollar value or number
signature guarantee. of shares you wish to sell.
Please refer to "Selling
shares in writing". o Include all signatures and
any additional documents
that may be required
(see next page).
o Mail the materials to
Signature Services.
o A check or wire will be
sent according to your
letter of instruction.
By phone
[Clip Art] o Sales of up to $5 million. o To place your request with
a representative at John
Hancock Funds, call
Signature Services between
8 A.M. and 4 P.M. Eastern
Time on most business days.
o Redemption proceeds of up
to $100,000 may be sent by
wire or by check. A check
will be mailed to the exact
name(s) and address on the
account. Redemption proceeds
exceeding $100,000 must be
wired to your designated
bank account.
By wire or electronic funds transfer (EFT)
[Clip Art] o Requests by letter to o To verify that the
sell any amount. telephone redemption
privilege is in place on
o Requests by phone to sell an account, or to request
up to $5 million (accounts the forms to add it to an
with telephone redemption existing account, call
privileges). Signature Services.
o Amounts of $5 million or
more will be wired on
the next business day.
o Amounts up to $100,000 may
be sent by EFT or by check.
Funds from EFT
transactions are generally
available by the second
business day. Your bank
may charge a fee for this
service.
By exchange
[Clip Art] o Sales of any amount. o Obtain a current prospectus
for the fund into which you
are exchanging by calling
your financial
representative or Signature
Services.
o You may only exchange for
shares of other institutional
funds or Class I shares.
o Call your financial
representative or Signature
Services to request an
exchange.
10 YOUR ACCOUNT
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below, unless they were previously provided
to Signature Services and are still accurate. You may also need to include a
Medallion signature guarantee, which protects you against fraudulent orders. You
will need a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling more than $100,000 worth of shares and are requesting
payment by check
o you are selling more than $5 million worth of shares
You will need to obtain your Medallion signature guarantee from a member of the
Signature Guarantee Medallion Program. Most brokers and securities dealers are
members of this program. A notary public CANNOT provide a signature guarantee.
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Seller Requirements for written requests
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[Clip Art]
Owners of individual, joint or o Letter of instruction.
UGMA/UTMA accounts (custodial
accounts for minors). o On the letter, the
signatures of all persons
authorized to sign for the
account, exactly as the
account is registered.
o Medallion signature
guarantee if applicable
(see above).
Owners of corporate, sole o Letter of instruction.
proprietorship, general partner
or association accounts. o Corporate business/organization
resolution, certified within the
past 12 months, or a John
Hancock Funds business/
organization certification form.
o On the letter and the resolution,
the signature of the person(s)
authorized to sign for the account.
o Medallion signature guarantee if
applicable (see above).
Owners or trustees of retirement o Letter of instruction.
plan, pension trust and trust accounts.
o On the letter, the signature(s)
of the trustee(s).
o Copy of the trust document
certified within the past 12 months
or a John Hancock Funds trust
certification form.
o Medallion signature guarantee if
applicable (see above).
Joint tenancy shareholders with o Letter of instruction signed by
rights of survivorship whose surviving tenant.
co-tenants are deceased.
o Copy of death certificate.
o Medallion signature guarantee if
applicable (see above).
Executors of shareholder estates. o Letter of instruction signed
by executor.
o Copy of order appointing executor,
certified within the past 12 months.
o Medallion signature guarantee if
applicable (see above).
Administrators, conservators, guardians o Call 1-888-972-8696 for
and other sellers or account types not instructions.
listed above.
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Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
Phone Number: 1-888-972-8696
Or contact your financial representative
for instructions and assistance
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YOUR ACCOUNT 11
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TRANSACTION POLICIES
Valuation of shares The net asset value (NAV) per share for each fund is
determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time). The funds use market prices in
valui ng portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable. The funds may also value securities at fair value
if the value of these securities has been materially affected by events
occurring after the close of a foreign market. The funds may trade foreign stock
or other portfolio securities on U.S. holidays and weekends, even though the
funds' shares will not be priced on those days. This may change a fund's NAV on
days when you cannot buy or sell shares.
Buy and sell prices When you buy shares, you pay the NAV. When you sell shares,
you receive the NAV.
Execution of requests Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after Signature Services receives your
request in good order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. Also for your protection, telephone
redemption transactions are not permitted on accounts whose names or addresses
have changed within the past 30 days. Proceeds from telephone transactions can
only be mailed to the address of record.
Exchanges You may exchange Class Ishares for shares of any Institutional Fund or
Class I shares. The registration for both accounts involved must be identical.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties who, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. The funds reserve the right to require that
previously exchanged shares and reinvested dividends be in a fund for 90 days
before a shareholder is permitted a new exchange. A fund may also refuse any
exchange order. A fund may change or cancel its exchange policies at any time,
upon 60 days' notice to its shareholders.
Certificated shares The funds no longer issue share certificates. Shares are
electronically recorded. Any existing certificated shares can only be sold by
returning the certificated shares to Signature Services, along with a letter of
instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but a fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
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DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, at least quarterly
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The funds declare and pay any income dividends annually. Capital
gains, if any, are distributed annually.
Dividend reinvestments Dividends will be reinvested automatically in additional
shares of the same fund on the dividend record date. Alternatively, you can
choose to have your dividends and capital gains sent directly to your bank
account or a check will be sent in the amount of more than $10. However, if the
check is not deliverable or the combined dividend and capital gains amount is
$10 or less, your proceeds will be reinvested. If five or more of your dividend
or capital gains checks remain uncashed after 180 days, all subsequent dividends
and capital gains will be reinvested.
12 YOUR ACCOUNT
Taxability of dividends For investors who are not exempt from federal income
taxes, dividends you receive from a fund, whether reinvested or taken as cash,
are generally considered taxable. Dividends from a fund's short-term capital
gains are taxable as ordinary income. Dividends from a fund's long-term capital
gains are taxable at a lower rate. Whether gains are short-term or long-term
depends on the fund's holding period. Some dividends paid in January may be
taxable as if they had been paid the previous December.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you if you are not exempt from federal income
taxes. Depending on the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or a loss on the transaction. You are
responsible for any tax liabilities generated by your transactions.
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BUSINESS STRUCTURE
The funds' board of trustees oversees each fund's business activities and
retains the services of the various firms that carry out the fund's operations.
The trustees have the power to change the funds' respective investment goals
without shareholderapproval.
The investment adviser John Hancock Advisers, Inc., 101 Huntington Avenue,
Boston, MA 02199-7603.
The subadviser Independence Investment LLC, 53 State Street, Boston, MA 02109.
Management fees The management fees paid to the investment adviser by the funds
last fiscal year are as follows:
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Fund % of net assets
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Core Growth 0.71%
Core Value 0.48%
YOUR ACCOUNT 13
Financial highlights
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These tables detail the performance of each fund's Class I share, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Core Growth Fund
Figures audited by Deloitte & Touche LLP.
- ----------------------------------------------------------------------------------------------------------------------
Period ended: 2/97 2/98 2/99 2/00(1) 2/01
- ----------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $ 9.29 $ 11.01 $ 14.88 $ 17.65 $ 19.83
Net investment income (loss)(2) 0.05 0.04 0.01 (0.01) (0.07)
Net realized and unrealized gain (loss) on investments 2.16 4.34 3.40 3.31 (5.01)
Total from investment operations 2.21 4.38 3.41 3.30 (5.08)
Less distributions from net investment income (0.04) (0.03) (0.02) -- --
In excess of net investment income -- -- --(3) -- --
From net realized gain (0.45) (0.48) (0.62) (1.12) (0.32)
Total distributions (0.49) (0.51) (0.64) (1.12) (0.32)
Net asset value, end of period $ 11.01 $ 14.88 $ 17.65 $ 19.83 $ 14.43
Total investment return(4,5)(%) 24.19 40.52 22.92 19.67 (25.96)
Ratios and supplemental data
Net assets, end of period (in millions) ($) 0.9 5 8 9 3
Ratio of expenses to average net assets (%) 0.95 0.95 0.95 0.95 0.95
Ratio of adjusted expenses to average net assets(6,7)(%) 7.74 3.52 1.98 1.33 1.04
Ratio of net investment income (loss) to average net assets (%) 0.49 0.34 0.06 (0.06) (0.35)
Portfolio turnover rate (%) 142 91 54 72 115
(1) Effective July 1, 1999, existing shares of the fund were designated Class
I shares.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(6) Does not take into consideration expense reductions during the periods
shown.
(7) Adjusted expenses as a percentage of average net assets are expected to
decrease as the net assets of the fund grow.
- --------------------------------------------------------------------------------
The following returns are not audited and are not part of the audited financial
highlights presented above:
Without the expense reductions, returns for Class I for the periods or years
ended February 28, 1997, 1998, 1999, February 29, 2000 and February 28, 2001
would have been 17.40%, 37.95%, 21.89%, 19.29% and (26.05%), respectively.
14 FINANCIAL HIGHLIGHTS
Core Value Fund
Figures audited by Deloitte & Touche LLP.
- ------------------------------------------------------------------------------------------
Period ended: 2/00(1) 2/01
- ------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $ 13.35 $ 10.70
Net investment income (loss)(2) 0.09 0.12
Net realized and unrealized gain (loss) on investments (2.56) 2.07
Total from investment operations (2.47) 2.19
Distributions to shareholders
From net investment income (0.08) (0.14)
From net realized gain (0.10) (0.03)
(0.18) (0.17)
Net asset value, end of period $ 10.70 $ 12.72
Total investment return(3,4) (%) (18.71)(5) 20.46
Ratios and supplemental data
Net assets, end of period (in millions) ($) 0.7 2
Ratio of expenses to average net assets (%) 0.95(6) 0.95
Ratio of adjusted expenses to average net assets(7,8) (%) 1.59(6) 1.27
Ratio of net investment income (loss) to average net assets (%) 1.09(6) 0.97
Portfolio turnover rate (%) 76 131
(1) Began operations on July 1, 1999.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods
shown.
(8) Adjusted expenses as a percentage of average net assets are expected to
decrease as the net assets of the fund grow.
- --------------------------------------------------------------------------------
The following returns are not audited and are not part of the audited financial
highlights presented above:
Without the expense reductions, returns for Class I for the periods or years
February 29, 2000 and February 28, 2001 would have been (19.35%) and 20.14%,
respectively.
FINANCIAL HIGHLIGHTS 15
For more information
- --------------------------------------------------------------------------------
Two documents are available that offer further information on the John Hancock
equity funds:
Annual/Semiannual Report to Shareholders
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, as well as the
auditors' report (in annual report only).
Statement of Additional Information (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
By phone: 1-888-972-8696
By EASI-Line: 1-800-597-1897
By TDD: 1-800-462-0825
On the Internet: www.jhfunds.com
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC. For access to
the Reference Room call 1-202-942-8090
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-0102
(duplicating fee required)
By electronic request:
publicinfo@sec.gov
(duplicating fee required)
On the Internet: www.sec.gov
SEC file number: 811-8852
[LOGO](R)
John Hancock Funds, Inc.
Member NASD
101 Huntington Avenue
Boston MA 02199-7603
Mutual Funds
Institutional Services
Private Managed Accounts
Retirement Plans
Insurance Services
(C)2001 JOHN HANCOCK FUNDS, INC. K20PN 7/01
JOHN HANCOCK CORE VALUE FUND
Class A, Class B, Class C and Class I Shares
Statement of Additional Information
July 1, 2001
This Statement of Additional Information provides information about John Hancock
Core Value Fund (the "Fund") in addition to the information that is contained in
the combined Equity Funds current Prospectus and in the Fund's current
Prospectus for Class I shares, (the "Prospectuses"). The Fund is a diversified
series of John Hancock Institutional Series Trust (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston MA 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund ................................................ 2
Investment Objective and Policies ....................................... 2
Investment Restrictions ................................................. 9
Those Responsible for Management ........................................ 11
Investment Advisory and Other Services .................................. 17
Distribution Contracts .................................................. 20
Sales Compensation ...................................................... 22
Net Asset Value ......................................................... 24
Initial Sales Charge on Class A and Class C Shares ...................... 25
Deferred Sales Charge on Class B and Class C Shares ..................... 28
Special Redemptions ..................................................... 32
Additional Services and Programs ........................................ 32
Purchases and Redemptions through Third Parties ......................... 34
Description of the Fund's Shares ........................................ 34
Tax Status .............................................................. 36
Calculation of Performance .............................................. 40
Brokerage Allocation .................................................... 42
Transfer Agent Services ................................................ 45
Custody of Portfolio .................................................... 45
Independent Auditors .................................................... 45
Appendix A- Description of Investment Risk .............................. A-1
Appendix B-Description of Bond Ratings .................................. B-1
Financial Statements .................................................... F-1
1
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust under the laws of The Commonwealth
of Massachusetts. Prior to July 1, 1999, the Fund was called John Hancock
Independence Value Fund.
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser.
The Adviser is an indirect wholly-owned subsidiary of John Hancock Life
Insurance Company (formerly John Hancock Mutual Life Insurance Company) (the
"Life Company"), a Massachusetts life insurance company chartered in 1862, with
national headquarters at John Hancock Place, Boston, Massachusetts. The Life
Company is wholly owned by John Hancock Financial Services, Inc., a Delaware
corporation organized in February, 2000. The Subadviser of the Fund is
Independence Investment LLC ("Independence") (formerly Independence Investment
Associates, Inc.) referred to herein as the "Subadviser." Independence is an
affiliate of the Life Company.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies as discussed in the Prospectus. Appendix A contains
further information describing investment risks. The investment objective of the
Fund is nonfundamental and may be changed without shareholder approval. There is
no assurance that the Fund will achieve its investment objective.
The Fund seeks above-average total return (capital appreciation plus income).
The Fund emphasizes relatively undervalued securities. The Fund's performance
and risk profile benchmark portfolio is the Russell 1000 Value Index which is
comprised of stocks and companies with a less-than-average growth orientation
and represents the universe of stocks from which value managers typically
select. It is capitalization weighted and includes only common stocks belonging
to large-capitalization, domestic corporations.
The Fund has adopted certain investment restrictions that are detailed under
"Investment Restrictions" in this 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, investment policies and nonfundamental restrictions,
however, may be changed by a vote of the Trustees without shareholder approval.
If there is a change in the Fund's investment objective, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then current financial position and needs.
For a further description of the Fund's investment objectives, policies and
restrictions see "Goal and Strategy" and "Main Risks" in the Fund's Prospectus
and "Investment Restrictions" in this Statement of Additional Information.
Common stocks. The Fund may invest in common stocks. Common stocks are shares of
a corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other
shareholder or class of shareholders,
2
including holders of such entity's preferred stock and other senior equity.
Ownership of common stock usually carries with it the right to vote and,
frequently, an exclusive right to do so. The Fund will diversify its investments
in common stocks of companies in a number of industry groups without
concentrating in any particular industry. Common stocks have the potential to
outperform fixed-income securities over the long term. Common stocks provide the
most potential for growth, yet are the more volatile of the two asset classes.
Debt securities. Debt securities in which the Fund may invest are subject to the
risk of an issuer's inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to price volatility due to
such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk).
Particular debt securities will be selected based upon credit risk analysis of
potential issuers, the characteristics of the security and the interest rate
sensitivity of the various debt issues available with respect to a particular
issuer, and analysis of the anticipated volatility and liquidity of the
particular debt instruments.
Preferred stocks. The Fund may invest in preferred stocks. Preferred stock
generally has a preference to dividends and, upon liquidation, over an issuer's
common stock but ranks junior to debt securities in an issuer's capital
structure. Preferred stock generally pays dividends in cash (or additional
shares of preferred stock) at a defined rate but, unlike interest payments on
debt securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Dividends on preferred stock may be cumulative,
meaning that, in the event the issuer fails to make one or more dividend
payments on the preferred stock, no dividends may be paid on the issuer's common
stock until all unpaid preferred stock dividends have been paid. Preferred stock
also may be subject to optional or mandatory redemption provisions.
Investment in Foreign Securities. The Fund may invest in the securities of
foreign issuers in the form of sponsored and unsponsored American Depository
Receipts ("ADRs") and U.S. dollar-denominated securities of foreign issuers
traded on U.S. exchanges. ADRs (sponsored and unsponsored) are receipts,
typically issued by U.S. banks, which evidence ownership of underlying
securities issued by a foreign corporation. ADRs are publicly traded on a U.S.
stock exchange or in the over-the-counter market. An investment in foreign
securities including ADRs may be affected by changes in currency rates and in
exchange control regulations. Issuers of unsponsored ADRs are not contractually
obligated to disclose material information including financial information, in
the United States and, therefore, there may not be a correlation between such
information and the market value of the unsponsored ADR. Foreign companies may
not be subject to accounting standards or government supervision comparable to
U.S. companies, and there is often less publicly available information about
their operations. Foreign companies may also be affected by political or
financial inability abroad. These risk considerations may be intensified in the
case of investments in ADRs of foreign companies that are located in emerging
market countries. ADRs of companies located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price plus accrued interest.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S.
3
Government securities. The Adviser will continuously monitor the
creditworthiness of the parties with whom the Fund enters into repurchase
agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income, decline in
value of the underlying securities or lack of access to income during this
period as well as the expense of enforcing its rights.
Reverse Repurchase Agreements and Other Borrowings. The Fund may also enter into
reverse repurchase agreements which involve the sale of U.S. Government
securities held in its portfolio to a bank with an agreement that the Fund will
buy back the securities at a fixed future date at a fixed price plus an agreed
amount of "interest" which may be reflected in the repurchase price. Reverse
repurchase agreements are considered to be borrowings by the Fund. Reverse
repurchase agreements involve the risk that the market value of securities
purchased by the Fund with proceeds of the transaction may decline below the
repurchase price of the securities sold by the Fund which it is obligated to
repurchase. The Fund will also continue to be subject to the risk of a decline
in the market value of the securities sold under the agreements because it will
reacquire those securities upon effecting its repurchase. To minimize various
risks associated with reverse repurchase agreements, the Fund will establish a
separate account consisting of liquid securities, of any type or maturity, in an
amount at least equal to the repurchase prices of the securities (plus any
accrued interest thereon) under such agreements.
In addition, the Fund will not enter into reverse repurchase agreements or other
borrowings except from banks temporarily for extraordinary or emergency purposes
(not for leveraging) in amounts not to exceed 33 1/3% of the Fund's total assets
(including the amount borrowed) taken at market value. The Fund will not use
leverage to attempt to increase income. The Fund will enter into reverse
repurchase agreements only with federally insured banks which are approved in
advance as being creditworthy by the Trustees. Under the procedures established
by the Trustees, the Adviser will monitor the creditworthiness of the banks
involved.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. The Fund will not invest more than 15% of its net
assets in illiquid investments. If the Trustees determine, based upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, they will not be subject to the 15% limit
on illiquid investments. The Trustees may adopt guidelines and delegate to the
Adviser the daily function of determining the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
4
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time. When the Fund engages in forward commitment and
when-issued transactions, it relies on the seller to consummate the transaction.
The failure of the issuer or seller to consummate the transaction may result in
the Fund losing the opportunity to obtain a price and yield considered to be
advantageous. The purchase of securities on a when-issued and forward commitment
basis also involves a risk of loss if the value of the security to be purchased
declines prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Government Securities. The Fund may invest in government securities. Certain
U.S. Government securities, including U.S. Treasury bills, notes and bonds, and
Government National Mortgage Association certificates ("GNMA"), are supported by
the full faith and credit of the United States. Certain other U.S. Government
securities, issued or guaranteed by Federal agencies or government sponsored
enterprises, are not supported by the full faith and credit of the United
States, but may be supported by the right of the issuer to borrow from the U.S.
Treasury. These securities include obligations of the Federal Home Loan Mortgage
Corporation ("FHLMC"), and obligations supported by the credit of the
instrumentality, such as Federal National Mortgage Association Bonds ("FNMA").
No assurance can be given that the U.S. Government will provide financial
support to such Federal agencies, authorities, instrumentalities and government
sponsored enterprises in the future.
Mortgage-Backed Securities. The Fund may invest in mortgage pass-through
certificates and multiple-class pass-through securities, such as real estate
mortgage investment conduits ("REMIC") pass-through certificates, collateralized
mortgage obligations ("CMOs") and stripped mortgage-backed securities ("SMBS"),
and other types of "Mortgage-Backed Securities" that may be available in the
future.
Guaranteed Mortgage Pass-Through Securities. Guaranteed mortgage pass-through
securities represent participation interests in pools of residential mortgage
loans and are issued by U.S. Governmental or private lenders and guaranteed by
the U.S. Government or one of its agencies or instrumentalities, including but
not limited to the GNMA, the FNMA and the FHLMC. GNMA certificates are
guaranteed by the full faith and credit of the U.S. Government for timely
payment of principal and interest on the certificates. FNMA certificates are
guaranteed by FNMA, a federally chartered and privately owned corporation, for
full and timely payment of
5
principal and interest on the certificates. FHLMC certificates are guaranteed by
FHLMC, a corporate instrumentality of the U.S. Government, for timely payment of
interest and the ultimate collection of all principal of the related mortgage
loans.
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
CMOs and REMIC pass-through or participation certificates may be issued by,
among others, U.S. Government agencies and instrumentalities as well as private
lenders. CMOs and REMIC certificates are issued in multiple classes and the
principal of and interest on the mortgage assets may be allocated among the
several classes of CMOs or REMIC certificates in various ways. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Generally, interest is paid or accrues on all
classes of CMOs or REMIC certificates on a monthly basis.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates but also
may be collateralized by other mortgage assets such as whole loans or private
mortgage pass-through securities. Debt service on CMOs is provided from payments
of principal and interest on collateral of mortgaged assets and any reinvestment
income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages primarily secured by interests in real property and
other permitted investments. Investors may purchase "regular" and "residual"
interest shares of beneficial interest in REMIC trusts although the Fund does
not intend to invest in residual interests.
Stripped Mortgage-Backed Securities. SMBS are derivative multiple-class
mortgage-backed securities. SMBS are usually structured with two classes that
receive different proportions of interest and principal distributions on a pool
of mortgage assets. A typical SMBS will have one class receiving some of the
interest and most of the principal, while the other class will receive most of
the interest and the remaining principal. In the most extreme case, one class
will receive all of the interest (the "interest only" class) while the other
class will receive all of the principal (the "principal only" class). The yields
and market risk of interest only and principal only SMBS, respectively, may be
more volatile than those of other fixed income securities. The staff of the SEC
considers privately issued SMBS to be illiquid.
Structured or Hybrid Notes. Funds that may invest in mortgage-backed securities
may invest in "structured" or "hybrid" notes. The distinguishing feature of a
structured or hybrid note is that the amount of interest and/or principal
payable on the note is based on the performance of a benchmark asset or market
other than fixed-income securities or interest rates. Examples of these
benchmarks include stock prices, currency exchange rates and physical commodity
prices. Investing in a structured note allows the Fund to gain exposure to the
benchmark market while fixing the maximum loss that the Fund may experience in
the event that market does not perform as expected. Depending on the terms of
the note, the Fund may forego all or part of the interest and principal that
would be payable on a comparable conventional note; the Fund's loss cannot
exceed this foregone interest and/or principal. An investment in structured or
hybrid notes involves risks similar to those associated with a direct investment
in the benchmark asset.
Risk Factors Associated with Mortgage-Backed Securities. Investing in
Mortgage-Backed Securities involves certain risks, including the failure of a
counter-party to meet its
6
commitments, adverse interest rate changes and the effects of prepayments on
mortgage cash flows. In addition, investing in the lowest tranche of CMOs and
REMIC certificates involves risks similar to those associated with investing in
equity securities. Further, the yield characteristics of Mortgage-Backed
Securities differ from those of traditional fixed income securities. The major
differences typically include more frequent interest and principal payments
(usually monthly), the adjustability of interest rates, and the possibility that
prepayments of principal may be made substantially earlier than their final
distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, the Fund may fail to recoup fully its
investment in Mortgage-Backed Securities notwithstanding any direct or indirect
governmental, agency or other guarantee. When the Fund reinvests amounts
representing payments and unscheduled prepayments of principal, it may receive a
rate of interest that is lower than the rate on existing adjustable rate
mortgage pass-through securities. Thus, Mortgage-Backed Securities, and
adjustable rate mortgage pass-through securities in particular, may be less
effective than other types of U.S. Government securities as a means of "locking
in" interest rates.
Conversely, in a rising interest rate environment, a declining prepayment rate
will extend the average life of many Mortgage-Backed Securities. This
possibility is often referred to as extension risk. Extending the average life
of a Mortgage-Backed Security increases the risk of depreciation due to future
increases in market interest rates.
Risk Associated With Specific Types of Derivative Debt Securities. Different
types of derivative debt securities are subject to different combinations of
prepayment, extension and/or interest rate risk. Conventional mortgage
pass-through securities and sequential pay CMOs are subject to all of these
risks, but are typically not leveraged. Thus, the magnitude of exposure may be
less than for more leveraged Mortgage-Backed Securities.
The risk of early prepayments is the primary risk associated with interest only
debt securities ("IOs"), super floaters, other leveraged floating rate
instruments and Mortgage-Backed Securities purchased at a premium to their par
value. In some instances, early prepayments may result in a complete loss of
investment in certain of these securities. The primary risks associated with
certain other derivative debt securities are the potential extension of average
life and/or depreciation due to rising interest rates.
These securities include floating rate securities based on the Cost of Funds
Index ("COFI floaters"), other "lagging rate" floating rate securities, floating
rate securities that are subject to a maximum interest rate ("capped floaters"),
Mortgage-Backed Securities purchased at a discount, leveraged inverse floating
rate securities ("inverse floaters"), principal only debt securities ("POs"),
certain residual or support tranches of CMOs and index amortizing notes. Index
amortizing notes are not Mortgage-Backed Securities, but are subject to
extension risk resulting from the issuer's failure to exercise its option to
call or redeem the notes before their stated maturity date. Leveraged inverse
IOs combine several elements of the Mortgage-Backed
7
Securities described above and thus present an especially intense combination of
prepayment, extension and interest rate risks.
Planned amortization class ("PAC") and target amortization class ("TAC") CMO
bonds involve less exposure to prepayment, extension and interest rate risk than
other Mortgage-Backed Securities, provided that prepayment rates remain within
expected prepayment ranges or "collars." To the extent that prepayment rates
remain within these prepayment ranges, the residual or support tranches of PAC
and TAC CMOs assume the extra prepayment, extension and interest rate risk
associated with the underlying mortgage assets.
Other types of floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced to below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to depreciation in the event of an
unfavorable change in the spread between two designated interest rates. X-reset
floaters have a coupon that remains fixed for more than one accrual period.
Thus, the type of risk involved in these securities depends on the terms of each
individual X-reset floater.
Ratings as Investment Criteria. In general, the ratings of Moody's and S&P
represent the opinions of these agencies as to the quality of the securities
which they rate. It should be emphasized however, that ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Funds as initial criteria for the selection of portfolio securities.
Among the factors which will be considered are the long-term ability of the
issuer to pay principal and interest and general economic trends. Appendix B
contains further information concerning the rating of Moody's and S&P and their
significance. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither of these events will require the sale of the
securities by the Fund, but the Adviser will consider the event in its
determination of whether the Fund should continue to hold the securities.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. The
Fund can lend portfolio securities having a total value of 33 1/3% of its total
assets.
Short-Term Trading. Short-term trading means the purchase and subsequent sale of
a security after it has been held for a relatively brief period of time. The
Fund may engage in short-term trading in response to stock market conditions,
changes in interest rates or other economic trends and developments, or to take
advantage of yield disparities between various fixed income securities in order
to realize capital gains or improve income. Short term turnover (100% or
greater) involves correspondingly greater brokerage expenses. The Fund's
portfolio turnover rate is set forth in the table under the caption "Financial
Highlights" in the prospectus.
8
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The Fund has adopted the following
investment restrictions which may not be changed without the approval of a
majority of the Fund's outstanding voting securities which, as used in the
Prospectus and this Statement of Additional Information means the approval by
the lesser of (1) the holders of 67% or more of the Fund's shares represented at
a meeting if more than 50% of the Fund's outstanding shares are present in
person or by proxy or (2) more than 50% of the outstanding shares.
The Fund may not:
1. Issue senior securities, except as permitted by paragraphs 3, 6 and 7
below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the deferral of
trustees' fees, the purchase or sale of options, futures contracts,
forward commitments and repurchase agreements entered into in accordance
with the Fund's investment policies or within the meaning of paragraph 6
below, are not deemed to be senior securities.
2. Purchase securities on margin or make short sales, or unless, by virtue of
its ownership of other securities, the Fund has the right to obtain
securities equivalent in kind and amount to the securities sold and, if
the right is conditional, the sale is made upon the same conditions,
except (i) in connection with arbitrage transactions, (ii) for hedging the
Fund's exposure to an actual or anticipated market decline in the value of
its securities, (iii) to profit from an anticipated decline in the value
of a security, and (iv) obtaining such short-term credits as may be
necessary for the clearance of purchases and sales of securities.
3. Borrow money, except for the following extraordinary or emergency
purposes: (i) from banks for temporary or short-term purposes or for the
clearance of transactions in amounts not to exceed 33 1/3% of the value of
the Fund's total assets (including the amount borrowed) taken at market
value; (ii) in connection with the redemption of Fund shares or to finance
failed settlements of portfolio trades without immediately liquidating
portfolio securities or other assets; (iii) in order to fulfill
commitments or plans to purchase additional securities pending the
anticipated sale of other portfolio securities or assets. The Fund may not
borrow money for the purpose of leveraging the Fund's assets. For purposes
of this investment restriction, the deferral of Trustees' fees and
transactions in short sales, futures contracts, options on futures
contracts, securities or indices and forward commitment transactions shall
not constitute borrowing.
4. Act as an underwriter, except to the extent that in connection with the
disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purpose of the 1933 Act.
5. Purchase or sell real estate except that the Fund may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that
invest in real estate or interests therein, (iii) invest in securities
that are secured by real estate or interests therein, (iv) purchase
9
and sell mortgage-related securities and (v) hold and sell real estate
acquired by the Fund as a result of the ownership of securities.
6. Invest in commodities, except the Fund may purchase and sell options on
securities, securities indices and currency, futures contracts on
securities, securities indices and currency and options on such futures,
forward foreign currency exchange contracts, forward commitments,
securities index put or call warrants and repurchase agreements entered
into in accordance with the Fund's investment policies.
7. Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the Fund's
total assets taken at market value, (2) enter into repurchase agreements,
and (3) purchase all or a portion of an issue of debt securities, bank
loan participation interests, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the purchase
is made upon the original issuance of the securities.
8. Purchase the securities of issuers conducting their principal activity in
the same industry if, immediately after such purchase, the value of its
investments in such industry would exceed 25% of its total assets taken at
market value at the time of such investment. This limitation does not
apply to investments in obligations of the U.S. Government or any of its
agencies, instrumentalities or authorities.
9. With respect to 75% of the Fund's total assets, purchase securities of an
issuer (other than the U.S. Government, its agencies, instrumentalities or
authorities), if:
(a) such purchase would cause more than 5% of the Fund's total assets
taken at market value to be invested in the securities of such
issuer; or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the Fund.
Non-Fundamental Investment Restrictions. The following investment restrictions
are designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
The Fund may not:
1. Purchase a security if, as a result, (i) more than 10% of the Fund's total
assets would be invested in the securities of other investment companies,
(ii) the Fund would hold more than 3% of the total outstanding voting
securities of any one investment company, or (iii) more than 5% of the
Fund's total assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the investment
of cash collateral, received by the Fund in connection with lending the
Fund's portfolio securities, in the securities of open-end investment
companies or (b) the purchase of shares of any investment company in
connection with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company. Subject to
the above percentage limitations the Fund may, in connection with the John
Hancock Group of Funds Deferred Compensation Plan for Independent
10
Trustees/Directors, purchase securities of other investment companies
within the John Hancock Group of Funds.
2. Invest more than 15% of the net assets of the Fund, taken at market value,
in illiquid securities.
3. Invest for the purpose of exercising control over or management of any
company.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the values of the Fund's assets will not be
considered a violation of the restriction.
The Funds will invest only in countries on the Adviser's Approved Country
Listing. The Approved Country Listing is a list maintained by the Adviser's
investment department that outlines all countries, including the United States,
that have been approved for investment by Funds managed by the Adviser.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the 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 or directors of the Fund's Adviser and/or Subadviser, or officers
and/or directors of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
11
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Maureen R. Ford * Trustee, Chairman, Executive Vice President John Hancock Financial
101 Huntington Avenue President and Chief Services, Inc., John Hancock Life Insurance Company;
Boston, MA 02199 Executive Officer (1,2) Chairman, Director, President and Chief Executive
March 1950 Officer, John Hancock Advisers, Inc. (the "Adviser")
and The Berkeley Financial Group, Inc. ("The Berkeley
Group"); Chairman, Director and Chief Executive
Officer, John Hancock Funds, Inc. ("John Hancock
Funds"); Chairman, Director and President, John
Hancock Insurance Agency, Inc. ("Insurance Agency,
Inc."); Chairman, Director and Chief Executive Officer,
Sovereign Asset Management Corporation (SAMCorp.);
Director, Independence Investment LLC and Independence
Fixed Income LLC; Senior Vice President, MassMutual
Insurance Co. (until 1999); Senior Vice President,
Connecticut Mutual Insurance Co. (until 1996).
John M. DeCiccio* Trustee Executive Vice President and Chief Investment Officer
P.O. Box 111 John Hancock Financial Services, Inc.; Director,
Boston, MA 02117 Executive Vice President and Chief Investment Officer,
July 1948 John Hancock Life Insurance Company; Chairman of
the Committee of Finance of John Hancock Life
Insurance Company; Director, John Hancock
Subsidiaries, Inc., Hancock Natural Resource Group,
Independence Investment LLC, Independence Fixed
Income LLC, The Berkeley Group, the Adviser, John
Hancock Funds, Massachusetts Business Development
Corporation; Director, Insurance Agency Inc. (until
1999) and John Hancock Signature Services, Inc. (until
1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
12
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James F. Carlin Trustee Chairman and CEO, Alpha Analytical Laboratories
101 Huntington Avenue (chemical analysis), Carlin Consolidated, Inc.
Boston, MA 02199 (management/investments); Trustee, Massachusetts Health
April 1940 and Education Tax Exempt Trust; Director, Uno
Restaurant Corp., Arbella Mutual (insurance) (until
September 2000), HealthPlan Services, Inc. (until
February 1999), Flagship Healthcare, Inc. (until November
1999), Carlin Insurance Agency, Inc. (until April 1999),
Chairman, Massachusetts Board of Higher Education (until
July 1999) and Trustee of 35 funds managed by the
Adviser.
William H. Cunningham Trustee Former Chancellor, University of Texas System and
101 Huntington Avenue former President of the University of Texas, Austin,
Boston, MA 02199 Texas; James L. Bayless Chair of Free Enterprise; Director,
LaQuinta Motor Inns, Inc. (hotel management company)
(1985-1998); Jefferson-Pilot Corporation (diversified
life insurance company) Billing Concepts, Southwest Airlines
and Introgen; Advisory Director, Chase Bank (formerly
Texas Commerce Bank - Austin).
Ronald R. Dion Trustee Chairman and Chief Executive Officer, R.M. Bradley &
101 Huntington Avenue Co., Inc.; Director, The New England Council and
Boston, MA 02199 Massachusetts Roundtable; Trustee, North Shore Medical
March 1946 Center, Director, BJ's Wholesale Club, Inc. and a
corporator of the Eastern Bank; Trustee, Emmanuel
College.
Charles L. Ladner Trustee Chairman and Trustee, Dunwoody Village, Inc.; Senior
101 Huntington Avenue Vice President and Chief Financial Officer, UGI
Boston, MA 02199 Corporation (Public Utility Holding Company) (retired
February 1938 1998); Vice President and Director for AmeriGas, Inc.
(retired 1998); Vice President of AmeriGas Partners, L.P.
(until 1997); Director, EnergyNorth, Inc. (until 1995).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
13
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Steven R. Pruchansky Trustee (1) Chairman and Chief Executive Officer, Mast
101 Huntington Avenue Holdings, Inc. (since June 1, 2000); Director and
Boston, MA 02199 President, Mast Holdings, Inc. (until May 31, 2000);
August 1944 Director, First Signature Bank & Trust Company (until
August 1991); Director, Mast Realty Trust (until
1994); President, Maxwell Building Corp. (until
1991).
Norman H. Smith Trustee Lieutenant General, United States Marine Corps;
101 Huntington Avenue Deputy Chief of Staff for Manpower and Reserve
Boston, MA 02199 Affairs, Headquarters Marine Corps; Commanding
March 1933 General III Marine Expeditionary Force/3rd Marine
Division (retired 1991).
John P. Toolan Trustee Director, The Smith Barney Muni Bond Funds, The
101 Huntington Avenue Smith Barney Tax-Free Money Funds, Inc., Vantage
Boston, MA 02199 Money Market Funds (mutual funds), The Inefficient-
September 1930 Market Fund, Inc. (closed-end investment company)
and Smith Barney Trust Company of Florida;
Chairman, Smith Barney Trust Company (retired
December, 1991); Director, Smith Barney, Inc.,
Mutual Management Company and Smith Barney
Advisers, Inc. (investment advisers) (retired 1991);
Senior Executive Vice President, Director and member
of the Executive Committee, Smith Barney, Harris
Upham & Co., Incorporated (investment bankers)
(until 1991).
William L. Braman Executive Vice President Executive Vice President and Chief Investment
101 Huntington Avenue and Chief Investment Officer, the Adviser and each of the John Hancock
Boston, MA 02199 Officer (2) Funds; Executive Vice President and Chief Investment
December 1953 Officer, Barring Asset Management, London UK
(until May 2000).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
14
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Brown Senior Vice President and Senior Vice President and Chief Financial Officer of the
101 Huntington Avenue Chief Financial Officer (2) Adviser, John Hancock Funds, and The Berkeley Group;
Boston, MA 02199 Second Vice President and Senior Associate Controller,
April 1949 Corporate Tax Department, John Hancock Financial
Services, Inc. (until January 2001).
Susan S. Newton Senior Vice President, Senior Vice President and Chief Legal Officer the
101 Huntington Avenue Secretary and Chief Legal Adviser; John Hancock Funds; Vice President, Signature
Boston, MA 02199 Officer Services (until May 2000), The Berkeley Group, NM
March 1950 Capital and SAMCorp.
Thomas H. Connors Vice President and Vice President and Compliance Officer, the Adviser;
101 Huntington Avenue Compliance Officer Vice President, John Hancock Funds.
Boston, MA 02199
September 1959
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
The following table provides information regarding the compensation paid by the
Fund and other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Mr. DeCiccio and Ms. Ford, each a
non-Independent Trustee, and each of the officers of the Fund are interested
persons of the Adviser, and/or affiliates are compensated by the Adviser and
receive no compensation from the Fund for their services.
Total Compensation from all
Aggregate Compensation Funds in John Hancock Fund
Trustees from the Fund (1) Complex to Trustees (2)
- -------- ----------------- -----------------------
James F. Carlin $ 149 $ 72,000
William H. Cunningham* 149 72,100
Ronald R. Dion* 149 72,000
Charles L. Ladner 154 75,100
Steven R. Pruchansky* 154 75,000
Norman H. Smith* 159 78,000
John P. Toolan* 144 70,250
Total $1,058 $514,450
15
(1) Compensation is for the fiscal year ended February 28, 2001.
(2) Total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is for the calendar year ended December 31,
2000 As of that date, there were sixty-nine funds in the John
Hancock Fund Complex, with each of these Independent Trustees
serving on thirty four funds.
(*) As of December 31, 2000, the value of the aggregate accrued deferred
compensation from all Funds in the John Hancock fund complex for Mr.
Cunningham was $514,062, for Mr. Dion was $80,629, for Ms. McCarter
was $179,156 (resigned as of October 1, 1998) for Mr. Pruchansky was
$123,670, for Mr. Smith was $182,867 and for Mr. Toolan was $623,506
under the John Hancock Deferred Compensation Plan for Independent
Trustees (the "Plan").
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or Directors and/or Trustees of one or more other funds for which the
Adviser serves as investment adviser.
As of June 4, 2001, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund. As of
that date, the following shareholders of record beneficially owned 5% or more of
the outstanding shares of the Fund.
- ------------------------------------------------------------------------------------------------------------------------
Name and Address of Shareholder Class of shares Percentage of Total Outstanding Shares
- ------------------------------------------------------------------------------------------------------------------------
Sterling Trust Company A 7.33%
FBO J.P. Chemical Co., Inc. PS Plan
1380 Lawrence St
Denver CO. 80204
- ------------------------------------------------------------------------------------------------------------------------
MLPF&S for the Sole Benefit of its Customers B 21.49%
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville, FL
- ------------------------------------------------------------------------------------------------------------------------
Donaldson Lufkin Jenrette C 9.62%
Securities Corp. Inc.
P.O. Box 2052
Jersey City NJ 07303
- ------------------------------------------------------------------------------------------------------------------------
MLPF&S for the Sole Benefit of its Customers C 9.39%
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville, FL
- ------------------------------------------------------------------------------------------------------------------------
16
- ------------------------------------------------------------------------------------------------------------------------
Name and Address of Shareholder Class of shares Percentage of Total Outstanding Shares
- ------------------------------------------------------------------------------------------------------------------------
Independence Investment Associates I 26.95%
53 State Street
Boston MA 02109-2809
- ------------------------------------------------------------------------------------------------------------------------
Independence Investment Associates I 19.82%
Employee Deferred Compensation
Plan
53 State Street
Boston MA 02109-2809
- ------------------------------------------------------------------------------------------------------------------------
CG Enterprises EE Sal Savings I 34.13%
Retirement Plan
12001 Guilford Road
Annapolis Junction MD 20701
- ------------------------------------------------------------------------------------------------------------------------
Liguori Publications Inc. I 13.80%
1 Liguori Drive
Liguori, MO
- ------------------------------------------------------------------------------------------------------------------------
Sterling Trust Company I 5.17%
FBO TL Cannon 401K Plan
1380 Lawrence St
Denver CO. 80204
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $30 billion in assets under management
in its capacity as investment adviser to the Fund and other funds in the John
Hancock group of funds, as well as retail and institutional privately managed
accounts. The Adviser is an affiliate of the Life Company, one of the most
recognized and respected financial institutions in the nation. With total assets
under management of more than $100 billion, the Life Company is one of the ten
largest life insurance companies in the United States, and carries a high rating
from Standard & Poor's and A.M. Best. Founded in 1862, the Life Company has been
serving clients for over 130 years.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously
an investment program for the Fund and determine, subject to the overall
supervision and review of the Trustees, which investments
17
should be purchased, held, sold or exchanged, and (b) provide supervision over
all aspects of the Fund's operations except those which are delegated to a
custodian, transfer agent or other agent.
The Fund bears all costs of its organization and operation, including but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices prospectuses, proxy statements and reports to regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders their account statements; taxes; expenses of redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodians including those for keeping books and accounts,
maintaining a committed line of credit, and calculating the net asset value of
shares; fees and expenses of transfer agents and dividend disbursing agents;
legal, accounting, financial, management, tax and auditing fees and expenses of
the Fund (including an allocable portion of the cost of the Adviser's employees
rendering such services to the Fund the compensation and expenses of Trustees
who are not otherwise affiliated with the Trust, the Adviser or any of their
affiliates; expenses of Trustees' and shareholders' meetings; trade association
memberships; insurance premiums; and any extraordinary expenses.
The Adviser has entered into a Sub-Advisory Agreement with Independence
Investment LLC ("Independence"). Under the Sub-Advisory Agreement, the
Subadviser, subject to the review of the Trustees and the overall supervision of
the Adviser, is responsible for managing the investment operations of the Fund
and the composition of the Fund's investment portfolio and furnishing the Fund
with advice and recommendations with request to investments, investment policies
and the purchase and sale of securities. Independence, located at 53 State
Street, Boston, Massachusetts 02109, and organized in 1982, is a wholly owned
indirect subsidiary of John Hancock Subsidiaries, Inc.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
Average Daily Net Assets Annual Rate
- ------------------------ -----------
First $500,000,000 0.80%
Amount over $500,000,000 0.75%
The advisory fees paid by the Fund are greater than those paid by most funds,
but they are comparable to those paid by many investment companies with similar
investment objectives and policies. The Adviser (not the Fund) pays a portion of
its fee to the Subadviser at the rate of 55% of the advisory fee payable on the
Fund's average daily net assets.
For the periods ended February 28, 1999, the Adviser waived the entire
investment management fee for the Fund. For the fiscal year ended February 29,
2000 and February 28, 2001, the Fund paid the Adviser $21,113 and $115,809. The
Subadviser waived all subadvisory fees for these periods.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of its average daily net
assets. The Adviser has agreed to
18
limit Fund expenses (excluding 12b-1 and transfer agent fees) to 0.90% of the
Fund's average daily net assets at least until June 30, 2002. The Adviser
retains the right to reimpose a fee and recover any other payments to the extent
that, at the end of any fiscal year, the Fund's annual expenses fall below this
limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser, the Subadviser or its affiliates provide
investment advice. Because of different investment objectives or other factors,
a particular security may be bought for one or more funds or clients when one or
more other funds or clients are selling the same security. If opportunities for
purchase or sale of securities by the Adviser or Subadviser for the Fund or for
other funds or clients for which the Adviser or Subadviser renders investment
advice arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds or
clients in a manner deemed equitable to all of them. To the extent that
transactions on behalf of more than one client of the Adviser, Subadviser or its
affiliates may increase the demand for securities being purchased or the supply
of securities being sold, there may be an adverse effect on price.
Pursuant to its Advisory Agreement and Sub-Advisory Agreement, the Adviser and
Subadviser are not liable for any error of judgment or mistake of law or for any
loss suffered by the Fund in connection with the matters to which the respective
Agreements relate, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Adviser or Subadviser in the performance
of its duties or from reckless disregard of the obligations and duties under the
applicable Agreement.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for as long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Advisory
Agreement is no longer in effect, the Fund (to the extent that it lawfully can)
will cease to use such a name or any other name indicating that it is advised by
or otherwise connected with the Adviser. In addition, the Adviser or the Life
Company may grant the nonexclusive right to use the name "John Hancock" or any
similar name to any other corporation or entity, including but not limited to
any investment company of which the Life Company or any subsidiary or affiliate
thereof or any successor to the business of any subsidiary or affiliate thereof
shall be the investment adviser.
Under the Sub-Advisory Agreement of the Fund, the Fund may use the name
"Independence" or any name derived from or similar to it only for as long as the
Sub-Advisory Agreement is in effect. When the Sub-Advisory Agreement is no
longer in effect, the Fund (to the extent that it lawfully can) will cease to
use any name indicating that it is advised by or otherwise connected with
Independence (formerly Independence Investment Associates, Inc.). In addition,
Independence or the Life Company may grant the non-exclusive right to use the
name "Independence" or any similar name to any other corporation or entity,
including but not limited to any investment company of which Independence or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
The continuation of the Advisory Agreement, Sub-Advisory Agreement and the
Distribution Agreement (discussed below) was approved by all Trustees. The
Advisory Agreement, Sub-Advisory Agreement and the Distribution Agreement will
continue in effect from year to year, provided that its continuance is approved
annually both (i) by the holders of a majority of the
19
outstanding voting securities of the Trust or by the Trustees, and (ii) by a
majority of the Trustees who are not parties to the Agreement or "interested
persons" of any such parties. Each Agreement may be terminated on 60 days
written notice by any party or by vote of a majority of the outstanding voting
securities of the Fund and will terminate automatically if assigned.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal year ended February 28, 1999, February 29,
2000 and February 28, 2001, the Fund paid the Adviser $1,055, $2,447 and $5,064,
respectively, for services under this agreement.
Personnel of the Adviser, Sub-Adviser, and their affiliates may trade securities
for their personal accounts. The Fund also may hold, or may be buying or
selling, the same securities. To prevent the Fund from being disadvantaged, the
Adviser, Sub-Adviser and their affiliates and the Fund have adopted a code of
ethics which restricts the trading activity of those personnel.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") that have entered into selling agency
agreements with John Hancock Funds. These Selling Brokers are authorized to
designate other intermediaries to receive purchase and redemption orders on
behalf of the Fund. John Hancock Funds accepts orders for the purchase of the
shares of the Fund that are continually offered at net asset value next
determined, plus an applicable sales charge, if any. In connection with the sale
of Fund shares, John Hancock Funds and Selling Brokers receive compensation from
a sales charge imposed, in the case of Class A and Class C shares, at the time
of sale. In the case of Class B or Class C shares, the broker receives
compensation immediately but John Hancock Funds is compensated on a deferred
basis.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal year ended February 29, 2000 and February 28, 2001 were $86,872 and
$71,320 and $36,652 and $3,652 were retained by John Hancock Funds,
respectively. The remainder of the underwriting commissions were reallowed to
dealers.
The Fund's Trustees adopted Distribution Plans with respect to Class A, Class B
and Class C shares (the "Plans") pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Under the Plans, the Fund will pay distribution and service
fees at an aggregate annual rate of up to 0.30% for Class A shares and 1.00% for
Class B and Class C shares of the Fund's average daily net assets attributable
to shares of that class. However, the service fees will not exceed 0.25% of the
Fund's average daily net assets attributable to each class of shares. The
distribution fees will be used to reimburse John Hancock Funds for its
distribution expenses, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of the
John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing,
promotional and overhead expenses incurred in connection with the distribution
of Fund shares; and (iii) with respect to Class B and Class C shares only,
interest expenses on unreimbursed distribution expenses. The service fees will
be used to compensate Selling Brokers and others for providing
20
personal and account maintenance services to shareholders. In the event that
John Hancock Funds is not fully reimbursed for payments or expenses it incurs
under the Class A Plan, these expenses will not be carried beyond twelve months
from the date they were incurred. Unreimbursed expenses under the Class B and
Class C Plans will be carried forward together with interest on the balance of
these unreimbursed expenses. The Fund does not treat unreimbursed expenses under
the Class B and Class C Plans as a liability of the Fund because the Trustees
may terminate the Class B and /or Class C Plans at any time with no additional
liability for these expenses to the shareholders and the Fund. For the fiscal
year ended February 28, 2001, an aggregate of $3,137 of distribution expenses or
0.03% of the average net assets of the Class B shares of the Fund, was not
reimbursed or recovered by John Hancock Funds through the receipt of deferred
sales charges or Rule 12b-1 fees in prior periods. For the fiscal year ended
February 28, 2001, an aggregate of $319 of distribution expenses or 0.03% of the
average net assets of the Class C shares of the Fund, was not reimbursed or
recovered by John Hancock Funds through the receipt of deferred sales charges or
Rule 12b-1 fees in prior periods.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans amendments were approved by the Trustees, including a majority of the
Trustees who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on these Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they 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. The Plans provide that they may be terminated without
penalty, (a) by a vote of a majority of the Independent Trustees, (b) by a vote
of a majority of the Fund's outstanding shares of the applicable class upon 60
days' written notice to John Hancock Funds and (c) automatically in the event of
assignment. The Plans further provide that they may not be amended to increase
the maximum amount of the fees for the services described therein without the
approval of a majority of the outstanding shares of the class of the Fund which
has voting rights with respect to that Plan. Each plan provides, that no
material amendment to the Plans will be effective unless it is approved by a
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A, Class B and Class C shares have exclusive voting rights with
respect to the Plan applicable to their respective class of shares. In adopting
the Plans, the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable class of
shares of the Fund.
Class I shares of the Fund are not subject to any distribution plan. Expenses
associated with the obligation of John Hancock Funds to use its best efforts to
sell Class I shares will be paid by the Adviser or by John Hancock Funds and
will not be paid from the fees paid under Class A, Class B or Class C Plans.
Amounts paid to the John Hancock Funds by any class of shares of the Fund will
not be used to pay the expenses incurred with respect to any other class of
shares of the Fund; provided,
21
however, that expenses attributable to the Fund as a whole will be allocated, to
the extent permitted by law, according to the formula based upon gross sales
dollars and/or average daily net assets of each such class, as may be approved
from time to time by vote of a majority of the Trustees. From time to time, the
Fund may participate in joint distribution activities with other Funds and the
costs of those activities will be borne by each Fund in proportion to the
relative net asset value of the participating Fund.
During the fiscal year ended February 28, 2001, the Fund paid John Hancock Funds
the following amounts of expenses in connection with their services for the
Fund:
Expense Items
-------------
Printing and
Mailing of Expenses Interest,
Prospectuses of John Carrying or
to new Compensation to Hancock Other Finance
Advertising Shareholders Selling Brokers Funds Charges
----------- ------------ --------------- ----- -------
Class A $ 3,822 $ 248 $ 2,259 $12,151 --
Class B $20,024 $1,019 $24,117 $58,944 $2,719
Class C $ 2,588 $ 107 $ 1,157 $ 7,347 --
SALES COMPENSATION
As part of their business strategies, each of the John Hancock funds, along with
John Hancock Funds, pay compensation to financial services firms that sell the
funds' shares. These firms typically pass along a portion of this compensation
to your broker or financial representative.
The two primary sources of broker compensation payments for Class A, Class B and
Class C shares are (1) the 12b-1 fees that are paid out of the funds' assets and
(2) sales charges paid by investors. The sales charges and 12b-1 fees paid by
investors are detailed in the prospectus and under the "Distribution Contracts"
in this Statement of Additional Information. The portions of these expenses that
are paid to financial services firms are shown on the next page. For Class I
shares, John Hancock Funds may make a one-time payment at the time of initial
purchase out of its own resources to a Selling Broker who sells shares of the
Fund. This payment may not exceed 0.15% of the amount invested.
Whenever you purchase Class A, Class B or Class C shares, the financial services
firm receives a reallowance/payment, as described below. The firm also receives
the first year's 12b-1 service fee at this time. Beginning with the second year
after an investment is made, the financial services firm receives an annual
12b-1 service fee of 0.25% of its total eligible fund net assets. This fee is
paid quarterly in arrears by the Fund.
In addition, from time to time, John Hancock Funds, at its expense, may provide
significant additional compensation to financial services firms in connection
with the sale of shares of the Fund. Such compensation provided by John Hancock
Funds may include, for example, financial assistance to financial services firms
in connection with their marketing and sales development programs for their
registered representatives and other employees, as well as payment for travel
expenses, including lodging, incurred by registered representatives and other
employees for such
22
marketing and sales development programs, seminars for the public, advertising
and sales campaigns regarding one or more Funds, and/or other financial services
firms-sponsored events or activities. From time to time, John Hancock Funds may
make expense reimbursements for special training of a financial services firm's
registered representatives and other employees in group meetings. Other
compensation, such as asset retention fees, finder's fees and reimbursement for
wire transfer fees, may be offered to the extent not prohibited by law or any
self-regulatory agency, such as the NASD.
Broker receives Broker receives
Sales charge paid maximum 12b-1 service Total broker
by investors (% reallowance fee (% of net compensation (1)
Class A investments of offering price) (% of offering price) investment) (3) (% of offering price)
- ------------------- ------------------ --------------------- --------------- ---------------------
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Investments of Class A share
of $1 million or more (4)
- -------------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Broker receives Broker receives
maximum 12b-1 service Total broker
reallowance fee (% of net compensation (1)
Class B investments (% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- --------------- ---------------------
All amounts -- 3.75% 0.25% 4.00%
Broker receives Broker receives
maximum 12 b-1 service Total broker
reallowance fee (% of net compensation
Class C Investments (% of offering price) investment) (% of offering price)
- ------------------- --------------------- ----------- ---------------------
Amounts purchased at NAV -- 0.75% 0.25% 1.00%
All other amounts 1.00% 1.75% 0.25% 2.00%
Broker receives Broker receives
maximum 12b-1 service Total broker
Class I investments reallowance fee (% of net compensation (1)
(% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- --------------- ---------------------
All amounts -- 0.00% 0.00% 0.00% (5)
23
(1) Broker percentages and 12b-1 service fee percentages are calculated from
different amounts, and therefore may not equal total broker compensation
percentages if combined using simple addition.
(2) For Group Investment Programs sales, the maximum total broker compensation
for investments of $1 million or more is 1.00% of the offering price (one year
CDSC of 1.00% applies for each sale).
(3) After first year broker receives 12b-1 fees quarterly in arrears.
(4) John Hancock Funds reduce aggregate investments by the amount of recent
redemptions.
(5) John Hancock Funds may make a one-time payment at the time of initial
purchase out of its own resources to a Selling Broker who sells Class I shares
of the Fund. This payment may be up to 0.15% of the amount invested.
CDSC revenues collected by John Hancock Funds may be used to pay brokers
commissions when there is no initial sales charge
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market- maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
The NAV of each Fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net assets by the number of its shares outstanding.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which the Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
24
INITIAL SALES CHARGE ON CLASS A AND CLASS C SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). The fund no longer
issues share certificates. Shares are electronically recorded. The Trustees
reserve the right to change or waive the Fund's minimum investment requirements
and to reject any order to purchase shares (including purchase by exchange) when
in the judgment of the Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A and Class C shares of the
Fund are described in the Fund's Prospectus. Methods of obtaining reduced sales
charges referred to generally in the Prospectus are described in detail below.
In calculating the sales charge applicable to current purchases of Class A
shares of the Fund, the investor is entitled to accumulate current purchases
with the greater of the current value (at offering price) of the Class A shares
of the Fund, owned by the investor, or if John Hancock Signature Services, Inc.
("Signature Services") is notified by the investor's dealer or the investor at
the time of the purchase, the cost of the Class A shares owned.
Without Sales Charges. Class A shares may be offered without a front-end sales
charge or contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates, subadviser or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, grandparents, grandchildren, mother, father, sister,
brother, mother-in-law, father-in-law, daughter-in-law, son-in-law, niece,
nephew, and same sex domestic partner) of any of the foregoing; or any
fund, pension, profit sharing or other benefit plan for the individuals
described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into a signed agreement with John Hancock Funds
providing specifically for the use of Fund shares in fee-based investment
products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Retirement plans participating in Merrill Lynch servicing programs, if the
Plan has more than $3 million in assets or 500 eligible employees at the
date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement. See your Merrill Lynch financial consultant for further
information.
25
o Retirement plans investing through the PruArray Program sponsored by
Prudential Securities.
o Pension plans transferring assets from a John Hancock variable annuity
contract to the Fund pursuant to an exemptive application approved by the
Securities and Exchange Commission.
o Existing shareholders/retirement plans as of June 30, 1999.
o Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed
retirement plans with at least 100 eligible employees at the inception of
the Fund account. Each of these investors may purchase Class A shares with
no initial sales charge. However, if the shares are redeemed within 12
months after the end of the calendar year in which the purchase was made,
a CDSC will be imposed at the following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class C shares may be offered without a front-end sales charge to:
o Retirement plans for which John Hancock Signature Services formerly
performed employer sponsored plan recordkeeping services. (These types of
plans include 401(k), money purchase pension, profit sharing and SIMPLE
401k).
o An investor who buys through a Merrill Lynch omnibus account. However, a
CDSC may apply if the shares are sold within 12 months of purchase.
Class A and Class C shares may also be purchased without an initial sales charge
in connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). A company's (not an individual's) qualified and non-qualified retirement
plan investments can be combined to take advantage of this privilege. Further
information about combined purchases, including certain restrictions on combined
group purchases, is available from Signature Services or a Selling Broker's
representative.
26
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount being invested but also
the investor's purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares. Retirement plan investors may include the value of Class
B shares if Class B shares held are greater than $1 million. Retirement plans
must notify Signature Services to utilize. A company's (not an individual's)
qualified and non-qualified retirement plan investments can be combined to take
advantage of this privilege.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges are also applicable to investments
made pursuant to a Letter of Intention (the "LOI"), which should be read
carefully prior to its execution by an investor. The Fund offers two options
regarding the specified period for making investments under the LOI. All
investors have the option of making their investments over a specified period of
thirteen (13) months. Investors who are using the Fund as a funding medium for a
retirement plan, however, may opt to make the necessary investments called for
by the LOI over a forty-eight (48) month period. These retirement plans include
traditional, Roth IRAs, SEP, SARSEP, 401(k), 403(b) (including TSAs), SIMPLE
IRA, SIMPLE 401(k), Money Purchase Pension, Profit Sharing and Section 457
plans. An individual's non-qualified and qualified retirement plan investments
cannot be combined to satisfy LOI of 48 months. Such an investment (including
accumulations and combinations but not including reinvested dividends) must
aggregate $50,000 or more invested during the specified period from the date of
the LOI or from a date within ninety (90) days prior thereto, upon written
request to Signature Services. The sales charge applicable to all amounts
invested under the LOI is computed as if the aggregate amount intended to be
invested had been invested immediately. If such aggregate amount is not actually
invested, the difference in the sales charge actually paid and the sales charge
payable had the LOI not been in effect is due from the investor. However, for
the purchases actually made within the specified period (either 13 or 48 months)
the sales charge applicable will not be higher than that which would have
applied (including accumulations and combinations) had the LOI been for the
amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a
27
binding commitment by an investor to purchase, or by the Fund to sell, any
additional Class A shares and may be terminated at any time.
Because Class I shares are sold at net asset value without the imposition of any
sales charge, none of the privileges described under these captions are
available to Class I investors.
DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so that the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed
within six years or one year of purchase, respectively will be subject to a CDSC
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
or Class C shares being redeemed. No CDSC will be imposed on increases in
account value above the initial purchase prices, including all shares derived
from reinvestment of dividends or capital gains distributions.
Class B shares are not available to retirement plans that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of both Class B and Class C
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period for Class B or one year CDSC
redemption period for Class C, or those you acquired through dividend and
capital gain reinvestment, and next from the shares you have held the longest
during the six-year period for Class B shares. For this purpose, the amount of
any increase in a share's value above its initial purchase price is not regarded
as a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price.
When requesting a redemption for a specific dollar amount, please indicate if
you require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 Class B 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:
28
o Proceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o *Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment) (120.00)
--------
o Amount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the account not just the
shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C shares without a sales charge being deducted at
the time of the purchase.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B and Class C shares and of Class A shares that are subject
to a CDSC, unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability. (Does not apply to trust accounts
unless trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemption of Class B (but not Class C) shares made under a periodic
withdrawal plan or redemptions for fees charged by planners or advisors
for advisory services, as long as your annual redemptions do not exceed
12% of your account value, including reinvested dividends, at the time you
established your periodic withdrawal plan and 12% of the value of
subsequent investments (less redemptions) in that account at the time you
notify Signature Services. (Please note, this waiver does not apply to
periodic withdrawal plan redemptions of Class A or Class C shares that are
subject to a CDSC.)
* Redemptions by Retirement plans participating in Merrill Lynch servicing
programs, if the Plan has less than $3 million in assets or 500 eligible
employees at the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for further information.
29
* Redemptions of Class A shares made after one year from the inception date
of a retirement plan at John Hancock.
* Redemption of Class A or Class C shares by retirement plans that invested
through the PruArray Program sponsored by Prudential Securities.
For Retirement Accounts (such as traditional, Roth IRAs, SIMPLE IRAs, SIMPLE
401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase Pension Plan,
Profit-Sharing Plan and other plans as described in the Internal Revenue Code)
unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code. (Waiver based on required minimum
distribution calculations for John Hancock Mutual Fund IRA assets only.)
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans under sections 401(a) (such as
Money Purchase Pension Plans and Profit Sharing Plan/401(k) Plans), 457
and 408 (SEPs and SIMPLE IRAs) of the Internal Revenue Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for some examples.
30
- -----------------------------------------------------------------------------------------------------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-
Distribution (401 (k), MPP, Rollover retirement
PSP) 457 &
408 (SEPs &
Simple IRAs)
- -----------------------------------------------------------------------------------------------------------------
Death or Disability Waived Waived Waived Waived Waived
- -----------------------------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of
required account value
minimum annually in
distributions* periodic
or 12% of payments
account value
annually in
periodic
payments.
- -----------------------------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for 12% of
and 70 1/2 Life account value
Expectancy annually in
or 12% of periodic
account value payments
annually in
periodic
payments.
- -----------------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of
(Class B only) annuity annuity annuity annuity account value
payments (72t) payments payments payments annually in
or 12% of (72t) or 12% (72t) or 12% (72t) or 12% periodic
account value of account of account of account payments
annually in value value value
periodic annually in annually in annually in
payments. periodic periodic periodic
payments. payments. payments.
- -----------------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- -----------------------------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Qualified Waived Waived Waived N/A N/A
Domestic
Relations Orders
- -----------------------------------------------------------------------------------------------------------------
Termination of Waived Waived Waived N/A N/A
Employment
Before Normal
Retirement Age
- -----------------------------------------------------------------------------------------------------------------
Return of Excess Waived Waived Waived Waived N/A
- -----------------------------------------------------------------------------------------------------------------
31
*Required minimum distributions based on John Hancock Mutual Fund IRA assets
only.
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholders will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, the Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90-day period would
exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock 500 Index Fund and John Hancock
Intermediate Government Fund will retain the exchanged fund's CDSC schedule).
For purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the holding
period of the shares acquired in an exchange.
If a retirement plan exchanges the plan's Class A account in its entirety from
the Fund to a non-John Hancock investment, the one-year CDSC applies.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994 for
Class B shares of any other John Hancock fund, the acquired shares will continue
to be subject to the CDSC schedule that was in effect when the exchanged shares
were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
32
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares which may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional shares of
the Fund could be disadvantageous to a shareholder because of the initial sales
charge payable on such purchases of Class A shares and the CDSC imposed on
redemptions of Class B and Class C shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase shares at the same time a
Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability of
such plan in the future. The shareholder may terminate the plan at any time by
giving proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the order date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit in that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of 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.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or
33
making more than seven exchanges per owner or controlling party per calendar
year. Also, the Fund may refuse any reinvestment request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years, or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain broker-dealers
or Service agents ("Brokers"). Brokers may charge for their services or place
limitations on the extent to which you may use the services of the Fund. The
Fund will be deemed to have received a purchase or redemption order when an
authorized broker, or if applicable, a broker's authorized designee, receives
the order. If a broker is an agent or designee of the Fund, orders are processed
at the NAV next calculated after the broker receives the order. The broker must
segregate any orders it receives after the close of regular trading on the New
York Stock Exchange and transmit those orders to the Fund for execution at NAV
next determined. Some brokers that maintain nominee accounts with the Fund for
their clients charge an annual fee on the average net assets held in such
accounts for accounting, servicing, and distribution services they provide with
respect to the underlying Fund shares. The Adviser, the Fund/or and John Hancock
Funds, Inc. (the Fund's principal distributor), share in the expense of these
fees.
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and eleven series.
Additional series may be added in the future. The Declaration of Trust also
authorizes the Trustees to classify and reclassify the shares of the Fund, or
any new series of the Trust, into one or more classes. The Trustees have also
authorized the issuance of four classes of shares of the Fund, designated as
Class A, Class B, Class C and Class I.
34
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
Class A, Class B, Class C and Class I shares have certain exclusive voting
rights on matters relating to their respective distribution plans. The different
classes of the Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
In accordance with the provisions of the Declaration of Trust, the Trustees have
initially determined that shares entitle their holders to one vote per share on
any matter on which such shares are entitled to vote. The Trustees may determine
in the future, without the vote or consent of shareholders, that each dollar of
net asset value (number of shares owned times net asset value per share) will be
entitled to one vote on any matter on which such shares are entitled to vote.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A, Class B and Class C will be
borne exclusively by that class, (ii) Class B and Class C shares will pay higher
distribution and service fees than Class A shares and (iii) each class of shares
will bear any class expenses properly allocable to that class of shares, subject
to the conditions the Internal Revenue Service imposes with respect to the
multiple-class structures. Similarly, the net asset value per share may vary
depending on which class of shares are purchased. No interest will be paid on
uncashed dividend or redemption checks.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Fund. However, the Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any shareholder held personally
liable for reason of being or having been a shareholder. The Declaration of
Trust also provides that no series of the Trust shall be liable for the
liabilities of any other series. Furthermore, no fund included in this Fund's
prospectus shall be liable for the liabilities of any other John Hancock Fund.
Liability is therefore limited to circumstances in which the Fund itself would
be unable to meet its obligations, and the possibility of this occurrence is
remote.
35
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Information provided on the account application may be used by the Fund to
verify the accuracy of the information or for background or financial history
purposes. A joint account will be administered as a joint tenancy with right of
survivorship, unless the joint owners notify Signature Services of a different
intent. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts. For telephone transactions, the transfer agent will take measures
to verify the identity of the caller, such as asking for name, account number,
Social Security or other taxpayer ID number and other relevant information. If
appropriate measures are taken, the transfer agent is not responsible for any
losses that may occur to any account due to an unauthorized telephone call. Also
for your protection telephone transactions are not permitted on accounts whose
names or addresses have changed within the past 30 days. Proceeds from telephone
transactions can only be mailed to the address of record.
Selling activities for the Fund may not take place outside the U.S. except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
TAX STATUS
The Fund is treated as a separate entity for accounting and tax purposes, has
qualified 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 qualify for each taxable year. As such and by complying
with the applicable provisions of the Code regarding the sources of its income,
the timing of its distributions and the diversification of its assets, the Fund
will not be subject to Federal income tax on its taxable income (including net
realized capital gains) which is distributed to shareholders in accordance with
the timing requirements of the Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distribution from the Fund's current or accumulated earnings and profits ("E&P")
will be taxable under the Code for investors who are subject to tax. If these
distributions are paid from the Fund's "investment company taxable income," they
will be taxable as ordinary income; and if they are paid from the Fund's "net
capital gain" they will be taxable as long-term capital gain. (Net capital gain
is the excess (if any) of net long-term capital gain over net short-term capital
loss, and investment company taxable income is all taxable income and capital
gains, other than net capital gain, after reduction by deductible expenses).
Some distributions may be paid in January but may be taxable to shareholders as
if they had been received on December 31 of the previous year. The tax treatment
described above will apply without regard to whether distributions are received
in cash or reinvested in additional shares of the Fund.
36
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Some tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. Because more than 50% of the Fund's total assets at the close of any
taxable year will not consist of stocks or securities of foreign corporations,
the Fund will be unable to pass such taxes through to shareholders, who
consequently will not include any portion of such taxes in their incomes and
will not be entitled to any associated tax credits or deductions with respect to
such taxes. The Fund will deduct the foreign taxes it pays in determining the
amount it has available for distribution to shareholders.
If the Fund invests in stock or ADRs representing stock (including an option to
acquire stock such as is inherent in a convertible bond) in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, certain rents and royalties, or capital
gain) or hold at least 50% of their asset in investments producing such passive
income ("passive foreign investment companies"), the Fund could be subject to
Federal income tax and additional interest charges on "excess distributions"
received from such companies or gain from the sale of stock in such companies,
even if all income or gain actually received by the Fund is timely distributed
to its shareholders. The Fund would not be able to pass through to its
shareholders any credit or deduction for such a tax. An election may be
available to ameliorate these adverse tax consequences, but could require the
Fund to recognize taxable income or gain without the concurrent receipt of cash.
These investments could also result in the treatment of associated capital gains
as ordinary income. The Fund may limit and/or manage its holdings in passive
foreign investment companies or make an available election to minimize its tax
liability or maximize its return from these investments.
The amount of the Fund's net realized capital gains, if any, in any given year
will vary depending upon the Adviser's current investment strategy and whether
the Adviser believes it to be in the best interest of the Fund to dispose of
portfolio securities that will generate capital gains. At the time of an
investor's purchase of Fund shares, a portion of the purchase price is often
attributable to realized or unrealized appreciation in the Fund's portfolio or
undistributed taxable income of the Fund. Consequently, subsequent distributions
on those shares from such appreciation or income may be taxable to such investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption or other disposition of shares of the Fund (including by
exercise of the exchange privilege) in a transaction that is treated as a sale
for tax purposes, a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands. A sales charge paid in purchasing
shares of the Fund cannot be taken into account for purposes of determining gain
or loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent shares of the Fund or
37
another John Hancock fund are subsequently acquired without payment of a sales
charge pursuant to the reinvestment or exchange privilege. This disregarded
charge will result in an increase in the shareholder's tax basis in the shares
subsequently acquired. Also, any loss realized on a redemption or exchange may
be disallowed to the extent the shares disposed of are replaced with other
shares of the Fund within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of, such as pursuant to automatic
dividend reinvestments. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss.
Also, any loss realized upon the redemption of shares with a tax holding period
of six months or less will be treated as a long-term capital loss to the extent
of any amounts treated as distributions of long-term capital gain with respect
to such shares. Shareholders should consult their own tax advisers regarding
their particular circumstances to determine whether a disposition of Fund shares
is properly treated as a sale for tax purposes, as is assumed in the foregoing
discussion.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain in his return for his taxable year in which the last day of the
Fund's taxable year falls, (b) be entitled either to a tax credit on his return
for, or to a refund of, his pro rata share of the taxes paid by the Fund, and
(c) be entitled to increase the adjusted tax basis for his shares in the Fund by
the difference between his pro rata share of such excess and his pro rata share
of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
realized capital loss in any year to offset net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in Federal income
tax liability to the Fund and, as noted above, would not be distributed as such
to shareholders. The Fund has $86,884 of capital loss carry forwards available
to the extent provided by regulations to offset future net realized capital
gains. The carry forwards expire as follows: December 31, 2007.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) during a prescribed period extending before and after each such
dividend and distributed and properly designated by the Fund may be treated as
qualifying dividends. Corporate shareholders must meet the holding period
requirements stated above with respect to their shares of the Fund for each
dividend in order to qualify for the deduction and, if
38
they have any debt that is deemed under the Code directly attributable to such
shares, may be denied a portion of the dividends received deduction. The entire
qualifying dividend, including the otherwise deductible amount, will be included
in determining alternative minimum tax liability, if any. Additionally, any
corporate shareholder should consult its tax adviser regarding the possibility
that its tax basis in its shares may be reduced, for Federal income tax
purposes, by reason of "extraordinary dividends" received with respect to the
shares, and, to the extent such basis would be reduced below zero, that current
recognition of income would be required.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. However, the
Fund must distribute to shareholders for each taxable year substantially all of
its net income and net capital gains, including such income or gain, to qualify
as a regulated investment company and avoid liability for any federal income or
excise tax. Therefore, the Fund may have to dispose of its portfolio securities
under disadvantageous circumstances to generate cash, or may borrow cash, to
satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. Government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The Fund will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although it may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all distributions to shareholders, as well as gross proceeds from the redemption
or exchange of Fund shares, except in the case of certain exempt recipients,
i.e., corporations and certain other investors distributions to which are exempt
from the information reporting provisions of the Code. Under the backup
withholding provisions of Code Section 3406 and applicable Treasury regulations,
all such reportable distributions and proceeds may be subject to backup
withholding of federal income tax at the rate of 31% in the case of non-exempt
shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. The Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
39
The foregoing discussion relates solely to Federal income tax law as applicable
to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain types of
investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
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 non-resident alien withholding tax at the rate of
30% (or a lower rate under an applicable tax treaty) on amounts treated as
ordinary dividends from the Fund and, unless an effective IRS Form W-8, Form
W-8BEN, or other authorized withholding certificate 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.
The Fund anticipates that, provided that the Fund qualifies as a regulated
investment company under the Code, it will also not be required to pay any
Massachusetts income tax.
CALCULATION OF PERFORMANCE
As of February 28, 2001, the average annual total returns for Class A shares of
the Fund for the 1 year and since commencement of operations on October 2, 1995
were 14.05% and 14.61%, respectively.
As of February 28, 2001, the average annual total return for Class B shares of
the Fund for the 1 year and since commencement of operations on July 1, 1999
were 14.02% and -4.65%, respectively.
As of February 28, 2001, the average annual total return for Class C shares of
the Fund for the 1 year and since commencement of operations on July 1, 1999
were 16.78% and -2.90% respectively.
As of February 28, 2001, the average annual total return for Class I shares of
the Fund for the 1 year and since commencement of operations on July 1, 1999
were 20.46% and -1.26% respectively.
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:
40
T = ((ERV/P)^(1/n)) - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at the
beginning of the 1 year, 5 year, and 10 year periods.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of Class A, Class B or Class C, this
calculation assumes the maximum sales charge when incurred is included in the
initial investment or the CDSC is applied at the end of the period,
respectively. This calculation assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period. The
"distribution rate" is determined by annualizing the result of dividing the
declared dividends of the Fund during the period stated by the maximum offering
price or net asset value at the end of the period. Excluding the Fund's sales
charge from the distribution rate produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments and/or a series of redemptions over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A or Class
C shares or the CDSC on Class B or Class C shares into account. Excluding the
Fund's sales charge on Class A shares and the CDSC on Class B or Class C shares
from a total return calculation produces a higher total return figure.
The Fund may advertise yield, where appropriate. The Fund's yield is computed by
dividing net investment income per share determined for a 30-day period by the
maximum offering price per share (which includes the full sales charge) on the
last day of the period, according to the following standard formula:
respectively.
41
Yield = 2 ( [ ( a-b/cd ) + 1 ] ^6 - 1)
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the
period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period
(NAV where applicable).
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper - Mutual Fund Performance Analysis," a monthly
publication which tracks net assets, total return and yield on mutual funds in
the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are
also used for comparison purposes, as well as the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in, and excerpts from,
national financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK,
THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may
also be utilized. The Fund's promotional and sales literature may make reference
to the Fund's "beta". Beta is a reflection of the market related risk of the
Fund by showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by an investment committee of the Adviser, which consists
of officers and directors of the Adviser and affiliates and officers and
Trustees who are interested persons of the Fund. Orders for purchases and sales
of securities are placed in a manner which, in the opinion of the Adviser, will
offer the best price and market for the execution of each such transaction.
Purchases from underwriters of portfolio securities may include a commission or
commissions paid by the issuer, and transactions with dealers serving as market
makers reflect a "spread". Debt securities are generally traded on a net basis
through dealers acting for their own account as principals and not as brokers;
no brokerage commissions are payable on these transactions.
42
In the U.S. Government securities market, securities are generally traded on a
"net" basis with dealers acting as principal for their own account without a
stated commission, although the price of the security usually includes a profit
to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and, to a
lesser extent, statistical assistance furnished to the Adviser of the Fund and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and, conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will not make commitments to allocate portfolio transactions upon any
prescribed basis. While the Adviser's officers will be primarily responsible for
the allocation of the Fund's brokerage business, their policies and practices in
this regard must be consistent with the foregoing and will at all times be
subject to review by the Trustees. For the fiscal years ended on February 28,
1999 and February 29, 2000 and February 28, 2001, the Fund paid negotiated
brokerage commissions in the amount of $5,371, $17,957 and $48.092,
respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay a broker which provides brokerage and research services to the Fund an
amount of disclosed commission in excess of the commission which another broker
would have charged for effecting that transaction. This practice is subject to a
good faith determination by the Trustees that such commission is reasonable in
light of the services provided and to such policies as the Trustees may adopt
from time to time. For the fiscal year ended February 28, 2001, 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.
43
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of Signator Investors, Inc., a broker-dealer (until January 1, 1999,
John Hancock Distributors, Inc.) ("Signator" or "Affiliated Broker"). Pursuant
to procedures determined by the Trustees and consistent with the above policy of
obtaining best net results, the Fund may execute portfolio transactions with or
through the Affiliated Broker. During the fiscal years ended February 28, 1999,
February 29, 2000 and February 28, 2001, the Fund did not execute any portfolio
transactions with the Affiliated Broker.
Signator may act as broker for the Fund on exchange transactions, subject,
however, to the general policy of the Fund set forth above and the procedures
adopted by the Trustees pursuant to the Investment Company Act. Commissions paid
to an Affiliated Broker must be at least as favorable as those which the
Trustees believe to be contemporaneously charged by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold. A transaction would not be placed with an Affiliated Broker if the Fund
would have to pay a commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers, except for accounts for which the Affiliated Broker
acts as clearing broker for another brokerage firm, and any customers of the
Affiliated Broker not comparable to the Fund as determined by a majority of the
Trustees who are not "interested persons" (as defined in the Investment Company
Act) of the Fund, the Adviser or the Affiliated Broker. Because the Adviser,
which is affiliated with the Affiliated Broker, has, as an investment adviser to
the Fund, the obligation to provide investment management services, which
include elements of research and related investment skills, such research and
related skills will not be used by the Affiliated Broker as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate securities to be
sold or purchased for the Fund with those to be sold or purchased for other
clients managed by it in order to obtain best execution.
For purchases of equity securities, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. For high demand issues (for example, initial public offerings), shares
will be allocated pro rata by account size as well as on the basis of account
objective, account size ( a small account's allocation may be increased to
provide it with a meaningful position), and the account's other holdings. In
addition, an account's allocation may be increased if that account's portfolio
manager was responsible for generating the investment idea or the portfolio
manager intends to buy more shares in the secondary market. For fixed income
accounts, generally securities will be allocated when appropriate among accounts
based on account size, except if the accounts have different objectives or if an
account is too small to get a meaningful allocation. For new issues, when a
complete order is not filled, a partial allocation will be made to each account
pro rata based on the order size. However, if a partial allocation is too small
to be meaningful, it may be reallocated based on such factors as account
objectives, duration benchmarks and credit and sector exposure. For example,
value funds will likely not participate in initial public offerings s frequently
as growth funds. In some
44
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate securities to be
sold or purchased for the Fund with those to be sold or purchased for other
clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Signature
Services an annual fee of $20.00 for each Class A shareholder account and $22.50
for each Class B shareholder account and $21.50 for each Class C shareholder
account. For Class A, B and C shares, the Fund also pays certain out-of-pocket
expenses. These expenses are charged to the Fund by account, aggregated and
allocated to each class on the basis of their relative net asset values. The
Fund pays Signature Services an annual fee of 0.05% of average daily net assets
attributable to Class I shares plus certain out-of-pocket expenses
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 200 Clarendon Street,
Boston, Massachusetts 02116. Under the custodian agreement, Investors Bank &
Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Funds are Deloitte & Touche LLP, 200 Berkeley
Street, Boston, Massachusetts 02116. Deloitte & Touche LLP audits and renders
opinions on the Funds' annual financial statements and reviews the Funds' annual
Federal income tax returns.
45
APPENDIX A
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of the fund's
risk profile in the prospectus.
A fund is permitted to utilize -- within limits established by the trustees --
certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that the Fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them with examples of related securities and
investment practices included in brackets. See the "Investment Objective and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The Fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive return over any period of time -- days, months or years.
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). Incomplete correlation can result
in unanticipated risks. (e.g., short sales, financial futures and options;
securities and index options, currency contracts).
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. (e.g., borrowing; reverse repurchase agreements, repurchase
agreements, securities lending, non-investment-grade securities, financial
futures and options; securities and index options).
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments and may widen any losses. (e.g., foreign
equities, financial futures and options; securities and index options, currency
contracts).
Information risk The risk that key information about a security or market is
inaccurate or unavailable. (e.g., non-investment-grade securities, foreign
equities).
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values. (e.g.,
non-investment-grade securities, financial futures and options; securities and
index options).
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.,
borrowing; reverse repurchase agreements, when-issued securities and forward
commitments).
A-1
o Hedged When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains. (e.g., short sales, financial futures and options
securities and index options; currency contracts).
o Speculative To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost. (e.g., short sales, financial futures
and options securities and index options; currency contracts).
o Liquidity risk The risk that certain securities may be difficult or
impossible to sell at the time and the price that the seller would like.
The seller may have to lower the price, sell other securities instead or
forego an investment opportunity, any of which could have a negative
effect on fund management or performance. (e.g., non-investment-grand
securities, short sales, restricted and illiquid securities, financial
futures and options securities and index options; currency contracts).
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industry, sector of
the economy or the market as a whole. Common to all stocks and bonds and the
mutual funds that invest in them. (e.g., short sales, short-term trading,
when-issued securities and forward commitments, non-investment-grade securities,
foreign equities, financial futures and options; securities and index options
restricted and illiquid securities).
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events. (e.g., foreign equities).
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments. (e.g., short sales, when-issued securities and forward commitments;
financial futures and options; securities and index options, currency
contracts).
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and
war.(e.g., foreign equities).
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g., non-investment-grade securities,
restricted and illiquid securities).
A-2
APPENDIX B
Moody's describes its lower ratings for corporate bonds as follows:
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represented obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
S&P describes its lower ratings for corporate bonds as follows:
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated BB, B, CCC, or CC is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's describes its three highest ratings for commercial paper as follows:
Issuers rated P-1 (or related supporting institutions) have a superior capacity
for repayment of short-term promissory obligations. P-1 repayment capacity will
normally be evidenced by the following characteristics: (1) leading market
positions in well-established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structures with moderate
B-1
reliance on debt and ample asset protections; (4) broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and (5)
well established access to a range of financial markets and assured sources of
alternate liquidity.
Issuers rated P- (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P describes its three highest ratings for commercial paper as follows:
A-1. This designation indicated that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B-2
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 2001 Annual
Report to Shareholder's for the year ended February 28, 2001 (filed
electronically on April 30, 2001, accession number 0000928816-01-500082) and are
included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Core Value Fund (file nos. 33-86102 and 811-8852).
John Hancock Institutional Series Trust
John Hancock Core Value Fund
Statement of Assets and Liabilities as of February 28, 2001
Statement of Operations for the year ended of February 28, 2001.
Statement of Changes in Net Asset for each of the two years in the period
ended February 28, 2001.
Financial Highlights for each of the five years in the period ended
February 28, 2001.
Schedule of Investments as of February 28, 2001.
Notes to Financial Statements.
Report of Independent Auditors.
F-1
JOHN HANCOCK CORE GROWTH FUND
Class A, Class B, Class C and Class I Shares
Statement of Additional Information
July 1, 2001
This Statement of Additional Information provides information about John Hancock
Core Growth Fund (the "Fund") in addition to the information that is contained
in the combined Equity Funds current Prospectus and in the Fund's current
Prospectus for Class I shares, (the "Prospectuses"). The Fund is a diversified
series of John Hancock Institutional Series Trust (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston MA 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund.................................................. 2
Investment Objective and Policies......................................... 2
Investment Restrictions................................................... 9
Those Responsible for Management.......................................... 11
Investment Advisory and Other Services.................................... 18
Distribution Contracts.................................................... 21
Sales Compensation........................................................ 23
Net Asset Value........................................................... 25
Initial Sales Charge on Class A and Class C Shares........................ 25
Deferred Sales Charge on Class B and Class C Shares....................... 29
Special Redemptions....................................................... 33
Additional Services and Programs.......................................... 33
Purchases and Redemptions through Third Parties........................... 35
Description of the Fund's Shares.......................................... 35
Tax Status................................................................ 37
Calculation of Performance................................................ 41
Brokerage Allocation...................................................... 43
Transfer Agent Services................................................... 46
Custody of Portfolio...................................................... 46
Independent Auditors...................................................... 46
Appendix A- Description of Investment Risk................................ A-1
Appendix B-Description of Bond Ratings.................................... B-1
Financial Statements...................................................... F-1
1
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust under the laws of The Commonwealth
of Massachusetts. Prior to July 1, 1999, the Fund was called John Hancock
Independence Growth Fund.
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser.
The Adviser is an indirect wholly-owned subsidiary of John Hancock Life
Insurance Company(formerly John Hancock Mutual Life Insurance Company) (the
"Life Company"), a Massachusetts life insurance company chartered in 1862, with
national headquarters at John Hancock Place, Boston, Massachusetts. The Life
Company is wholly owned by John Hancock Financial Services, Inc., a Delaware
corporation organized in February, 2000. The Subadviser of the Fund is
Independence Investment LLC ("Independence") (formerly Independence Investment
Associates, Inc.) referred to herein as the "Subadviser" and is an affiliate of
the Life Company.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies as discussed in the Prospectus. Appendix A contains
further information describing investment risks. The investment objective of the
Fund is nonfundamental and may be changed without shareholder approval. There is
no assurance that the Fund will achieve its investment objective.
The Fund seeks capital appreciation. The Fund emphasizes investments in
companies whose securities show potential for relatively high long-term earnings
growth rather than current dividend yield. The Fund's performance and risk
profile benchmark is the Russell 1000 Growth Index which is comprised of stocks
of companies with a greater-than-average growth orientation. and represents a
universe of stocks from which growth managers typically select. It is
capitalization weighted and includes only common stocks belonging to
large-capitalization domestic corporations.
The Fund has adopted certain investment restrictions that are detailed under
"Investment Restrictions" in this 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, investment policies and nonfundamental restrictions,
however, may be changed by a vote of the Trustees without shareholder approval.
If there is a change in the Fund's investment objective, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then current financial position and needs.
For a further description of the Fund's investment objectives, policies and
restrictions see "Goal and Strategy" and "Main Risks" in the Fund's Prospectus
and "Investment Restrictions" in this Statement of Additional Information.
Common stocks. The Fund may invest in common stocks. Common stocks are shares of
a corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other
shareholder or class of shareholders, including holders of such entity's
preferred stock and other senior equity. Ownership of common stock usually
2
carries with it the right to vote and, frequently, an exclusive right to do so.
The Fund will diversify its investments in common stocks of companies in a
number of industry groups without concentrating in any particular industry.
Common stocks have the potential to outperform fixed-income securities over the
long term. Common stocks provide the most potential for growth, yet are the more
volatile of the two asset classes.
Debt securities. Debt securities in which the Fund may invest are subject to the
risk of an issuer's inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to price volatility due to
such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk).
Particular debt securities will be selected based upon credit risk analysis of
potential issuers, the characteristics of the security and the interest rate
sensitivity of the various debt issues available with respect to a particular
issuer, and analysis of the anticipated volatility and liquidity of the
particular debt instruments.
Preferred stocks. The Fund may invest in preferred stocks. Preferred stock
generally has a preference to dividends and, upon liquidation, over an issuer's
common stock but ranks junior to debt securities in an issuer's capital
structure. Preferred stock generally pays dividends in cash (or additional
shares of preferred stock) at a defined rate but, unlike interest payments on
debt securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Dividends on preferred stock may be cumulative,
meaning that, in the event the issuer fails to make one or more dividend
payments on the preferred stock, no dividends may be paid on the issuer's common
stock until all unpaid preferred stock dividends have been paid. Preferred stock
also may be subject to optional or mandatory redemption provisions.
Investment in Foreign Securities. The Fund may invest in the securities of
foreign issuers in the form of sponsored and unsponsored American Depository
Receipts ("ADRs") and U.S. dollar-denominated securities of foreign issuers
traded on U.S. exchanges. ADRs (sponsored and unsponsored) are receipts,
typically issued by U.S. banks, which evidence ownership of underlying
securities issued by a foreign corporation. ADRs are publicly traded on a U.S.
stock exchange or in the over-the-counter market. An investment in foreign
securities including ADRs may be affected by changes in currency rates and in
exchange control regulations. Issuers of unsponsored ADRs are not contractually
obligated to disclose material information including financial information, in
the United States and, therefore, there may not be a correlation between such
information and the market value of the unsponsored ADR. Foreign companies may
not be subject to accounting standards or government supervision comparable to
U.S. companies, and there is often less publicly available information about
their operations. Foreign companies may also be affected by political or
financial inability abroad. These risk considerations may be intensified in the
case of investments in ADRs of foreign companies that are located in emerging
market countries. ADRs of companies located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price plus accrued interest.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government securities.
The Adviser will continuously monitor the creditworthiness of the parties with
whom the Fund enters into repurchase agreements.
3
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income, decline in
value of the underlying securities or lack of access to income during this
period as well as the expense of enforcing its rights.
Reverse Repurchase Agreements and Other Borrowings. The Fund may also enter into
reverse repurchase agreements which involve the sale of U.S. Government
securities held in its portfolio to a bank with an agreement that the Fund will
buy back the securities at a fixed future date at a fixed price plus an agreed
amount of "interest" which may be reflected in the repurchase price. Reverse
repurchase agreements are considered to be borrowings by the Fund. Reverse
repurchase agreements involve the risk that the market value of securities
purchased by the Fund with proceeds of the transaction may decline below the
repurchase price of the securities sold by the Fund which it is obligated to
repurchase. The Fund will also continue to be subject to the risk of a decline
in the market value of the securities sold under the agreements because it will
reacquire those securities upon effecting its repurchase. To minimize various
risks associated with reverse repurchase agreements, the Fund will establish a
separate account consisting of liquid securities, of any type or maturity, in an
amount at least equal to the repurchase prices of the securities (plus any
accrued interest thereon) under such agreements.
In addition, the Fund will not enter into reverse repurchase agreements or
borrow money, except from banks temporarily for extraordinary or emergency
purposes (not for leveraging) in amounts not to exceed 33 1/3% of the Fund's
total assets (including the amount borrowed) taken at market value. The Fund
will not use leverage to attempt to increase income. The Fund will enter into
reverse repurchase agreements only with federally insured banks which are
approved in advance as being creditworthy by the Trustees. Under the procedures
established by the Trustees, the Adviser will monitor the creditworthiness of
the banks involved.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. The Fund will not invest more than 15% of its net
assets in illiquid investments. If the Trustees determine, based upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, they will not be subject to the 15% limit
on illiquid investments. The Trustees may adopt guidelines and delegate to the
Adviser the daily function of determining the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
4
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time. When the Fund engages in forward commitment and
when-issued transactions, it relies on the seller to consummate the transaction.
The failure of the issuer or seller to consummate the transaction may result in
the Fund losing the opportunity to obtain a price and yield considered to be
advantageous. The purchase of securities on a when-issued and forward commitment
basis also involves a risk of loss if the value of the security to be purchased
declines prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Government Securities. The Fund may invest in government securities. Certain
U.S. Government securities, including U.S. Treasury bills, notes and bonds, and
Government National Mortgage Association certificates ("GNMA"), are supported by
the full faith and credit of the United States. Certain other U.S. Government
securities, issued or guaranteed by Federal agencies or government sponsored
enterprises, are not supported by the full faith and credit of the United
States, but may be supported by the right of the issuer to borrow from the U.S.
Treasury. These securities include obligations of the Federal Home Loan Mortgage
Corporation ("FHLMC"), and obligations supported by the credit of the
instrumentality, such as Federal National Mortgage Association Bonds ("FNMA").
No assurance can be given that the U.S. Government will provide financial
support to such Federal agencies, authorities, instrumentalities and government
sponsored enterprises in the future.
Mortgage-Backed Securities. The Fund may invest in mortgage pass-through
certificates and multiple-class pass-through securities, such as real estate
mortgage investment conduits ("REMIC") pass-through certificates, collateralized
mortgage obligations ("CMOs") and stripped mortgage-backed securities ("SMBS"),
and other types of "Mortgage-Backed Securities" that may be available in the
future.
Guaranteed Mortgage Pass-Through Securities. Guaranteed mortgage pass-through
securities represent participation interests in pools of residential mortgage
loans and are issued by U.S. Governmental or private lenders and guaranteed by
the U.S. Government or one of its agencies or instrumentalities, including but
not limited to the GNMA, the FNMA and the FHLMC. GNMA certificates are
guaranteed by the full faith and credit of the U.S. Government for timely
payment of principal and interest on the certificates. FNMA certificates are
guaranteed by FNMA, a federally chartered and privately owned corporation, for
full and timely payment of principal and interest on the certificates. FHLMC
certificates are guaranteed by FHLMC, a corporate instrumentality of the U.S.
Government, for timely payment of interest and the ultimate collection of all
principal of the related mortgage loans.
5
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
CMOs and REMIC pass-through or participation certificates may be issued by,
among others, U.S. Government agencies and instrumentalities as well as private
lenders. CMOs and REMIC certificates are issued in multiple classes and the
principal of and interest on the mortgage assets may be allocated among the
several classes of CMOs or REMIC certificates in various ways. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Generally, interest is paid or accrues on all
classes of CMOs or REMIC certificates on a monthly basis.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates but also
may be collateralized by other mortgage assets such as whole loans or private
mortgage pass-through securities. Debt service on CMOs is provided from payments
of principal and interest on collateral of mortgaged assets and any reinvestment
income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages primarily secured by interests in real property and
other permitted investments. Investors may purchase "regular" and "residual"
interest shares of beneficial interest in REMIC trusts although the Fund does
not intend to invest in residual interests.
Stripped Mortgage-Backed Securities. SMBS are derivative multiple-class
mortgage-backed securities. SMBS are usually structured with two classes that
receive different proportions of interest and principal distributions on a pool
of mortgage assets. A typical SMBS will have one class receiving some of the
interest and most of the principal, while the other class will receive most of
the interest and the remaining principal. In the most extreme case, one class
will receive all of the interest (the "interest only" class) while the other
class will receive all of the principal (the "principal only" class). The yields
and market risk of interest only and principal only SMBS, respectively, may be
more volatile than those of other fixed income securities. The staff of the SEC
considers privately issued SMBS to be illiquid.
Structured or Hybrid Notes. Funds that may invest in mortgage-backed securities
may invest in "structured" or "hybrid" notes. The distinguishing feature of a
structured or hybrid note is that the amount of interest and/or principal
payable on the note is based on the performance of a benchmark asset or market
other than fixed-income securities or interest rates. Examples of these
benchmarks include stock prices, currency exchange rates and physical commodity
prices. Investing in a structured note allows the Fund to gain exposure to the
benchmark market while fixing the maximum loss that the Fund may experience in
the event that market does not perform as expected. Depending on the terms of
the note, the Fund may forego all or part of the interest and principal that
would be payable on a comparable conventional note; the Fund's loss cannot
exceed this foregone interest and/or principal. An investment in structured or
hybrid notes involves risks similar to those associated with a direct investment
in the benchmark asset.
Risk Factors Associated with Mortgage-Backed Securities. Investing in
Mortgage-Backed Securities involves certain risks, including the failure of a
counter-party to meet its commitments, adverse interest rate changes and the
effects of prepayments on mortgage cash flows. In addition, investing in the
lowest tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities. Further, the yield
6
characteristics of Mortgage-Backed Securities differ from those of traditional
fixed income securities. The major differences typically include more frequent
interest and principal payments (usually monthly), the adjustability of interest
rates, and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, the Fund may fail to recoup fully its
investment in Mortgage-Backed Securities notwithstanding any direct or indirect
governmental, agency or other guarantee. When the Fund reinvests amounts
representing payments and unscheduled prepayments of principal, it may receive a
rate of interest that is lower than the rate on existing adjustable rate
mortgage pass-through securities. Thus, Mortgage-Backed Securities, and
adjustable rate mortgage pass-through securities in particular, may be less
effective than other types of U.S. Government securities as a means of "locking
in" interest rates.
Conversely, in a rising interest rate environment, a declining prepayment rate
will extend the average life of many Mortgage-Backed Securities. This
possibility is often referred to as extension risk. Extending the average life
of a Mortgage-Backed Security increases the risk of depreciation due to future
increases in market interest rates.
Risk Associated With Specific Types of Derivative Debt Securities. Different
types of derivative debt securities are subject to different combinations of
prepayment, extension and/or interest rate risk. Conventional mortgage
pass-through securities and sequential pay CMOs are subject to all of these
risks, but are typically not leveraged. Thus, the magnitude of exposure may be
less than for more leveraged Mortgage-Backed Securities.
The risk of early prepayments is the primary risk associated with interest only
debt securities ("IOs"), super floaters, other leveraged floating rate
instruments and Mortgage-Backed Securities purchased at a premium to their par
value. In some instances, early prepayments may result in a complete loss of
investment in certain of these securities. The primary risks associated with
certain other derivative debt securities are the potential extension of average
life and/or depreciation due to rising interest rates.
These securities include floating rate securities based on the Cost of Funds
Index ("COFI floaters"), other "lagging rate" floating rate securities, floating
rate securities that are subject to a maximum interest rate ("capped floaters"),
Mortgage-Backed Securities purchased at a discount, leveraged inverse floating
rate securities ("inverse floaters"), principal only debt securities ("POs"),
certain residual or support tranches of CMOs and index amortizing notes. Index
"amortizing notes are not Mortgage-Backed Securities, but are subject to
extension risk resulting from the issuer's failure to exercise its option to
call or redeem the notes before their stated maturity date. Leveraged inverse
IOs combine several elements of the Mortgage-Backed Securities described above
and thus present an especially intense combination of prepayment, extension and
interest rate risks.
7
Planned amortization class ("PAC") and target amortization class ("TAC") CMO
bonds involve less exposure to prepayment, extension and interest rate risk than
other Mortgage-Backed Securities, provided that prepayment rates remain within
expected prepayment ranges or "collars." To the extent that prepayment rates
remain within these prepayment ranges, the residual or support tranches of PAC
and TAC CMOs assume the extra prepayment, extension and interest rate risk
associated with the underlying mortgage assets.
Other types of floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced to below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to depreciation in the event of an
unfavorable change in the spread between two designated interest rates. X-reset
floaters have a coupon that remains fixed for more than one accrual period.
Thus, the type of risk involved in these securities depends on the terms of each
individual X-reset floater.
Ratings as Investment Criteria. In general, the ratings of Moody's and S&P
represent the opinions of these agencies as to the quality of the securities
which they rate. It should be emphasized however, that ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Funds as initial criteria for the selection of portfolio securities.
Among the factors which will be considered are the long-term ability of the
issuer to pay principal and interest and general economic trends. Appendix B
contains further information concerning the rating of Moody's and S&P and their
significance. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither of these events will require the sale of the
securities by the Fund, but the Adviser will consider the event in its
determination of whether the Fund should continue to hold the securities.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. The
Fund can lend portfolio securities having a total value of 33 1/3% of its total
assets.
Short-Term Trading. Short-term trading means the purchase and subsequent sale of
a security after it has been held for a relatively brief period of time. The
Fund may engage in short-term trading in response to stock market conditions,
changes in interest rates or other economic trends and developments, or to take
advantage of yield disparities between various fixed income securities in order
to realize capital gains or improve income. Short term turnover (100% or
greater) involves correspondingly greater brokerage expenses. The Fund's
portfolio turnover rate is set forth in the table under the caption "Financial
Highlights" in the prospectus.
8
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The Fund has adopted the following
investment restrictions which may not be changed without the approval of a
majority of the Fund's outstanding voting securities which, as used in the
Prospectus and this Statement of Additional Information means the approval by
the lesser of (1) the holders of 67% or more of the Fund's shares represented at
a meeting if more than 50% of the Fund's outstanding shares are present in
person or by proxy or (2) more than 50% of the outstanding shares.
The Fund may not:
1. Issue senior securities, except as permitted by paragraphs 3, 6 and 7
below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the deferral of
trustees' fees, the purchase or sale of options, futures contracts,
forward commitments and repurchase agreements entered into in
accordance with the Fund's investment policies or within the meaning of
paragraph 6 below, are not deemed to be senior securities.
2. Purchase securities on margin or make short sales, or unless, by virtue
of its ownership of other securities, the Fund has the right to obtain
securities equivalent in kind and amount to the securities sold and, if
the right is conditional, the sale is made upon the same conditions,
except (i) in connection with arbitrage transactions, (ii) for hedging
the Fund's exposure to an actual or anticipated market decline in the
value of its securities, (iii) to profit from an anticipated decline in
the value of a security, and (iv) obtaining such short-term credits as
may be necessary for the clearance of purchases and sales of
securities.
3. Borrow money, except for the following extraordinary or emergency
purposes: (i) from banks for temporary or short-term purposes or for
the clearance of transactions in amounts not to exceed 33 1/3% of the
value of the Fund's total assets (including the amount borrowed) taken
at market value; (ii) in connection with the redemption of Fund shares
or to finance failed settlements of portfolio trades without
immediately liquidating portfolio securities or other assets; (iii) in
order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets.
The Fund may not borrow money for the purpose of leveraging the Fund's
assets. For purposes of this investment restriction, the deferral of
Trustees' fees and transactions in short sales, futures contracts,
options on futures contracts, securities or indices and forward
commitment transactions shall not constitute borrowing. .
4. Act as an underwriter, except to the extent that in connection with the
disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purpose of the 1933 Act.
5. Purchase or sell real estate except that the Fund may (i) acquire or
lease office space for its own use, (ii) invest in securities of
issuers that invest in real estate or interests therein, (iii) invest
in securities that are secured by real estate or interests therein,
(iv) purchase and sell mortgage-related securities and (v) hold and
sell real estate acquired by the Fund as a result of the ownership of
securities.
9
6. Invest in commodities, except the Fund may purchase and sell options on
securities, securities indices and currency, futures contracts on
securities, securities indices and currency and options on such
futures, forward foreign currency exchange contracts, forward
commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment
policies.
7. Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the
Fund's total assets taken at market value, (2) enter into repurchase
agreements, and (3) purchase all or a portion of an issue of debt
securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether
or not the purchase is made upon the original issuance of the
securities.
8. Purchase the securities of issuers conducting their principal activity
in the same industry if, immediately after such purchase, the value of
its investments in such industry would exceed 25% of its total assets
taken at market value at the time of such investment. This limitation
does not apply to investments in obligations of the U.S. Government or
any of its agencies, instrumentalities or authorities.
9. With respect to 75% of the Fund's total assets, purchase securities
of an issuer (other than the U. S. Government, its agencies,
instrumentalities or authorities), if:
(a) such purchase would cause more than 5% of the Fund's total assets
taken at market value to be invested in the securities of such issuer;
or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the Fund.
Non-Fundamental Investment Restrictions. The following investment restrictions
are designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
The Fund may not:
1. Purchase a security if, as a result, (i) more than 10% of the Fund's
total assets would be invested in the securities of other investment
companies, (ii) the Fund would hold more than 3% of the total
outstanding voting securities of any one investment company, or (iii)
more than 5% of the Fund's total assets would be invested in the
securities of any one investment company. These limitations do not
apply to (a) the investment of cash collateral, received by the Fund in
connection with lending the Fund's portfolio securities, in the
securities of open-end investment companies or (b) the purchase of
shares of any investment company in connection with a merger,
consolidation, reorganization or purchase of substantially all of the
assets of another investment company. Subject to the above percentage
limitations the Fund may, in connection with the John Hancock Group of
Funds Deferred Compensation Plan for Independent Trustees/Directors,
purchase securities of other investment companies within the John
Hancock Group of Funds.
10
2. Invest more than 15% of the net assets of the Fund, taken at market
value, in illiquid securities.
3. Invest for the purpose of exercising control over or management of any
company.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the values of a Fund's assets will not be
considered a violation of the restriction.
The Funds will invest only in countries on the Adviser's Approved Country
Listing. The Approved Country Listing is a list maintained by the Adviser's
investment department that outlines all countries, including the United States,
that have been approved for investment by Funds managed by the Adviser.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the 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 or directors of the Fund's Adviser and/or Subadviser, or officers
and/or directors of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
11
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Maureen R. Ford * Trustee, Chairman, President Executive Vice President John
101 Huntington Avenue and Chief Executive Officer Hancock Financial Services, Inc.,
Boston, MA 02199 (1,2) John Hancock Life Insurance
March 1950 Company; Chairman, Director,
President and Chief Executive
Officer, John Hancock Advisers,
Inc. (the "Adviser") and The
Berkeley Financial Group, Inc.
("The Berkeley Group"); Chairman,
Director and Chief Executive
Officer, John Hancock Funds, Inc.
("John Hancock Funds"); Chairman,
Director and President, John
Hancock Insurance Agency, Inc.
("Insurance Agency, Inc.");
Chairman, Director and Chief
Executive Officer, Sovereign Asset
Management Corporation (SAMCorp.);
Director, Independence Investment
LLC and Independence Fixed Income
LLC; Senior Vice President,
MassMutual Insurance Co. (until
1999); Senior Vice President,
Connecticut Mutual Insurance Co.
(until 1996).
John M. DeCiccio* Trustee Executive Vice President and Chief
P.O. Box 111 Investment Officer John Hancock
Boston, MA 02117 Financial Services, Inc.; Director,
July 1948 Executive Vice President and Chief
Investment Officer, John Hancock
Life Insurance Company; Chairman of
the Committee of Finance of John
Hancock Life Insurance Company;
Director, John Hancock
Subsidiaries, Inc., Hancock Natural
Resource Group, Independence
Investment LLC, Independence Fixed
Income LLC, The Berkeley Group, the
Adviser, John Hancock Funds,
Massachusetts Business Development
Corporation; Director, Insurance
Agency Inc. (until 1999) and John
Hancock Signature Services, Inc.
(until 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
12
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James F. Carlin Trustee Chairman and CEO, Alpha Analytical
101 Huntington Avenue Laboratories (chemical analysis),
Boston, MA 02199 Carlin Consolidated, Inc.
April 1940 (management/investments); Trustee,
Massachusetts Health and Education
Tax Exempt Trust; Director, Uno
Restaurant Corp., Arbella Mutual
(insurance) (until September 2000),
HealthPlan Services, Inc. (until
February 1999), Flagship
Healthcare, Inc. (until November
1999), Carlin Insurance Agency,
Inc. (until April 1999), Chairman,
Massachusetts Board of Higher
Education (until July 1999) and
Trustee of 35 funds managed by the
Adviser.
William H. Cunningham Trustee Former Chancellor, University of
101 Huntington Avenue Texas System and former President
Boston, MA 02199 of the University of Texas, Austin,
January 1944 Texas; James L. Bayless Chair of
Free Enterprise; Director, LaQuinta
Motor Inns, Inc. (hotel management
company) (1985-1998);
Jefferson-Pilot Corporation
(diversified life insurance
company) Billing Concepts,
Southwest Airlines and Introgen ;
Advisory Director, Chase Bank
(formerly Texas Commerce Bank -
Austin).
Ronald R. Dion Trustee Chairman and Chief Executive
101 Huntington Avenue Officer, R.M. Bradley & Co., Inc.;
Boston, MA 02199 Director, The New England Council
March 1946 and Massachusetts Roundtable;
Trustee, North Shore Medical
Center, Director, BJ's Wholesale
Club, Inc. and a corporator of the
Eastern Bank; Trustee, Emmanuel
College.
Charles L. Ladner Trustee Chairman and Trustee, Dunwoody
101 Huntington Avenue Village, Inc.; Senior Vice
Boston, MA 02199 President and Chief Financial
February 1938 Officer, UGI Corporation (Public
Utility Holding Company) (retired
1998); Vice President and Director
for AmeriGas, Inc. (retired 1998);
Vice President of AmeriGas
Partners, L.P. (until 1997);
Director, EnergyNorth, Inc. (until
1995).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
13
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Steven R. Pruchansky Trustee (1) Chairman and Chief Executive
101 Huntington Avenue Officer, Mast Holdings, Inc. (since
Boston, MA 02199 June 1, 2000); Director and
August 1944 President, Mast Holdings, Inc.
(until May 31, 2000); Director,
First Signature Bank & Trust
Company (until August 1991);
Director, Mast Realty Trust (until
1994); President, Maxwell Building
Corp. (until 1991).
Norman H. Smith Trustee Lieutenant General, United States
101 Huntington Avenue Marine Corps; Deputy Chief of Staff
Boston, MA 02199 for Manpower and Reserve Affairs,
March 1933 Headquarters Marine Corps;
Commanding General III Marine
Expeditionary Force/3rd Marine
Division (retired 1991).
John P. Toolan Trustee Director, The Smith Barney Muni
101 Huntington Avenue Bond Funds, The Smith Barney
Boston, MA 02199 Tax-Free Money Funds, Inc., Vantage
September 1930 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); Senior Executive Vice
President, Director and member of
the Executive Committee, Smith
Barney, Harris Upham & Co.,
Incorporated (investment bankers)
(until 1991).
William L. Braman Executive Vice President and Executive Vice President and Chief
101 Huntington Avenue Chief Investment Officer (2) Investment Officer, the Adviser and
Boston, MA 02199 each of the John Hancock Funds;
December 1953 Executive Vice President and Chief
Investment Officer, Barring Asset
Management, London UK (until May
2000).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
14
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Brown Senior Vice President and Senior Vice President and Chief
101 Huntington Avenue Chief Financial Officer (2) Financial Officer of the Adviser,
Boston, MA 02199 John Hancock Funds, and The
April 1949 Berkeley Group; Second Vice
President and Senior Associate
Controller, Corporate Tax
Department, John Hancock Financial
Services, Inc. (until January
2001).
Susan S. Newton Senior Vice President, Senior Vice President and Chief
101 Huntington Avenue Secretary and Chief Legal Legal Officer the Adviser; John
Boston, MA 02199 Officer Hancock Funds; Vice President,
March 1950 Signature Services (until May
2000), The Berkeley Group, NM
Capital and SAMCorp.
Thomas H. Connors Vice President and Compliance Vice President and Compliance
101 Huntington Avenue Officer Officer, the Adviser; Vice
Boston, MA 02199 President, John Hancock Funds.
September 1959
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
15
The following table provides information regarding the compensation paid by the
Fund and other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Mr. DeCiccio and Ms. Ford, each a
non-Independent Trustee, and each of the officers of the Fund are interested
persons of the Adviser, and/or affiliates are compensated by the Adviser and
receive no compensation from the Fund for their services.
Total Compensation from
Aggregate Compensation all Funds in John Hancock
Trustees from the Fund (1) Fund Complex to Trustees (2)
- -------- ----------------- ----------------------------
James F. Carlin $ 377 $ 72,000
William H. Cunningham* 377 72,100
Ronald R. Dion* 377 72,000
Charles L. Ladner 391 75,100
Steven R. Pruchansky* 391 75,000
Norman H. Smith* 405 78,000
John P. Toolan* 365 70,250
------- ----------
Total $2,683 $514,450
(1) Compensation is for the fiscal year ended February 28, 2001.
(2) Total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is for the calendar year ended December 31,
2000 As of that date, there were sixty-nine funds in the John
Hancock Fund Complex, with each of these Independent Trustees
serving on thirty four funds.
(*) As of December 31, 2000, the value of the aggregate accrued
deferred compensation from all Funds in the John Hancock fund
complex for Mr. Cunningham was $514,062, for Mr. Dion was $80,629,
for Ms. McCarter was $179,156 (resigned as of October 1, 1998) for
Mr. Pruchansky was $123,670, for Mr. Smith was $182,867 and for Mr.
Toolan was $623,506 under the John Hancock Deferred Compensation
Plan for Independent Trustees (the "Plan").
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or Directors and/or Trustees of one or more other funds for which the
Adviser serves as investment adviser.
16
As of June 4, 2001, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund. As of
that date, the following shareholders of record beneficially owned 5% or more of
the outstanding shares of the Fund.
- --------------------------------------------------------------------------------
Class of Percentage of Total
Name and Address of Shareholder Shares Outstanding Shares
- ------------------------------- ------ ------------------
- --------------------------------------------------------------------------------
MLPF &S for the Sole B 13.65%
Benefit of its Customers
ATT: Fund Administration
4800 Deerlake Drive East
Jacksonville FL
- --------------------------------------------------------------------------------
Sterling Trust Company C 7.32%
Rancho La Puerta 401(k) Plan
1380 Lawrence St Ste 1400
Denver CO 80204
- --------------------------------------------------------------------------------
Sterling Trust Company C 6.12%
Starry Associates Retirement Plan
1380 Lawrence St Ste 1400
Denver CO 80204
- --------------------------------------------------------------------------------
Independence Investment Associates I 24.02%
53 State Street
Boston MA 02109
- --------------------------------------------------------------------------------
Sterling Trust Company I 30.25%
Arden Group 401(k) Ret Savings Plan
1380 Lawrence St Ste 1400
Denver CO 80204
- --------------------------------------------------------------------------------
Sterling Trust Company I 8.60%
TL Cannon 401(k) Plan
1380 Lawrence St Ste 1400
Denver CO 80204
- --------------------------------------------------------------------------------
Sterling Trust Company I 17.17%
FBO ARA Individual Retirement
1380 Lawrence St Ste 1400
Denver CO 80204
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
Class of Percentage of Total
Name and Address of Shareholder Shares Outstanding Shares
- ------------------------------- ------ ------------------
- --------------------------------------------------------------------------------
Sealol Inc. Retirement and 401(k) I 7.68%
EG&G Sealol Inc
15 Pioneer avenue
Warwick, RI
- --------------------------------------------------------------------------------
Manistique Papers, Inc. I 5.63%
453 S. Mackinac Avenue
Manistique MI. 49854
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $30 billion in assets under management
in its capacity as investment adviser to the Fund and other funds in the John
Hancock group of funds, as well as retail and institutional privately managed
accounts. The Adviser is an affiliate of the Life Company, one of the most
recognized and respected financial institutions in the nation. With total assets
under management of more than $100 billion, the Life Company is one of the ten
largest life insurance companies in the United States, and carries a high rating
from Standard & Poor's and A.M. Best. Founded in 1862, the Life Company has been
serving clients for over 130 years.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously
an investment program for the Fund and determine, subject to the overall
supervision and review of the Trustees, which investments should be purchased,
held, sold or exchanged, and (b) provide supervision over all aspects of the
Fund's operations except those which are delegated to a custodian, transfer
agent or other agent.
The Fund bears all costs of its organization and operation, including but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices prospectuses, proxy statements and reports to regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders their account statements; taxes; expenses of redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodians including those for keeping books and accounts,
maintaining a committed line of credit, and calculating the net asset value of
shares; fees and expenses of transfer agents and dividend disbursing agents;
legal, accounting, financial, management, tax and auditing fees and expenses of
the Fund (including an allocable portion of the cost of the Adviser's employees
rendering such services to the Fund the compensation and expenses of Trustees
who are not otherwise affiliated with the Trust, the Adviser or any of their
affiliates; expenses of Trustees' and shareholders' meetings; trade association
memberships; insurance premiums; and any extraordinary expenses.
18
The Adviser has entered into a Sub-Advisory Agreement with Independence
Investment LLC ("Independence") (formerly Independence Investment Associates,
Inc.). Under the Sub-Advisory Agreement, the Subadviser, subject to the review
of the Trustees and the overall supervision of the Adviser, is responsible for
managing the investment operations of the Fund and the composition of the Fund's
investment portfolio and furnishing the Fund with advice and recommendations
with respect to investments, investment policies and the purchase and sale of
securities. Independence, located at 53 State Street, Boston, Massachusetts
02109, and organized in 1982, is a wholly owned indirect subsidiary of John
Hancock Subsidiaries, Inc.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
Average Daily Net Assets Annual Rate
- ------------------------ -----------
First $500,000,000 0.80%
Amount over $500,000,000 0.75%
The advisory fees paid by the Fund are greater than those paid by most funds,
but they are comparable to those paid by many investment companies with similar
investment objectives and policies. The Adviser (not the Fund) pays a portion of
its fee to the Subadviser at the rate of 55% of the advisory fee payable on the
Fund's average daily net assets.
For the years ended February 28, 1999, the Adviser waived the entire investment
management fee for the Fund. For the year ended February 29, 2000 and February
28, 2001, the management fee paid by the Fund to the adviser amounted to $85,117
and $506,120 for services, net of expense limitation. The Subadviser waived all
subadvisory fees for these periods.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of its average daily net
assets. The Adviser has agreed to limit Fund expenses (excluding 12b-1 and
transfer agent fees) to 0.90% of the Fund's average daily net assets at least
until June 30, 2002. The Adviser retains the right to reimpose a fee and recover
any other payments to the extent that, at the end of any fiscal year, the Fund's
annual expenses fall below this limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser, the Subadviser or its affiliates provide
investment advice. Because of different investment objectives or other factors,
a particular security may be bought for one or more funds or clients when one or
more other funds or clients are selling the same security. If opportunities for
purchase or sale of securities by the Adviser or Subadviser for the Fund or for
other funds or clients for which the Adviser or Subadviser renders investment
advice arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds or
clients in a manner deemed equitable to all of them. To the extent that
transactions on behalf of more than one client of the Adviser, Subadviser 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.
19
Pursuant to its Advisory Agreement and Sub-Advisory Agreement, the Adviser and
Subadviser are not liable for any error of judgment or mistake of law or for any
loss suffered by the Fund in connection with the matters to which the respective
Agreements relate, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Adviser or Subadviser in the performance
of its duties or from reckless disregard of the obligations and duties under the
applicable Agreement.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for as long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Advisory
Agreement is no longer in effect, the Fund (to the extent that it lawfully can)
will cease to use such a name or any other name indicating that it is advised by
or otherwise connected with the Adviser. In addition, the Adviser or the Life
Company may grant the nonexclusive right to use the name "John Hancock" or any
similar name to any other corporation or entity, including but not limited to
any investment company of which the Life Company or any subsidiary or affiliate
thereof or any successor to the business of any subsidiary or affiliate thereof
shall be the investment adviser.
Under the Sub-Advisory Agreement of the Fund, the Fund may use the name
"Independence" or any name derived from or similar to it only for as long as the
Sub-Advisory Agreement is in effect. When the Sub-Advisory Agreement is no
longer in effect, the Fund (to the extent that it lawfully can) will cease to
use any name indicating that it is advised by or otherwise connected with
Independence. In addition, Independence or the Life Company may grant the
non-exclusive right to use the name "Independence" or any similar name to any
other corporation or entity, including but not limited to any investment company
of which Independence or any subsidiary or affiliate thereof or any successor to
the business of any subsidiary or affiliate thereof shall be the investment
adviser.
The continuation of the Advisory Agreement, Sub-Advisory Agreement and the
Distribution Agreement (discussed below) was approved by all Trustees. The
Advisory Agreement, Sub-Advisory Agreement and the Distribution Agreement will
continue in effect from year to year, provided that its continuance is approved
annually both (i) by the holders of a majority of the outstanding voting
securities of the Trust or by the Trustees, and (ii) by a majority of the
Trustees who are not parties to the Agreement or "interested persons" of any
such parties. Each Agreement may be terminated on 60 days written notice by any
party or by vote of a majority of the outstanding voting securities of the Fund
and will terminate automatically if assigned.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal year ended February 28, 1999, February 29,
2000 and February 28, 2001, the Fund paid the Adviser $929, $3,827 and $13,590,
respectively, for services under this agreement.
Personnel of the Adviser, Sub-Adviser, and their affiliates may trade securities
for their personal accounts. The Fund also may hold, or may be buying or
selling, the same securities. To prevent the Fund from being disadvantaged, the
Adviser, Sub-Adviser and their affiliates and the Fund have adopted a code of
ethics which restricts the trading activity of those personnel.
20
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") that have entered into selling agency
agreements with John Hancock Funds. These Selling Brokers are authorized to
designate other intermediaries to receive purchase and redemption orders on
behalf of the Fund. John Hancock Funds accepts orders for the purchase of the
shares of the Fund that are continually offered at net asset value next
determined, plus an applicable sales charge, if any. In connection with the sale
of Fund shares, John Hancock Funds and Selling Brokers receive compensation from
a sales charge imposed, in the case of Class A and Class C shares, at the time
of sale. In the case of Class B or Class C shares, the broker receives
compensation immediately but John Hancock Funds is compensated on a deferred
basis.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal year ended February 29, 2000 and February 28, 2001 were $210,331 and
$519,459 respectively. Of such amounts, $5,622 and $36,155 were retained by John
Hancock Funds in 2000 and 2001, respectively. The remainder of the underwriting
commissions were reallowed to dealers.
The Fund's Trustees adopted Distribution Plans with respect to Class A, Class B
and Class C of shares (the "Plans") pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Under the Plans, the Fund will pay distribution and service
fees at an aggregate annual rate of up to 0.30% for Class A shares and 1.00% for
Class B and Class C shares of the Fund's average daily net assets attributable
to shares of that class. However, the service fees will not exceed 0.25% of the
Fund's average daily net assets attributable to each class of shares. The
distribution fees will be used to reimburse John Hancock Funds for its
distribution expenses, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of the
John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing,
promotional and overhead expenses incurred in connection with the distribution
of Fund shares; and (iii) with respect to Class B and Class C shares only,
interest expenses on unreimbursed distribution expenses. The service fees will
be used to compensate Selling Brokers and others for providing personal and
account maintenance services to shareholders. In the event that John Hancock
Funds is not fully reimbursed for payments or expenses it incurs under the Class
A Plan, these expenses will not be carried beyond twelve months from the date
they were incurred. Unreimbursed expenses under the Class B and Class C Plans
will be carried forward together with interest on the balance of these
unreimbursed expenses. The Fund does not treat unreimbursed expenses under the
Class B and Class C Plans as a liability of the Fund because the Trustees may
terminate the Class B and /or Class C Plans at any time with no additional
liability for these expenses to the shareholders and the Fund. For the fiscal
year ended February 28, 2001, an aggregate of $18,003 of distribution expenses
or 0.06% of the average net assets of the Class B shares of the Fund, was not
reimbursed or recovered by John Hancock Funds through the receipt of deferred
sales charges or Rule 12b-1 fees in prior periods. For the fiscal year ended
February 28, 2001, an aggregate of $1,527 of distribution expenses or 0.09% of
the average net assets of the Class C shares of the Fund, was not reimbursed or
recovered by John Hancock Funds through the receipt of deferred sales charges or
Rule 12b-1 fees in prior periods.
The Plans were approved by the Trustees, including a majority of the Trustees
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plans (the "Independent Trustees"),
by votes cast in person at meetings called for the purpose of voting on these
Plans.
21
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they 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. The Plans provide that they may be terminated without
penalty, (a) by a vote of a majority of the Independent Trustees, (b) by a vote
of a majority of the Fund's outstanding shares of the applicable class upon 60
days' written notice to John Hancock Funds and (c) automatically in the event of
assignment. The Plans further provide that they may not be amended to increase
the maximum amount of the fees for the services described therein without the
approval of a majority of the outstanding shares of the class of the Fund which
has voting rights with respect to that Plan. Each plan provides, that no
material amendment to the Plans will be effective unless it is approved by a
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A, Class B and Class C shares have exclusive voting rights with
respect to the Plan applicable to their respective class of shares. In adopting
the Plans, the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable class of
shares of the Fund.
Class I shares of the Fund are not subject to any distribution plan. Expenses
associated with the obligation of John Hancock Funds to use its best efforts to
sell Class I shares will be paid by the Adviser or by John Hancock Funds and
will not be paid from the fees paid under Class A, Class B or Class C Plans.
Amounts paid to the John Hancock Funds by any class of shares of the Fund will
not be used to pay the expenses incurred with respect to any other class of
shares of the Fund; provided, however, that expenses attributable to the Fund as
a whole will be allocated, to the extent permitted by law, according to the
formula based upon gross sales dollars and/or average daily net assets of each
such class, as may be approved from time to time by vote of a majority of the
Trustees. From time to time, the Fund may participate in joint distribution
activities with other Funds and the costs of those activities will be borne by
each Fund in proportion to the relative net asset value of the participating
Fund.
During the fiscal year ended February 28, 2001, the Fund paid John Hancock Funds
the following amounts of expenses in connection with their services for the
Fund:
22
Expense Items
-------------
Printing and
Mailing of Interest,
Prospectuses Expenses of Carrying or
to new Compensation to John Hancock Other Finance
Advertising Shareholders Selling Brokers Funds Charges
----------- ------------ --------------- ------------ -------------
Class A $25,312 $1,229 $ 6,372 $ 67,758 --
Class B $58,147 $2,768 $ 2,768 $147,877 $2,474
Class C $ 3,971 $ 247 $ 247 $ 9,883 --
SALES COMPENSATION
As part of their business strategies, the Fund, along with John Hancock Funds,
pay compensation to financial services firms that sell the fund's shares. These
firms typically pass along a portion of this compensation to your broker or
financial representative.
The two primary sources of broker compensation payments for Class A, Class B and
Class C shares are (1) the 12b-1 fees that are paid out of the fund's assets and
(2) sales charges paid by investors. The sales charges and 12b-1 fees are
detailed in the prospectus and under the "Distribution Contracts" in this
Statement of Additional Information. The portions of these expenses that are
paid to financial services firms are shown on the next page. For Class I shares,
John Hancock Funds may make a one-time payment at the time of initial purchase
out of its own resources to a Selling Broker who sells shares of the Fund. This
payment may not exceed 0.15% of the amount invested.
Whenever you purchase Class A, Class B or Class C shares, the financial services
firm receives a reallowance/payment as described below. The firm also receives
the first year's12b-1 service fee at this time. Beginning with the second year
after an investment is made, the financial services firm receives an annual 12-1
service fee of 0.25% of its total eligible fund net assets. This fee is paid
quarterly in arrears by the Fund.
In addition, from time to time, John Hancock Funds, at its expense, may provide
significant additional compensation to financial services firms in connection
with the sale of shares of the Fund. Such compensation provided by John Hancock
Funds may include, for example, financial assistance to financial services firms
in connection with their marketing and sales development programs for their
registered representatives and other employees, as well as payment for travel
expenses, including lodging, incurred by registered representatives and other
employees for such marketing and sales development programs, seminars for the
public, advertising and sales campaigns regarding one or more Funds, and/or
other financial services firms-sponsored events or activities. From time to
time, John Hancock Funds may make expense reimbursements for special training of
a financial services firm's registered representatives and other employees in
group meetings. Other compensation, such as asset retention fees, finder's fees
and reimbursement for wire transfer fees, may be offered to the extent not
prohibited by law or any self-regulatory agency, such as the NASD.
23
Sales charge paid Broker receives Broker receives
by investors (% maximum reallowance 12b-1 service Total broker
of offering (% of offering fee (% of net compensation (1)
Class A investments price) price) investment) (3) (% of offering price)
- ------------------- ----------------- -------------------- --------------- ---------------------
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Investments of Class A
share of $1
million or more (4)
- -------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Broker receives Broker receives
maximum reallowance 12b-1 service Total broker
(% of offering fee (% of net compensation (1)
Class B investments price) investment) (3) (% of offering price)
- ------------------- ------ --------------- ---------------------
All amounts -- 3.75% 0.25% 4.00%
Broker receives Broker receives 12
maximum b-1 service Total broker
reallowance fee (% of net compensation
Class C Investments (% of offering price) investment) (% of offering price)
- ------------------- --------------------- ----------- ---------------------
Amounts purchased at NAV 0.75% 0.25% 1.00%
All other amounts 1.00% 1.75% 0.25% 2.00%
Broker receives Broker receives
maximum 12b-1 service Total broker
reallowance fee (% of net compensation (1)
Class I investments (% of offering price) investment) (3) (% of offering price)
- ------------------- -------------------- --------------- ---------------------
All amounts -- 0.00% 0.00% 0.00% (5)
(1) Broker percentages and 12b-1 service fee percentages are calculated from
different amounts, and therefore may not equal total broker compensation
percentages if combined using simple addition.
(2) For Group Investment Programs sales, the maximum total broker compensation
for investments of $1 million or more is 1.00% of the offering price (one year
CDSC of 1.00% applies for each sale).
(3) After first year broker receives 12b-1 fees quarterly in arrears.
24
(4) John Hancock Funds reduce aggregate investments by the amount of recent
redemptions.
(5) John Hancock Funds may make a one-time payment at the time of initial
purchase out of its own resources to a Selling Broker who sells Class I shares
of the Fund. This payment may be up to 0.15% of the amount invested.
CDSC revenues collected by John Hancock Funds may be used to pay brokers
commissions when there is no initial sales charge
NET ASSET VALUE
For purposes of calculating the net asset value (NAV) of the Fund's shares, the
following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market- maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
The NAV of each Fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net assets by the number of its shares outstanding.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which the Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A AND CLASS C SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). The Fund no longer
issues shares certificates. All shares are electronically recorded. The Trustees
reserve the right to change or waive the Fund's minimum investment requirements
and to reject any order to purchase shares (including purchase by exchange) when
in the judgment of the Adviser such rejection is in the Fund's best interest.
25
The sales charges applicable to purchases of Class A and Class C shares of the
Fund are described in the Fund's Prospectus. Methods of obtaining reduced sales
charges referred to generally in the Prospectus are described in detail below.
In calculating the sales charge applicable to current purchases of Class A
shares of the Fund, the investor is entitled to accumulate current purchases
with the greater of the current value (at offering price) of the Class A shares
of the Fund, owned by the investor, or if John Hancock Signature Services, Inc.
("Signature Services") is notified by the investor's dealer or the investor at
the time of the purchase, the cost of the Class A shares owned.
Without Sales Charges. Class A shares may be offered without a front-end sales
charge or contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates, subadviser or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, grandparents, grandchildren, mother, father, sister,
brother, mother-in-law, father-in-law, daughter-in-law, son-in-law,
niece, nephew and same sex domestic partner) of any of the foregoing;
or any fund, pension, profit sharing or other benefit plan for the
individuals described above.
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into a signed agreement with John
Hancock Funds providing specifically for the use of Fund shares in
fee-based investment products or services made available to their
clients.
o A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any
or all of his or her plan distributions directly to the Fund.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million in assets or 500 eligible employees
at the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement. See your Merrill Lynch financial consultant for
further information.
o Retirement plans investing through the PruArray Program sponsored by
Prudential Securities.
o Pension plans transferring assets from a John Hancock variable annuity
contract to the Fund pursuant to an exemptive application approved by
the Securities and Exchange Commission.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed retirement plans with at least 100 eligible employees at the
inception of the Fund account. Each of these investors may purchase
Class A shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which
the purchase was made, a CDSC will be imposed at the following rate:
26
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class C shares may be offered without a front-end sales charge to:
o Retirement plans for which John Hancock Signature Services formerly
performed employer sponsored plan recordkeeping services. (These types
of plans include 401(k), money purchase pension, profit sharing and
SIMPLE 401(k)).
o An investor who buys through a Merrill Lynch omnibus account. However,
a CDSC may apply if the shares are sold within 12 months of purchase.
Class A and Class C shares may also be purchased without an initial sales charge
in connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). A company's (not an individual's) qualified and non-qualified retirement
plan investments can be combined to take advantage of this privilege. Further
information about combined purchases, including certain restrictions on combined
group purchases, is available from Signature Services or a Selling Broker's
representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount being invested but also
the investor's purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares. Retirement plan investors may include the value of Class
B shares if Class B shares held are greater than $1 million. Retirement plans
must notify Signature Services to utilize. A company's (not an individual's)
qualified and non-qualified retirement plan investments can be combined to take
advantage of this privilege.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
27
Letter of Intention. Reduced sales charges are also applicable to investments
made pursuant to a Letter of Intention (the "LOI"), which should be read
carefully prior to its execution by an investor. The Fund offers two options
regarding the specified period for making investments under the LOI. All
investors have the option of making their investments over a specified period of
thirteen (13) months. Investors who are using the Fund as a funding medium for a
retirement plan, however, may opt to make the necessary investments called for
by the LOI over a forty-eight (48) month period. These retirement plans include
traditional, Roth IRAs, SEP, SARSEP, 401(k), 403(b) (including TSAs), SIMPLE
IRA, SIMPLE 401(k), Money Purchase Pension, Profit Sharing and Section 457
plans. An individual's non-qualified and qualified retirement plan investments
cannot be combined to satisfy LOI of 48 months. Such an investment (including
accumulations and combinations but not including reinvested dividends) must
aggregate $50,000 or more invested during the specified period from the date of
the LOI or from a date within ninety (90) days prior thereto, upon written
request to Signature Services. The sales charge applicable to all amounts
invested under the LOI is computed as if the aggregate amount intended to be
invested had been invested immediately. If such aggregate amount is not actually
invested, the difference in the sales charge actually paid and the sales charge
payable had the LOI not been in effect is due from the investor. However, for
the purchases actually made within the specified period (either 13 or 48 months)
the sales charge applicable will not be higher than that which would have
applied (including accumulations and combinations) had the LOI been for the
amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional Class A shares and
may be terminated at any time.
Because Class I shares are sold at net asset value without the imposition of
any sales charge, none of the privileges described under these captions are
available to Class I investors.
28
DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so that the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed
within six years or one year of purchase, respectively will be subject to a CDSC
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
or Class C shares being redeemed. No CDSC will be imposed on increases in
account value above the initial purchase prices, including all shares derived
from reinvestment of dividends or capital gains distributions.
Class B shares are not available to retirement plans that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of both Class B and Class C
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period for Class B or one year CDSC
redemption period for Class C, or those you acquired through dividend and
capital gain reinvestment, and next from the shares you have held the longest
during the six-year period for Class B shares. For this purpose, the amount of
any increase in a share's value above its initial purchase price is not regarded
as a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price.
When requesting a redemption for a specific dollar amount, please indicate if
you require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 Class B shares at $10 per share. The second year after
your purchase, your investment's net asset value per share has increased by $2
to $12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time your CDSC will be calculated as follows:
oProceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o*Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to
CDSC (dividend reinvestment) (120.00)
-------
oAmount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the account not just
the shares being redeemed.
29
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C shares without a sales charge being deducted at
the time of the purchase.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B and Class C shares and of Class A shares that are subject
to a CDSC, unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability. (Does not apply to trust
accounts unless trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemption of Class B (but not Class C) shares made under a periodic
withdrawal plan or redemptions for fees charged by planners or advisors
for advisory services, as long as your annual redemptions do not exceed
12% of your account value, including reinvested dividends, at the time
you established your periodic withdrawal plan and 12% of the value of
subsequent investments (less redemptions) in that account at the time
you notify Signature Services. (Please note, this waiver does not apply
to periodic withdrawal plan redemptions of Class A or Class C shares
that are subject to a CDSC.)
* Redemptions by Retirement plans participating in Merrill Lynch
servicing programs, if the Plan has less than $3 million in assets or
500 eligible employees at the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for further information.
* Redemptions of Class A shares made after one year from the inception
date of a retirement plan at John Hancock.
* Redemption of Class A shares by retirement plans that invested through
the PruArray Program sponsored by Prudential Securities.
30
For Retirement Accounts (such as traditional, Roth IRAs, SIMPLE IRAs, SIMPLE
401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase Pension Plan,
Profit-Sharing Plan and other plans as described in the Internal Revenue Code)
unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code. (Waiver based on required minimum
distribution calculations for John Hancock Mutual Fund IRA assets
only.)
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans under sections
401(a) (such as Money Purchase Pension Plans and Profit Sharing
Plan/401(k) Plans), 457 and 408 (SEPs and SIMPLE IRAs) of the Internal
Revenue Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares
prior to May 15, 1995.
31
Please see matrix for some examples.
- ------------------------- ---------------- ---------------- -------------- -------------------- --------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Rollover Non-retirement
Distribution (401 (k), MPP,
PSP) 457 & 408
(SEPs & Simple
IRAs)
- ------------------------- ---------------- ---------------- -------------- -------------------- --------------------
Death or Disability Waived Waived Waived Waived Waived
- ------------------------- ---------------- ---------------- -------------- -------------------- --------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
required minimum value annually in
distributions* or periodic payments
12% of account
value annually in
periodic payments.
- ------------------------- ---------------- ---------------- -------------- -------------------- --------------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or 12% value annually in
of account value periodic payments
annually in
periodic payments.
- ------------------------- ---------------- ---------------- -------------- -------------------- --------------------
Under 59 1/2 Waived for Waived for Waived for Waived for annuity 12% of account
(Class B only) annuity annuity annuity payments (72t) or value annually in
payments (72t) payments (72t) payments 12% of account periodic payments
or 12% of or 12% of (72t) or 12% value annually in
account value account value of account periodic payments.
annually in annually in value
periodic periodic annually in
payments. payments. periodic
payments.
- ------------------------- ---------------- ---------------- -------------- -------------------- --------------------
Loans Waived Waived N/A N/A N/A
- ------------------------- ---------------- ---------------- -------------- -------------------- --------------------
Termination of Plan Not Waived
Not Waived Not Waived Not Waived N/A
- ------------------------- ---------------- ---------------- -------------- -------------------- --------------------
Hardships Waived Waived Waived N/A N/A
- ------------------------- ---------------- ---------------- -------------- -------------------- --------------------
Qualified Domestic
Relations Orders Waived Waived Waived N/A N/A
- ------------------------- ---------------- ---------------- -------------- -------------------- --------------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
- ------------------------- ---------------- ---------------- -------------- -------------------- --------------------
Return of Excess Waived Waived Waived Waived N/A
- ------------------------- ---------------- ---------------- -------------- -------------------- --------------------
32
*Required minimum distributions based on John Hancock Mutual Fund IRA assets
only.
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholders will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, the Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90-day period would
exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock 500 Index Fund and John Hancock
Intermediate Government Fund will retain the exchanged fund's CDSC schedule).
For purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the holding
period of the shares acquired in an exchange.
If a retirement plan exchanges the plan's Class a account in its entirety from
the Fund to a non-John Hancock investment, the one-year CDSC applies.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994 for
Class B shares of any other John Hancock fund, the acquired shares will continue
to be subject to the CDSC schedule that was in effect when the exchanged shares
were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
33
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares which may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional shares of
the Fund could be disadvantageous to a shareholder because of the initial sales
charge payable on such purchases of Class A shares and the CDSC imposed on
redemptions of Class B and Class C shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase shares at the same time a
Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability of
such plan in the future. The shareholder may terminate the plan at any time by
giving proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the order date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit in that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of 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.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
34
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
- ---------------------------------------------------------------------
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years, or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain broker-dealers
or Service Agents ("Brokers"). Brokers may charge for their services or place
limitations on the extent to which you may use the services of the Fund. The
Fund will be deemed to have received a purchase or redemption order when an
authorized broker, or if applicable, a broker's authorized designee, receives
the order. If a broker is an agent or designee of the Fund, orders are processed
at the NAV next calculated after the broker receives the order. The broker must
segregate any orders it receives after the close of regular trading on the New
York Stock Exchange and transmit those orders to the Fund for execution at NAV
next determined. Some brokers that maintain nominee accounts with the Fund for
their clients charge an annual fee on the average net assets held in such
accounts for accounting, servicing, and distribution services they provide with
respect to the underlying Fund shares. The Adviser, the Fund and/or John Hancock
Funds, Inc. (the Fund's principal distributor), share in the expense of these
fees.
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and eleven series.
Additional series may be added in the future. The Declaration of Trust also
authorizes the Trustees to classify and reclassify the shares of the Fund, or
any new series of the Trust, into one or more classes. The Trustees have also
authorized the issuance of four classes of shares of the Fund, designated as
Class A, Class B, Class C and Class I.
35
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
Class A, Class B, Class C and Class I shares have certain exclusive voting
rights on matters relating to their respective distribution plans. The different
classes of the Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
In accordance with the provisions of the Declaration of Trust, the Trustees have
initially determined that shares entitle their holders to one vote per share on
any matter on which such shares are entitled to vote. The Trustees may determine
in the future, without the vote or consent of shareholders, that each dollar of
net asset value (number of shares owned times net asset value per share) will be
entitled to one vote on any matter on which such shares are entitled to vote.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A, Class B and Class C will be
borne exclusively by that class, (ii) Class B and Class C shares will pay higher
distribution and service fees than Class A shares and (iii) each class of shares
will bear any class expenses properly allocable to that class of shares, subject
to the conditions the Internal Revenue Service imposes with respect to the
multiple-class structures. Similarly, the net asset value per share may vary
depending on which class of shares are purchased. No interest will be paid on
uncashed dividend or redemption checks.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Fund. However, the Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any shareholder held personally
liable for reason of being or having been a shareholder. The Declaration of
Trust also provides that no series of the Trust shall be liable for the
liabilities of any other series. Furthermore, no fund included in this Fund's
prospectus shall be liable for the liabilities of any other John Hancock Fund.
Liability is therefore limited to circumstances in which the Fund itself would
be unable to meet its obligations, and the possibility of this occurrence is
remote.
36
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Information provided on the account application may be used by the Fund to
verify the accuracy of the information or for background or financial history
purposes. A joint account will be administered as a joint tenancy with right of
survivorship, unless the joint owners notify Signature Services of a different
intent. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts. For telephone transactions, the transfer agent will take measures
to verify the identity of the caller, such as asking for name, account number,
Social Security or other taxpayer ID number and other relevant information. If
appropriate measures are taken, the transfer agent is not responsible for any
losses that may occur to any account due to an unauthorized telephone call. Also
for your protection telephone transactions are not permitted on accounts whose
names or addresses have changed within the past 30 days. Proceeds from telephone
transactions can only be mailed to the address of record.
Selling activities for the Fund may not take place outside the U.S. except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
TAX STATUS
The Fund is treated as a separate entity for accounting and tax purposes, has
qualified 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 qualify for each taxable year. As such and by complying
with the applicable provisions of the Code regarding the sources of its income,
the timing of its distributions and the diversification of its assets, the Fund
will not be subject to Federal income tax on its taxable income (including net
realized capital gains) which is distributed to shareholders in accordance with
the timing requirements of the Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distribution from the Fund's current or accumulated earnings and profits ("E&P")
will be taxable under the Code for investors who are subject to tax. If these
distributions are paid from the Fund's "investment company taxable income," they
will be taxable as ordinary income; and if they are paid from the Fund's "net
capital gain" they will be taxable as long-term capital gain. (Net capital gain
is the excess (if any) of net long-term capital gain over net short-term capital
loss, and investment company taxable income is all taxable income and capital
gains, other than net capital gain, after reduction by deductible expenses).
Some distributions may be paid in January but may be taxable to shareholders as
if they had been received on December 31 of the previous year. The tax treatment
described above will apply without regard to whether distributions are received
in cash or reinvested in additional shares of the Fund.
37
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Some tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. Because more than 50% of the Fund's total assets at the close of any
taxable year will not consist of stocks or securities of foreign corporations,
the Fund will be unable to pass such taxes through to shareholders, who
consequently will not include any portion of such taxes in their incomes and
will not be entitled to any associated tax credits or deductions with respect to
such taxes. The Fund will deduct the foreign taxes it pays in determining the
amount it has available for distribution to shareholders.
If the Fund invests in stock or ADRs representing stock (including an option to
acquire stock such as is inherent in a convertible bond) in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, certain rents and royalties or capital
gain) or hold at least 50% of their asset in investments producing such passive
income ("passive foreign investment companies"), the Fund could be subject to
Federal income tax and additional interest charges on "excess distributions"
received from such companies or gain from the sale of stock in such companies,
even if all income or gain actually received by the Fund is timely distributed
to its shareholders. The Fund would not be able to pass through to its
shareholders any credit or deduction for such a tax. An election may be
available to ameliorate these adverse tax consequences, but could require the
Fund to recognize taxable income or gain without the concurrent receipt of cash.
These investments could also result in the treatment of associated capital gains
as ordinary income. The Fund may limit and/or manage its holdings in passive
foreign investment companies or make an available election to minimize its tax
liability or maximize its return from these investments.
The amount of the Fund's net realized capital gains, if any, in any given year
will vary depending upon the Adviser's current investment strategy and whether
the Adviser believes it to be in the best interest of the Fund to dispose of
portfolio securities that will generate capital gains. At the time of an
investor's purchase of Fund shares, a portion of the purchase price is often
attributable to realized or unrealized appreciation in the Fund's portfolio or
undistributed taxable income of the Fund. Consequently, subsequent distributions
on those shares from such appreciation or income may be taxable to such investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption or other disposition of shares of the Fund (including by
exercise of the exchange privilege)in a transaction that is treated as a sale
for tax purposes, a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands. A sales charge paid in purchasing
shares of the Fund cannot be taken into account for purposes of determining gain
or loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent shares of the Fund or another John Hancock fund are
38
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. This disregarded charge will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange may be disallowed to the
extent the shares disposed of are replaced with other shares of the Fund within
a period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to automatic dividend reinvestments. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Also, any loss realized upon the redemption of shares with a tax holding period
of six months or less will be treated as a long-term capital loss to the extent
of any amounts treated as distributions of long-term capital gain with respect
to such shares. Shareholders should consult their own tax advisers regarding
their particular circumstances to determine whether a disposition of Fund shares
is properly treated as a sale for tax purposes, as is assumed in the foregoing
discussion.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain in his return for his taxable year in which the last day of the
Fund's taxable year falls, (b) be entitled either to a tax credit on his return
for, or to a refund of, his pro rata share of the taxes paid by the Fund, and
(c) be entitled to increase the adjusted tax basis for his shares in the Fund by
the difference between his pro rata share of such excess and his pro rata share
of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
realized capital loss in any year to offset net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in Federal income
tax liability to the Fund and, as noted above, would not be distributed as such
to shareholders. Presently, there are no realized capital loss carry forwards
available to offset future net realized capital gains.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) during a prescribed period extending before and after each such
dividend and distributed and properly designated by the Fund may be treated as
qualifying dividends. Corporate shareholders must meet the holding period
requirements stated above with respect to their shares of the Fund for each
dividend in order to qualify for the deduction and, if they have any debt that
39
is deemed under the Code directly attributable to such shares, may be denied a
portion of the dividends received deduction. The entire qualifying dividend,
including the otherwise deductible amount, will be included in determining a
corporate shareholder's alternative minimum tax liability, if any. Additionally,
any corporate shareholder should consult its tax adviser regarding the
possibility that its tax basis in its shares may be reduced, for Federal income
tax purposes, by reason of "extraordinary dividends" received with respect to
the shares, and, to the extent such basis would be reduced below zero, that
current recognition of income would be required.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. However, the
Fund must distribute to shareholders for each taxable year substantially all of
its net income and net capital gains, including such income or gain, to qualify
as a regulated investment company and avoid liability for any federal income or
excise tax. Therefore, the Fund may have to dispose of its portfolio securities
under disadvantageous circumstances to generate cash, or may borrow cash, to
satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. Government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The Fund will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although it may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all distributions to shareholders, as well as gross proceeds from the redemption
or exchange of Fund shares, except in the case of certain exempt recipients,
i.e., corporations and certain other investors distributions to which are exempt
from the information reporting provisions of the Code. Under the backup
withholding provisions of Code Section 3406 and applicable Treasury regulations,
all such reportable distributions and proceeds may be subject to backup
withholding of federal income tax at the rate of 31% in the case of non-exempt
shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. The Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
40
The foregoing discussion relates solely to Federal income tax law as applicable
to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain types of
investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
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 non-resident alien withholding tax at the rate of
30% (or a lower rate under an applicable tax treaty) on amounts treated as
ordinary dividends from the Fund and, unless an effective IRS Form W-8, Form
W-8BEN, or other authorized withholding certificate 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.
The Fund anticipates that, provided that the Fund qualifies as a regulated
investment company under the Code, it will also not be required to pay any
Massachusetts income tax.
CALCULATION OF PERFORMANCE
As of February 28, 2001, the average annual total return for Class A shares of
the Fund for the 1 year period and since commencement of operations on July 1,
1999 were -29.94% and -14.84%, respectively.
As of February 28, 2001, the average annual total return for Class B shares of
the Fund for the 1 year period and since commencement of operations on July 1,
1999 were -30.45% and -14.88%, respectively.
As of February 28, 2001, the average annual total return for Class C shares of
the Fund for the 1 year period and since commencement of operations on July 1,
1999 were -28.26% and -13.29%, respectively.
As of February 28, 2001, the average annual total returns for Class I shares of
the Fund for the 1 year and five year periods and since commencement of
operations on October 2, 1995 were -25.96%, 13.70% and 14.60%, respectively.
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:
41
n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at the
beginning of the 1 year, 5 year, and 10 year periods.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of Class A, Class B or Class C, this
calculation assumes the maximum sales charge when incurred is included in the
initial investment or the CDSC is applied at the end of the period,
respectively. This calculation assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period. The
"distribution rate" is determined by annualizing the result of dividing the
declared dividends of the Fund during the period stated by the maximum offering
price or net asset value at the end of the period. Excluding the Fund's sales
charge from the distribution rate produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments and/or a series of redemptions over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A or Class
C shares or the CDSC on Class B or Class C shares into account. Excluding the
Fund's sales charge on Class A shares and the CDSC on Class B or Class C shares
from a total return calculation produces a higher total return figure.
The Fund may advertise yield, where appropriate. The Fund's yield is computed by
dividing net investment income per share determined for a 30-day period by the
maximum offering price per share (which includes the full sales charge) on the
last day of the period, according to the following standard formula:
42
6
Yield = 2 ( [ ( a - b ) + 1 ] - 1 )
-------
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during
the period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period (NAV where applicable).
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper - Mutual Fund Performance Analysis," a monthly
publication which tracks net assets, total return and yield on mutual funds in
the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are
also used for comparison purposes, as well as the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in, and excerpts from,
national financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK,
THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may
also be utilized. The Fund's promotional and sales literature may make reference
to the Fund's "beta". Beta is a reflection of the market related risk of the
Fund by showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by an investment committee of the Adviser, which consists
of officers and directors of the Adviser and affiliates and officers and
Trustees who are interested persons of the Fund. Orders for purchases and sales
of securities are placed in a manner which, in the opinion of the Adviser, will
offer the best price and market for the execution of each such transaction.
Purchases from underwriters of portfolio securities may include a commission or
commissions paid by the issuer, and transactions with dealers serving as market
makers reflect a "spread". Debt securities are generally traded on a net basis
through dealers acting for their own account as principals and not as brokers;
no brokerage commissions are payable on these transactions.
43
In the U.S. Government securities market, securities are generally traded on a
"net" basis with dealers acting as principal for their own account without a
stated commission, although the price of the security usually includes a profit
to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and, to a
lesser extent, statistical assistance furnished to the Adviser of the Fund and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and, conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will not make commitments to allocate portfolio transactions upon any
prescribed basis. While the Adviser's officers will be primarily responsible for
the allocation of the Fund's brokerage business, their policies and practices in
this regard must be consistent with the foregoing and will at all times be
subject to review by the Trustees. For the fiscal years ended on February 28,
1999, February 29, 2000 and February 28, 2001, the Fund paid negotiated
brokerage commissions in the amount of $4,453, $24,719 and $105,035,
respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay a broker which provides brokerage and research services to the Fund an
amount of disclosed commission in excess of the commission which another broker
would have charged for effecting that transaction. This practice is subject to a
good faith determination by the Trustees that such commission is reasonable in
light of the services provided and to such policies as the Trustees may adopt
from time to time. For the fiscal year ended February 28, 2001, 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.
44
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of Signator Investors, Inc., a broker-dealer (until January 1, 1999,
John Hancock Distributors, Inc.) ("Signator" or "Affiliated Broker"). Pursuant
to procedures determined by the Trustees and consistent with the above policy of
obtaining best net results, the Fund may execute portfolio transactions with or
through the Affiliated Broker. During the fiscal years ended February 28, 1999,
February 29, 2000 and February 28, 2001, the Fund did not execute any portfolio
transactions with the Affiliated Broker.
Signator may act as broker for the Fund on exchange transactions, subject,
however, to the general policy of the Fund set forth above and the procedures
adopted by the Trustees pursuant to the Investment Company Act. Commissions paid
to an Affiliated Broker must be at least as favorable as those which the
Trustees believe to be contemporaneously charged by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold. A transaction would not be placed with an Affiliated Broker if the Fund
would have to pay a commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers, except for accounts for which the Affiliated Broker
acts as clearing broker for another brokerage firm, and any customers of the
Affiliated Broker not comparable to the Fund as determined by a majority of the
Trustees who are not "interested persons" (as defined in the Investment Company
Act) of the Fund, the Adviser or the Affiliated Broker. Because the Adviser,
which is affiliated with the Affiliated Broker, has, as an investment adviser to
the Fund, the obligation to provide investment management services, which
include elements of research and related investment skills, such research and
related skills will not be used by the Affiliated Broker as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate securities to be
sold or purchased for the Fund with those to be sold or purchased for other
clients managed by it in order to obtain best execution.
For purchases of equity securities, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. For high demand issues (for example, initial public offerings), shares
will be allocated pro rata by account size as well as on the basis of account
objective, account size ( a small account's allocation may be increased to
provide it with a meaningful position), and the account's other holdings. In
addition, an account's allocation may be increased if that account's portfolio
manager was responsible for generating the investment idea or the portfolio
manager intends to buy more shares in the secondary market. For fixed income
accounts, generally securities will be allocated when appropriate among accounts
based on account size, except if the accounts have different objectives or if an
account is too small to get a meaningful allocation. For new issues, when a
complete order is not filled, a partial allocation will be made to each account
pro rata based on the order size. However, if a partial allocation is too small
to be meaningful, it may be reallocated based on such factors as account
objectives, duration benchmarks and credit and sector exposure. For example,
value funds will likely not participate in initial public offerings as
frequently as growth funds. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtainable for it. On the other hand, to the extent permitted by law,
the Adviser may aggregate securities to be sold or purchased for the Fund with
those to be sold or purchased for other clients managed by it in order to obtain
best execution.
45
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Signature
Services an annual fee of $20.00 for each Class A shareholder account and $22.50
for each Class B shareholder account and $21.50 for each Class C shareholder
account. For Class A, B and C shares, the Fund also pays certain out-of-pocket
expenses. These expenses are charged to the Fund by account, aggregated and
allocated to each class on the basis of their relative net asset values. The
Fund pays Signature Services an annual fee of 0.05% of average daily net assets
attributable to Class I shares plus certain out-of-pocket expenses
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 200 Clarendon Street,
Boston, Massachusetts 02116. Under the custodian agreement, Investors Bank &
Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Funds are Deloitte & Touche LLP, 200 Berkeley
Street, Boston, Massachusetts 02116. Deloitte & Touche LLP audits and renders
opinions on the Funds' annual financial statements and reviews the Funds' annual
Federal income tax returns.
46
APPENDIX A
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of the fund's
risk profile in the prospectus.
A fund is permitted to utilize -- within limits established by the trustees --
certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that the Fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them with examples of related securities and
investment practices included in brackets. See the "Investment Objective and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The Fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive return over any period of time -- days, months or years.
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). Incomplete correlation can result
in unanticipated risks. (e.g., short sales, financial futures and options;
securities and index options, currency contracts).
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. (e.g., borrowing; reverse repurchase agreements, repurchase
agreements, securities lending, non-investment-grade securities, financial
futures and options; securities and index options).
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments and may widen any losses. (e.g., foreign
equities, financial futures and options; securities and index options, currency
contracts).
Information risk The risk that key information about a security or market is
inaccurate or unavailable. (e.g., non-investment-grade securities, foreign
equities).
A-1
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values. (e.g.,
non-investment-grade securities, financial futures and options; securities and
index options).
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.,
borrowing; reverse repurchase agreements, when-issued securities and forward
commitments).
o Hedged When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that the
fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains. (e.g., short sales, financial futures and options
securities and index options; currency contracts).
o Speculative To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost. (e.g., short sales, financial futures
and options securities and index options; currency contracts).
o Liquidity risk The risk that certain securities may be difficult or
impossible to sell at the time and the price that the seller would like.
The seller may have to lower the price, sell other securities instead or
forego an investment opportunity, any of which could have a negative effect
on fund management or performance. (e.g., non-investment-grand securities,
short sales, restricted and illiquid securities, financial futures and
options securities and index options; currency contracts).
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industry, sector of
the economy or the market as a whole. Common to all stocks and bonds and the
mutual funds that invest in them. (e.g., short sales, short-term trading,
when-issued securities and forward commitments, non-investment-grade securities,
foreign equities, financial futures and options; securities and index options
restricted and illiquid securities).
A-2
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events. (e.g., foreign equities).
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments. (e.g., short sales, when-issued securities and forward commitments;
financial futures and options; securities and index options, currency
contracts).
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and
war.(e.g., foreign equities).
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g., non-investment-grade securities,
restricted and illiquid securities).
A-3
APPENDIX B
Moody's describes its lower ratings for corporate bonds as follows:
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represented obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
S&P describes its lower ratings for corporate bonds as follows:
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated BB, B, CCC, or CC is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's describes its three highest ratings for commercial paper as follows:
Issuers rated P-1 (or related supporting institutions) have a superior capacity
for repayment of short-term promissory obligations. P-1 repayment capacity will
normally be evidenced by the following characteristics: (1) leading market
positions in well-established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structures with moderate reliance on
debt and ample asset protections; (4) broad margins in earnings coverage of
fixed financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured sources of
alternate liquidity.
B-1
Issuers rated P- (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P describes its three highest ratings for commercial paper as follows:
A-1. This designation indicated that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B-2
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 2001 Annual
Report to Shareholder's for the year ended February 28, 2001 (filed
electronically on April 30, 2001, accession number 0000928816-01-500082) and are
included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Core Growth Fund (file nos. 33-86102 and 811-8852).
John Hancock Institutional Series Trust
John Hancock Core Growth Fund
Statement of Assets and Liabilities as of February 28, 2001.
Statement of Operations for the year ended of February 28, 2001.
Statement of Changes in Net Asset for each of the two years in the period
ended February 28, 2001.
Financial Highlights for each of the five years in the period ended
February 28, 2001.
Schedule of Investments as of February 28, 2001.
Notes to Financial Statements.
Report of Independent Auditors.
F-1
John Hancock
Core
Growth
Fund
ANNUAL
REPORT
2.28.01
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush left next to first paragraph.]
WELCOME
Table of Contents
Your fund
at a glance
page 1
Managers' report
page 2
Fund's investments
page 8
Financial statements
page 12
For your information
page 29
Dear Fellow Shareholders,
The stock market brought investors back to earth in 2000 after a run of
nine consecutive years of positive stock-market results. The first two
months of 2001 have been equally sobering. Investors have grown
increasingly worried about the slowing economy and declining corporate
earnings. High-priced growth stocks have been the hardest hit.
Technology stocks, which got pounded in 2000, went into another free
fall in February, sending the NASDAQ Composite Index down 54% by the end
of February from its near high a year ago. While the broad stock market
has remained volatile, and in negative territory year-to-date, bonds
have done well in response to falling interest rates.
The year 2001 finds us with lingering uncertainties, a new U.S.
president and new possibilities. Questions remain about how successful
the Federal Reserve will be in preventing a recession. Even though the
Fed remains a key force impacting financial markets, we are also
watching Washington, D.C. as President George W. Bush attempts to enact
tax cuts.
As always, we will continue to update you on these developments and
anything that specifically relates to your fund and its performance. In
fact, this newly designed shareholder report is our latest offering in
that regard, and is part of our ongoing effort to better serve our
shareholders.
Based on your feedback, we set out to create a more inviting report that
you could easily navigate and that would provide you with more
information on your fund. In addition to the new overall look, there are
several prominent changes, including a table of contents, additional
charts and a new summary page opposite this one. The most obvious
difference is the report's size. By changing it to a standard mailing
format we hope to deliver it to you in an even more timely fashion.
These twice-yearly shareholder reports are your best way to better
understand your fund and what has been driving its performance. We
encourage you to read them, and hope that our new and improved version
will make the task easier and more meaningful.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Vice Chairman and Chief Executive Officer
YOUR FUND
AT A GLANCE
The Fund seeks
above-average
total return by
investing in large-
capitalization
stocks with high
potential earnings
growth.
Over the last twelve months
* Investors fled growth stocks, especially technology and
telecommunications names.
* The Fund's high stake in technology hurt near-term performance.
* Health-care and financial stocks were positive contributors to
returns, as their more reasonable prices and consistent earnings growth
attracted investors.
[Bar chart with heading "John Hancock Core Growth Fund." Under the
heading is a note that reads "Fund performance for the year ended
February 28, 2001." The chart is scaled in increments of 10% with -30%
at the bottom and 0% at the top. The first bar represents the -26.26%
total return for Class A. The second bar represents the -26.86% total
return for Class B. The third bar represents the -26.81% total return
for Class C. The fourth bar represents the -25.96 total return for Class I.
A note below the chart reads "Total returns for the Fund are at net asset
value with all distributions reinvested."]
Top 10 holdings
7.7% General Electric
6.8% Pfizer
5.3% Microsoft
4.8% Intel
4.0% Cisco Systems
3.8% AOL Time Warner
3.3% International Business Machines
2.7% Merck
2.4% EMC
2.0% Wal-Mart Stores
As a percentage of net assets on February 28, 2001.
BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Core Growth Fund
MANAGERS'
REPORT
Volatility rocked the stock market throughout the past year, displacing
high-flying growth stocks from their leadership positions. Rising
interest rates early on, then a marked slowdown in economic growth, plus
higher energy prices, conflict in the Middle East and rolling blackouts
in California all fueled a flight to safety. Defensive stocks with
steady earnings growth, especially in the financial, health-care and
utilities sectors, benefited. Technology and telecommunications growth
stocks, by contrast, took it on the chin. Technology stocks, which
tumbled severely last spring, declined sharply again during the third
quarter as personal computer (PC) and semiconductor sales slowed.
Telecommunications stocks also fell as competition increased and
financing tightened. By the fourth quarter, a clear-cut downturn in
economic growth was crimping the earnings outlooks for all growth
stocks. Although the Federal Reserve lowered interest rates early in the
New Year, the market -- particularly growth sectors -- remained in a
slump.
"Volatility rocked the stock
market throughout the
past year, displacing high-
flying growth stocks from
their leadership positions."
PERFORMANCE REVIEW
The Russell 1000 Growth Index -- which is 50% in technology stocks --
returned -31.12% for the year ended February 28, 2001. John Hancock
Core Growth Fund maintained its disciplined strategy of mirroring the
Index's industry diversification, while focusing on inexpensive stocks
with strong earnings growth prospects. The Fund's Class A, Class B,
Class C, and Class I shares returned -26.26%, -26.86%, -26.81%, and
-25.96%, respectively, at net asset value, during the same period. The
average large-cap growth fund, by comparison, returned -29.22%,
according to Lipper, Inc.1 Keep in mind that your net asset value return
will differ from the Fund's if you were not invested for the exact same
period and did not reinvest all distributions. See pages six and seven
for historical performance information.
TECHNOLOGY DISAPPOINTMENTS
Most of the Fund's losses during the period came from our heavy
investment in technology stocks, many of which plunged 50% or more
during the period as earnings growth slowed. Our largest technology
names were Intel, which makes the Pentium chips for PCs, and Cisco
Systems, the dominant network provider for Internet traffic. Both stocks
took nosedives as near-term demand for their products weakened. The Fund
had sizable stakes in other technology-related companies, including EMC,
a data storage company, and Sun Microsystems, which makes workstations
and servers. These stocks tumbled as demand softened. Even names that
had earlier been top performers for the Fund took a beating. Among them
were Lucent Technologies and Corning, both of which were hurt as the
build-out of new high-speed fiber-optic networks slowed.
"Most of the Fund's
losses during the period
came from our heavy invest
ment in technology
stocks..."
HEALTH-CARE, FINANCIAL WINNERS
Gains in health care, which ended the period at 19% of the Fund's
assets, offset some of our technology losses. Pharmaceutical stocks in
particular did well as investors searched for companies that could grow
earnings consistently even in an economic slowdown. Our top performer
for the year period was Pfizer, a drug company with diverse products and
high earnings growth rates that recently acquired Warner-Lambert
(another strong performer for the Fund). We also owned Merck, which did
well by beating earnings expectations, and Johnson & Johnson. Other
winners included Allergan, a drug company that focuses on treatments for
eye diseases, and Cardinal Health, which distributes drugs to nursing
homes.
[Table at top left-hand side of page entitled "Top five standard
industry classifications." The first listing is Computers 26%, the
second is Medical 19%, the third Electronics 13%, the fourth Retail 9%,
and the fifth Diversified operations 8%.]
Outside the health-care sector, we did well owning financial and
business services names. In the financial sector, our biggest gainer was
AXA Financial, a diversified financial services company that was
acquired by its parent. Citigroup, with its unparalleled global
franchise, and Lincoln National, a life insurance and asset management
company, also rallied as investors flocked to the financial sector. In
addition, transaction processors like SunGard Data Systems, First Data
and Fiserv did exceptionally well. These are companies that have steady
businesses from settling credit card or equities transactions.
[Pie chart at bottom of page with heading "Types of investments in the
Fund As of February 28, 2001." The chart is divided into two sections
(from top to left): Common stocks 97% and Short-term investments & other 3%.]
BUYS AND SELLS
We made relatively few changes to the Fund during the period. We sold a
couple of technology names whose prospects had weakened, including
Lucent Technologies, which faced accounting problems; JD Uniphase, which
competes with Cisco Systems but without the same clout; and Dell
Computer, which we knew would be hurt by weak PC sales. We then added to
our stakes in tech stocks like Microsoft and IBM, which have more
reasonable expectations regarding their earnings as well as more
favorable outlooks going forward. In addition, we took advantage of
market weakness to boost our investment in AOL Time Warner, which we
believe has strong synergies from merging their complementary
businesses, and General Electric, which should benefit from cost savings
and synergies related to the Honeywell acquisition. We also bought a few
new names, including Kohl's, a discount retailer that is exceptionally
well managed and has great expansion opportunities. In addition, we
began nibbling on health-care stocks like Invitrogen, a company that
makes products used in genomic research, and Lincare Holdings, a home
oxygen therapy company with improved prospects under the new
administration.
[Table at top of page entitled "SCORECARD." The header for the left
column is "INVESTMENT" and the header for the right column is "RECENT
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Pfizer followed by an up arrow with the phrase "Acquisition of
Warner-Lambert, strong new product line." The second listing is Yahoo!
followed by a down arrow with the phrase "Declining advertising revenue,
Internet downdraft." The third listing is Portal Software followed by a
down arrow with the phrase "Slowdown in demand, customer bankruptcies."]
"We expect continued
economic weakness along with
market volatility in the next
six months."
CAUTIOUS OUTLOOK
We expect continued economic weakness along with market volatility in
the next six months. Slowing corporate and consumer demand continues to
affect many sectors. In addition, many companies are cutting jobs, which
will further slow spending. We expect the Fed to respond with more
interest-rate decreases, which usually take at least six to nine months
to work their way through the system and stimulate the economy. As
investors begin to focus on the potential economic rebound, we believe
that the stock market -- especially growth stocks -- will benefit.
This commentary reflects the views of the portfolio management team
through the end of the Fund's period discussed in this report. Of
course, the team's views are subject to change as market and other
conditions warrant.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
A LOOK AT
PERFORMANCE
For the period ending
February 28, 2001.
The index used for
comparison is the
Russell 1000
Growth Index, an
unmanaged capitalization-
weighted price-only
index, which is
comprised of 1,000
of the largest
capitalized
U.S.-domiciled
companies whose
common stock is
traded on the New
York Stock
Exchange. The
securities in this
index have a
greater-than-aver
age growth
orientation.
It is not possible to
invest directly in an
index. The returns
reflect past results
and should not be
considered indicative
of future performance.
Class A Class B Class C Class I* Index
Inception date 7-1-99 7-1-99 7-1-99 10-2-95 --
Average annual returns with maximum sales charge (POP)
One year -29.94% -30.45% -28.26% -25.96% -31.12%
Five years -- -- -- 13.70% 14.19%
Since inception -14.84% -14.88% -13.29% 14.60% --
Cumulative total returns with maximum sales charge (POP)
One year -29.94% -30.45% -28.26% -25.96% -31.12%
Five years -- -- -- 90.05% 94.15%
Since inception -23.45% -23.51% -21.11% 108.94% --
Performance figures assume all distributions are reinvested. Returns
with maximum sales charge reflect a sales charge on Class A shares of 5%
and Class C shares of 1%, and the applicable contingent deferred sales
charge (CDSC) on Class B and Class C shares. The Class B shares' CDSC
declines annually between years 1-6 according to the following
schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the
sixth year. Class C shares held for less than one year are subject to a
1% CDSC. Sales charge is not applicable for Class I shares. The return
and principal value of an investment in the Fund will fluctuate, so that
shares, when redeemed, may be worth more or less than the original cost.
Index figures do not reflect sales charges and would be lower if they
did.
The Fund's performance results reflect any applicable expense
reductions, without which the expenses would increase and results would
have been less favorable. These reductions can be terminated in the
future. See the prospectus for details.
* For certain institutional investors.
GROWTH OF
$250,000
This chart shows what happened to a hypothetical $250,000 investment of
Class I* shares for the period indicated. For comparison, we've shown
the same investment in the Russell 1000 Growth Index.
Line chart with the heading "GROWTH OF $250,000." Within the chart are
two lines. The first line represents the Russell 1000 Growth Index and
is equal to $534,060 as of February 28, 2001. The second line represents
the value of the hypothetical $10,000 investment made in the John
Hancock Core Growth Fund, before sales charge, and is equal to $522,361
as of February 28, 2001.
Class A Class B Class C
Inception date 7-1-99 7-1-99 7-1-99
Without sales charge $8,056 $7,962 $7,967
With maximum sales charge $7,655 $7,643 $7,888
Index $8,301 $8,301 $8,301
Assuming all distributions were reinvested for the period indicated, the
chart above shows the value of a $10,000 investment in the Fund's Class
A, Class B and Class C shares, as of February 28, 2001. Performance will
vary based on the difference in sales charges paid by shareholders
investing in the different classes and the fee structure of those
classes.
* For certain institutional investors.
FUND'S
INVESTMENTS
Securities owned
by the Fund on
February 28,
2001.
This schedule is divided into two main categories: common stocks and
short-term investments. Common stocks are further broken down by
industry groups. Short-term investments, which represent the Fund's cash
position, are listed last.
SHARES ISSUER VALUE
COMMON STOCKS 97.17% $66.419,741
(Cost $78,609,673)
Advertising 0.98% $666,830
2,600 Interpublic Group of Cos., Inc. (The) 97,760
7,200 Lamar Advertising Co.* 297,000
3,000 Omnicom Group, Inc. 272,070
Banks -- United States 0.61% 413,566
2,700 Bank of New York Co., Inc. (The) 139,806
11,800 U.S. Bancorp 273,760
Building 0.52% 352,835
8,500 Black & Decker Corp. (The) 352,835
Chemicals 0.34% 231,920
5,200 Praxair, Inc. 231,920
Computers -- Services 2.10% 1,437,396
16,600 First Data Corp. 1,025,216
7,400 SunGard Data Systems, Inc.* 412,180
Computers -- Software 9.56% 6,534,459
7,500 Adobe Systems, Inc. 217,969
15,500 BEA Systems, Inc.* 594,813
15,900 Cadence Design Systems, Inc.* 403,065
6,300 Intuit, Inc.* 259,087
61,200 Microsoft Corp.* 3,610,800
44,800 Oracle Corp.* 851,200
5,600 PeopleSoft, Inc.* 180,600
10,900 Siebel Systems, Inc.* 416,925
Computers 14.12% 9,654,207
4,600 Brocade Communications Systems, Inc.* 178,537
114,800 Cisco Systems, Inc.* 2,719,325
40,800 EMC Corp.* 1,622,208
22,700 International Business Machines Corp. 2,267,730
6,300 Juniper Networks, Inc.* 406,744
5,800 Network Appliance, Inc.* 172,550
12,200 Palm, Inc.* 211,975
55,400 Sun Microsystems, Inc.* 1,101,075
15,000 VERITAS Software Corp.* 974,063
Diversified Operations 8.47% 5,792,515
112,700 General Electric Co. 5,240,550
10,100 Tyco International Ltd. 551,965
Electronics 13.38% 9,143,046
11,700 Altera Corp.* 270,562
13,100 American Power Conversion Corp.* 159,656
9,300 Analog Devices, Inc.* 346,890
8,000 Applied Materials, Inc.* 338,000
116,000 Intel Corp. 3,313,250
11,600 Jabil Circuit, Inc.* 260,768
7,300 Lam Research Corp.* 156,950
14,000 Linear Technology Corp. 554,750
11,300 Maxim Integrated Products, Inc.* 521,213
6,300 Novellus Systems, Inc.* 243,337
4,200 QLogic Corp.* 156,975
18,000 Sanmina Corp.* 536,625
6,600 Sawtek, Inc.* 108,900
28,500 Solectron Corp.* 776,625
9,400 Tektronix, Inc.* 232,086
16,600 Texas Instruments, Inc. 490,530
5,600 Waters Corp.* 368,816
7,900 Xilinx, Inc.* 307,113
Energy 0.31% 213,552
4,800 Calpine Corp.* 213,552
Fiber Optics 0.27% 181,406
2,700 CIENA Corp.* 181,406
Finance 1.34% 919,121
12,200 Citigroup, Inc. 599,996
6,900 Concord EFS, Inc.* 319,125
Food 0.47% 318,843
14,700 Sara Lee Corp. 318,843
Instruments -- Scientific 0.42% 290,220
4,200 Applera Corp. -- Applied Biosystems Group 290,220
Insurance 2.02% 1,380,697
10,800 Hartford Financial Services Group, Inc. (The) 689,580
10,900 Lincoln National Corp. 478,183
4,600 St. Paul Cos., Inc. (The) 212,934
Manufacturing 0.66% 450,424
7,100 Danaher Corp. 450,424
Media 4.62% 3,159,860
59,500 AOL Time Warner, Inc.* 2,619,785
20,800 AT&T Corp. -- Liberty Media Group* 305,760
4,100 Clear Channel Communications, Inc.* 234,315
Medical 19.17% 13,100,184
5,900 Allergan, Inc. 513,005
12,600 ALZA Corp.* 498,330
12,000 American Home Products Corp. 741,240
6,500 Aviron* 272,594
16,600 Bristol-Myers Squibb Co. 1,052,606
2,300 Cephalon, Inc.* 126,644
3,600 CV Therapeutics, Inc.* 128,700
4,100 Enzon, Inc.* 260,606
2,200 Invitrogen Corp.* 177,100
4,800 Johnson & Johnson 467,184
4,700 Lincare Holdings, Inc.* 277,006
9,800 Medtronic, Inc. 501,564
22,600 Merck & Co., Inc. 1,812,520
104,000 Pfizer, Inc. 4,680,000
11,800 Pharmacia Corp. 610,060
15,900 Schering-Plough Corp. 639,975
3,800 Universal Health Services, Inc. (Class B)* 341,050
Office 0.54% 371,000
7,000 Avery Dennison Corp. 371,000
Oil & Gas 0.88% 599,260
2,300 El Paso Energy Corp. 161,690
9,400 Noble Drilling Corp.* 437,570
Retail 8.83% 6,037,015
4,600 CVS Corp. 280,600
14,600 Family Dollar Stores, Inc. 383,396
5,578 Home Depot, Inc. (The) 237,065
16,700 Kohl's Corp.* 1,100,697
8,100 Lowe's Cos., Inc. 452,628
20,200 RadioShack Corp. 864,560
7,900 Tiffany & Co. 245,769
11,800 TJX Cos., Inc. 360,844
16,900 Walgreen Co. 749,008
27,200 Wal-Mart Stores, Inc. 1,362,448
Telecommunications 6.69% 4,575,585
12,800 Broadwing, Inc.* 301,056
6,200 Comverse Technology, Inc.* 464,613
18,700 Corning, Inc. 506,770
6,100 EchoStar Communications Corp.* 159,362
18,200 General Motors Corp. (Class H)* 412,594
12,500 QUALCOMM, Inc.* 685,156
25,400 Qwest Communications International, Inc.* 939,038
9,000 Scientific-Atlanta, Inc. 422,100
27,200 Sprint PCS* 684,896
Utilities 0.87% 595,800
6,600 Duke Energy Corp. 268,950
5,000 Exelon Corp. 326,850
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s omitted) VALUE
SHORT-TERM INVESTMENTS 0.01% $3,000
(Cost $3,000)
Joint Repurchase Agreement 0.01%
Investment in a joint repurchase agreement
transaction with UBS Warburg, Inc. -- Dated
02-28-01, due 03-01-01 (Secured by
U.S. Treasury Bonds 7.25% thru 13.25%,
due 11-15-09 thru 02-15-19) -- Note A 5.38% $3 3,000
TOTAL INVESTMENTS 97.18% $66,422,741
OTHER ASSETS AND LIABILITIES, NET 2.82% $1,929,789
TOTAL NET ASSETS 100.00% $68,352,530
* Non-income-producing security.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to
financial statements.
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
February 28, 2001.
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes. You'll
also find the
net asset value and
the maximum
offering price per
share.
ASSETS
Investments at value (cost $78,612,673) $66,422,741
Cash 849
Receivable for investments sold 2,042,211
Dividends and interest receivable 27,754
Other assets 3,464
Total assets 68,497,019
LIABILITIES
Payable for shares repurchased 38,531
Payable to affiliates 74,083
Other payables and accrued expenses 31,875
Total liabilities 144,489
NET ASSETS
Capital paid-in 88,295,360
Accumulated net realized loss on investments (7,752,604)
Net unrealized depreciation of investments (12,189,932)
Accumulated net investment loss (294)
Net assets $68,352,530
NET ASSET VALUE PER SHARE
Based on net asset values and shares outstanding
Class A ($40,054,925 [DIV] 2,792,209 shares) $14.35
Class B ($23,748,257 [DIV] 1,674,385 shares) $14.18
Class C ($1,817,177 [DIV] 128,068 shares) $14.19
Class I ($2,732,171 [DIV] 189,309 shares) $14.43
MAXIMUM OFFERING PRICE PER SHARE
Class A-1 ($14.35 [DIV] 95.0%) $15.11
Class C ($14.19 [DIV] 99.0%) $14.33
1 On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
See notes to
financial statements.
OPERATIONS
For the year ended
February 28, 2001.
This Statement
of Operations
summarizes the
Fund's investment
income earned and
expenses incurred
in operating the
Fund. It also shows
net gains (losses)
for the period stated.
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $158) $319,179
Interest (including income on securities loaned of $3,433) 97,686
Total investment income 416,865
EXPENSES
Investment management fee 568,631
Class A distribution and service fee 100,672
Class B distribution and service fee 286,188
Class C distribution and service fee 17,070
Transfer agent fee 186,567
Custodian fee 47,116
Registration and filing fees 25,985
Auditing fee 18,950
Printing 16,937
Accounting and legal services fee 13,590
Miscellaneous 4,405
Trustees' fees 2,948
Interest expense 2,259
Organizational expense 1,018
Legal fees 717
Total expenses 1,293,053
Less expense reductions (62,511)
Net expenses 1,230,542
Net investment loss (813,677)
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on investments (6,132,232)
Change in net unrealized appreciation (depreciation)
on investments (17,794,404)
Net realized and unrealized loss (23,926,636)
Decrease in net assets from operations ($24,740,313)
See notes to
financial statements.
CHANGES IN
NET ASSETS
This Statement of
Changes in Net
Assets shows how
the value of the
Fund's net assets
has changed since
the end of the
previous period. The
difference reflects
earnings less
expenses,
any investment
gains and losses,
distributions
and any increase or
decrease in
money shareholders
invested in the
Fund.
YEAR YEAR
ENDED ENDED
2-29-00 2-28-01
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment loss ($104,658) ($813,677)
Net realized gain (loss) 768,558 (6,132,232)
Change in net unrealized
appreciation (depreciation) 3,946,942 (17,794,404)
Increase (decrease) in net assets
resulting from operations 4,610,842 (24,740,313)
Distributions to shareholders
From net realized gain
on investments sold
Class A (8,052) (668,487)
Class B (10,306) (515,655)
Class C (394) (34,612)
Class I (449,026) (89,326)
(467,778) (1,308,080)
From fund share transactions 40,985,257 41,418,025
NET ASSETS
Beginning of period 7,854,577 52,982,898
End of period 1 $52,982,898 $68,352,530
1 Includes accumulated net investment loss of $89 and $294, respectively.
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS A SHARES
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
PERIOD ENDED 2-29-00 1 2-28-01
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $18.14 $19.80
Net investment loss 2 (0.05) (0.18)
Net realized and unrealized
gain (loss) on investments 1.73 (4.95)
Total from investment operations 1.68 (5.13)
Less distributions
from net realized gain (0.02) (0.32)
Net asset value, end of period $19.80 $14.35
Total return 3,4 (%) 9.25 5 (26.26)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $21 $40
Ratio of expenses
to average net assets (%) 1.25 6 1.49
Ratio of adjusted expenses
to average net assets 7,8 (%) 1.63 6 1.58
Ratio of net investment loss
to average net assets (%) (0.39)6 (0.91)
Portfolio turnover (%) 72 115
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS B SHARES
PERIOD ENDED 2-29-00 1 2-28-01
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $18.14 $19.73
Net investment loss 2 (0.13) (0.31)
Net realized and unrealized
gain (loss) on investments 1.74 (4.92)
Total from investment operations 1.61 (5.23)
Less distributions
from net realized gain (0.02) (0.32)
Net asset value, end of period $19.73 $14.18
Total return 3,4 (%) 8.86 5 (26.86)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $23 $23
Ratio of expenses
to average net assets (%) 1.95 6 2.19
Ratio of adjusted expenses
to average net assets 7,8 (%) 2.33 6 2.28
Ratio of net investment loss
to average net assets (%) (1.09)6 (1.60)
Portfolio turnover (%) 72 115
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS C SHARES
PERIOD ENDED 2-29-00 1 2-28-01
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $18.14 $19.73
Net investment loss 2 (0.13) (0.31)
Net realized and unrealized
gain (loss) on investments 1.74 (4.91)
Total from investment operations 1.61 (5.22)
Less distributions
from net realized gain (0.02) (0.32)
Net asset value, end of period $19.73 $14.19
Total return 3,4 (%) 8.86 5 (26.81)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $0.9 $2
Ratio of expenses
to average net assets (%) 1.95 6 2.19
Ratio of adjusted expenses
to average net assets 7,8 (%) 2.33 6 2.28
Ratio of net investment loss
to average net assets (%) (1.09)6 (1.61)
Portfolio turnover (%) 72 115
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS I SHARES 9
PERIOD ENDED 2-28-97 2-28-98 2-28-99 2-29-00 2-28-01
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $9.29 $11.01 $14.88 $17.65 $19.83
Net investment income (loss) 2 0.05 0.04 0.01 (0.01) (0.07)
Net realized and unrealized
gain (loss) on investments 2.16 4.34 3.40 3.31 (5.01)
Total from investment operations 2.21 4.38 3.41 3.30 (5.08)
Less distributions
from net investment income (0.04) (0.03) (0.02) -- --
in excess of net investment income -- -- -- 10 -- --
from net realized gain (0.45) (0.48) (0.62) (1.12) (0.32)
Total distributions (0.49) (0.51) (0.64) (1.12) (0.32)
Net asset value, end of period $11.01 $14.88 $17.65 $19.83 $14.43
Total return 3,4 (%) 24.19 40.52 22.92 19.67 (25.96)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $0.9 $5 $8 $9 $3
Ratio of expenses
to average net assets (%) 0.95 0.95 0.95 0.95 0.95
Ratio of adjusted expenses
to average net assets 7,8 (%) 7.74 3.52 1.98 1.33 1.04
Ratio of net investment income
(loss) to average net assets (%) 0.49 0.34 0.06 (0.06) (0.35)
Portfolio turnover (%) 142 91 54 72 115
1 Class A, Class B and Class C shares began operations on July 1, 1999.
Class I shares began operations on October 2, 1995.
2 Based on the average of the shares outstanding at the end of each month.
3 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
4 The total returns would have been lower had certain expenses not been
reduced during the periods shown.
5 Not annualized.
6 Annualized.
7 Does not take into consideration expense reductions during the periods shown.
8 Adjusted expenses as a percentage of average net assets are expected
to decrease as the net assets of the Fund grow.
9 Effective July 1, 1999, existing shares of the Fund were designated
Class I shares.
10 Less than $0.01 per share.
See notes to
financial statements.
NOTES TO
STATEMENTS
NOTE A
Accounting policies
John Hancock Core Growth Fund ("the Fund") is a diversified series of
John Hancock Institutional Series Trust (the "Trust"), an open-end
management investment company, registered under the Investment Company
Act of 1940. The investment objective of the Fund is to seek
above-average total return by investing in large-capitalization stocks
with high potential earnings growth.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B, Class C and Class I shares.
The shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights to voting, redemptions,
dividends and liquidation, except that certain expenses, subject to the
approval of the Trustees, may be applied differently to each class of
shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a
class which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at
fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60
days are valued at amortized cost, which approximates market value.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, Inc. (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement transaction.
Aggregate cash balances are invested in one or more large repurchase
agreements, whose underlying securities are obligations of the U.S.
government and/or its agencies. The Fund's custodian bank receives
delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis. Capital gains realized on some
foreign securities are subject to foreign taxes, which are accrued as
applicable.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are
determined at the fund level and allocated daily to each class of shares
based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class
level based on the appropriate net assets of each class and the specific
expense rate(s) applicable to each class.
Expenses
The majority of the expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund will
be allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and
the relative sizes of the funds.
Organization expenses
Expenses incurred in connection with the organization of the Fund have
been capitalized and are being charged to the Fund's operations ratably
over a five-year period that began with the commencement of the
investment operations of the Fund.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency
purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund has
entered into a syndicated line of credit agreement with various banks.
This agreement enables the Fund to participate with other funds managed
by the Adviser in an unsecured line of credit with banks, which permit
borrowings up to $500 million, collectively. Interest is charged to each
fund, based on its borrowing. In addition, a commitment fee is charged
to each fund based on the average daily unused portion of the line of
credit and is allocated among the participating funds. The average daily
loan balance during the year for which loans were outstanding amounted
to $4,581,000. The weighted average interest rate was 6.00%. Interest
expense includes $2,259 paid under the line of credit. There was no
outstanding borrowing under the line of credit on February 28, 2001.
Securities lending
The Fund may lend its securities to certain qualified brokers who pay
the Fund negotiated lender fees. These fees are included in interest
income. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may
bear the risk of delay of the loaned securities in recovery or even loss
of rights in the collateral, should the borrower of the securities fail
financially. There were no securities loaned as of February 28, 2001.
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
Additionally, net capital losses of $5,934,974 attributable to security
transactions occurring after October 31, 2000 are treated as arising on
the first day (March 1, 2001) of the Fund's next taxable year.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
The Fund records all dividends and distributions to shareholders from
net investment income and realized gains on the ex-dividend date. Such
distributions are determined in conformity with income tax regulations,
which may differ from generally accepted accounting principles.
Dividends paid by the Fund with respect to each class of shares will be
calculated in the same manner, at the same time and will be in the same
amount, except for the effect of expenses that may be applied
differently to each class.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of
America, incorporates estimates made by management in determining the
reported amount of assets, liabilities, revenues and expenses of the
Fund. Actual results could differ from these estimates.
NOTE B
Management fee and
transactions with
affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the Adviser equivalent, on an annual basis, to the sum of: (a)
0.80% of the first $500,000,000 of the Fund's average daily net asset
value and (b) 0.75% of the Fund's average daily net asset value in
excess of $500,000,000.
The Fund and the Adviser have a subadvisory contract with Independence
Investment LLC ("IIL," formerly Independence Investment Associates,
Inc.) IIL is a wholly owned indirect subsidiary of John Hancock Life
Insurance Company ("JHLICo"). The Fund is not responsible for payment of
subadviser's fees.
The Adviser has agreed to limit the Fund's expenses (excluding 12b-1 fee
and the transfer agent fee) to 0.90% of the Fund's average daily net
asset at least until June 30, 2001. Accordingly, the reduction in the
Fund's expenses amounted to $62,511 for the year ended February 28,
2001. The Adviser reserves the right to terminate this limitation in the
future.
The Fund has Distribution Plans with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. The Fund has adopted
Distribution Plans with respect to Class A, Class B and Class C pursuant
to Rule 12b-1 under the Investment Company Act of 1940 to reimburse JH
Funds for the services it provides as distributor of shares of the Fund.
Accordingly, the Fund makes payments to JH Funds at an annual rate not
to exceed 0.30% of Class A average daily net assets and 1.00% of Class B
and Class C average daily net assets, to reimburse JH Funds for its
distribution and service costs. A maximum of 0.25% of such payments may
be service fees as defined by the Conduct Rules of the National
Association of Securities Dealers. Under the Conduct Rules, curtailment
of a portion of the Fund's 12b-1 payments could occur under certain
circumstances.
Class A and Class C shares are assessed up-front sales charges. During
the year ended February 28, 2001, JH Funds received net up-front sales
charges of $519,459 with regard to sales of Class A shares. Of this
amount, $36,155 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $348,882 was paid as
sales commissions to unrelated broker-dealers and $134,422 was paid as
sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer. The Adviser's indirect
parent, JHLICo, is the indirect sole shareholder of Signator Investors.
During the year ended February 28, 2001, JH Funds received net up-front
sales charges of $35,973 with regard to sales of Class C shares. Of this
amount, $30,971 was paid as sales commissions to unrelated
broker-dealers and $5,002 was paid as sales commissions to sales
personnel of Signator Investors.
Class B shares which are redeemed within six years of purchase are
subject to a contingent deferred sales charge ("CDSC") at declining
rates, beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares being
redeemed. Class C shares which are redeemed within one year of purchase
will be subject to a CDSC at a rate of 1.00% of the lesser of the
current market value at the time of redemption or the original purchase
cost of the shares being redeemed. Proceeds from the CDSCs are paid to
JH Funds and are used in whole or in part to defray its expenses for
providing distribution-related services to the Fund in connection with
the sale of Class B and Class C shares. For the year ended February 28,
2001, CDSCs received by JH Funds amounted to $94,654 for Class B shares
and $497 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo.
The Fund paid Signature Services a monthly transfer agent fee
equivalent, on an annual basis, to 0.05% of its average daily net
assets, through June 30, 2000. Effective July 1, 2000, Class A, Class B
and Class C shares pay monthly transfer agent fees based on the number
of shareholder accounts for Class A, Class B and Class C shares, plus
certain out-of-pocket expenses. For Class I shares, the Fund pays
Signature Services a monthly transfer agent fee equivalent, on an annual
basis, to 0.05% of the average daily net assets attributable to Class I
shares.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year was at an annual rate of less than 0.02% of the average net assets
of the Fund.
Mr. Stephen L. Brown and Ms. Maureen R. Ford are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of
the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes
their receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. The
Deferred Compensation Plan investments had no impact on the operations
of the Fund.
NOTE C
Investment
transactions
Purchases and proceeds from sales of securities, other than short-term
securities and obligations of the U.S. government, during the year ended
February 28, 2001, aggregated $116,636,573 and $78,760,870,
respectively.
The cost of investments owned at February 28, 2001 (including short-term
investments) for federal income tax purposes was $80,402,155. Gross
unrealized appreciation and depreciation of investments aggregated
$4,723,991 and $18,703,405, respectively, resulting in net unrealized
depreciation of $13,979,414.
NOTE D
Fund share transactions
The listing illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding
dollar value. The Fund has an unlimited number of shares authorized with
no par value.
YEAR ENDED 2-29-00 YEAR ENDED 2-28-01
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES 1
Sold 1,519,350 $28,037,749 4,170,090 $78,607,221
Distributions
reinvested 616 11,717 35,641 656,530
Repurchased (468,286) (8,668,556) (2,465,202) (45,602,022)
Net increase 1,051,680 $19,380,910 1,740,529 $33,661,729
CLASS B SHARES 1
Sold 1,278,590 $23,451,319 923,333 $18,569,923
Distributions
reinvested 614 11,341 22,936 418,902
Repurchased (127,150) (2,412,874) (423,938) (8,285,894)
Net increase 1,152,054 $21,049,786 522,331 $10,702,931
CLASS C SHARES 1
Sold 48,989 $896,165 112,707 $2,276,333
Distributions
reinvested 29 552 1,834 33,680
Repurchased (2,653) (50,979) (32,838) (649,067)
Net increase 46,365 $845,738 81,703 $1,660,946
CLASS I SHARES
Sold 177,003 $3,265,932 170,572 $3,426,290
Distributions
reinvested 26,179 449,001 4,818 89,090
Repurchased (218,474) (4,006,110) (415,813) (8,122,961)
Net decrease (15,292) ($291,177) (240,423) ($4,607,581)
NET INCREASE 2,234,807 $40,985,257 2,104,140 $41,418,025
1 Class A, Class B and Class C shares commenced operations on July 1, 1999.
NOTE E
Reclassification of
accounts
During the year ended February 28, 2001, the Fund has reclassified
amounts to reflect an increase in net realized loss on investments of
$607,512, a decrease in accumulated net investment loss of $813,472 and
a decrease in capital paid-in of $205,960. This represents the amount
necessary to report these balances on a tax basis, excluding certain
temporary differences, as of February 28, 2001. Additional adjustments
may be needed in subsequent reporting periods. These reclassifications,
which have no impact on the net asset value of the Fund, are primarily
attributable to certain differences in computation of distributable
income and capital gains under federal tax rules versus generally
accepted accounting principles and the Fund's use of the tax accounting
practice known as equalization. The calculation of net investment income
(loss) per share in the financial highlights excludes these adjustments.
AUDITORS'
REPORT
Report of Deloitte
& Touche LLP,
Independent
Auditors
To the Board of Trustees and Shareholders,
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of John Hancock Core Growth Fund
(the "Fund") as of February 28, 2001, the related statement of
operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 at
February 28, 2001 by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other
auditing procedures. 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, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the
Fund at February 28, 2001, the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated
periods in conformity with accounting principles generally accepted in
the United States of America.
Deloitte & Touche LLP
Boston, Massachusetts
March 30, 2001
TAX
INFORMATION
Unaudited.
For federal income tax purposes, the following information is furnished
with respect to the taxable distributions of the Fund for the fiscal
year ended February 28, 2001.
The Fund has designated distributions to shareholders of $519,416 as a
long-term capital gain dividend. These amounts were reported on the 2000
U.S. Treasury Department form 1099-DIV.
With respect to the ordinary dividends paid by the Fund for the fiscal
year ended February 28, 2001, 84.64% of the dividends qualify for the
corporate dividends received deduction.
FOR YOUR
INFORMATION
TRUSTEES
Stephen L. Brown
James F. Carlin*
William H. Cunningham
Ronald R. Dion
Maureen R. Ford
Charles L. Ladner
Steven R. Pruchansky*
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman, President
and Chief Executive Officer
William L. Braman
Executive Vice President
and Chief Investment Officer
Richard A. Brown
Senior Vice President and Chief Financial Officer
Susan S. Newton
Senior Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUBADVISER
Independence Investment Associates, Inc.
53 State Street
Boston, Massachusetts 02109
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By Regular Mail John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By Express Mail John Hancock Signature Services, Inc.
Attn: Mutual Fund Image Operations
529 Main Street
Charlestown, MA 02129
Customer Service Representatives 1-800-225-5291
24-hour Automated Information 1-800-338-8080
TDD Line 1-800-544-6713
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
101 Huntington Avenue
Boston, MA 02199-7603
1-800-225-5291
1-800-544-6713 (TDD)
1-800-338-8080 EASI-Line
www.jhfunds.com
This report is for the information of the shareholders of the John
Hancock Core Growth Fund. It is not authorized for distribution to
prospective investors unless it is preceded or accompanied by the
current prospectus, which details charges, investment objectives and
operating policies.
7900A 2/01
4/01
John Hancock
Core
Value
Fund
ANNUAL
REPORT
2.28.01
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush left next to first paragraph.]
WELCOME
Table of Contents
Your fund
at a glance
page 1
Managers' report
page 2
Fund's investments
page 8
Financial statements
page 13
For your information
page 29
Dear Fellow Shareholders,
The stock market brought investors back to earth in 2000 after a run of
nine consecutive years of positive stock-market results. The first two
months of 2001 have been equally sobering. Investors have grown
increasingly worried about the slowing economy and declining corporate
earnings. High-priced growth stocks have been the hardest hit.
Technology stocks, which got pounded in 2000, went into another free
fall in February, sending the NASDAQ Composite Index down 54% by the end
of February from its near high a year ago. While the broad stock market
has remained volatile, and in negative territory year-to-date, bonds
have done well in response to falling interest rates.
The year 2001 finds us with lingering uncertainties, a new U.S.
president and new possibilities. Questions remain about how successful
the Federal Reserve will be in preventing a recession. Even though the
Fed remains a key force impacting financial markets, we are also
watching Washington, D.C. as President George W. Bush attempts to enact
tax cuts.
As always, we will continue to update you on these developments and
anything that specifically relates to your fund and its performance. In
fact, this newly designed shareholder report is our latest offering in
that regard, and is part of our ongoing effort to better serve our
shareholders.
Based on your feedback, we set out to create a more inviting report that
you could easily navigate and that would provide you with more
information on your fund. In addition to the new overall look, there are
several prominent changes, including a table of contents, additional
charts and a new summary page opposite this one. The most obvious
difference is the report's size. By changing it to a standard mailing
format we hope to deliver it to you in an even more timely fashion.
These twice-yearly shareholder reports are your best way to better
understand your fund and what has been driving its performance. We
encourage you to read them, and hope that our new and improved version
will make the task easier and more meaningful.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Vice Chairman and Chief Executive Officer
YOUR FUND
AT A GLANCE
The Fund seeks
above-average
total return
through
investments
in large-
capitalization
stocks that
appear relatively
undervalued.
Over the last twelve months
* Value stocks rallied as investors looked for safe havens amid
increased market volatility.
* The Fund's utility, pharmaceutical and financial stocks helped boost
performance.
* The Fund shifted toward more defensive names in the fall in
expectation of an economic downturn.
[Bar chart with heading "John Hancock Core Value Fund." Under the
heading is a note that reads "Fund performance for the year ended
February 28, 2001." The chart is scaled in increments of 10% with 0% at
the bottom and 20% at the top. The first bar represents the 20.02% total
return for Class A. The second bar represents the 19.02% total return
for Class B. The third bar represents the 18.98% total return for Class
C. The fourth bar represents the 20.46% total return for Class I. A note
below the chart reads "Total returns for the Fund are at net asset value
with all distributions reinvested."]
Top 10 holdings
4.4% ExxonMobil
4.2% Citigroup
2.5% Fannie Mae
2.4% SBC Communications
2.3% Philip Morris
2.3% Verizon Communications
2.1% American International Group
2.1% Johnson & Johnson
2.0% Merck
1.6% Bank of America
As a percentage of net assets on February 28, 2001.
BY JOHN C. FORELLI FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Core Value Fund
MANAGERS'
REPORT
While most areas of the stock market tumbled over the past year, value
stocks enjoyed a rebound that began last spring when high-priced
technology growth stocks fell from favor. Concerns about rising interest
rates and slowing economic growth sent investors searching for stocks
with reasonable prices, consistent earnings growth and achievable
earnings expectations. As investors moved into safer-haven names,
traditional value sectors like utilities, industrials, financials,
health care and energy benefited. In the fall, signs that the economy
was slowing faster than expected led to a broad downturn in the market.
While growth sectors fell sharply, most value stocks held steady. In an
effort to restore consumer confidence and revive economic growth, the
Federal Reserve cut short-term interest rates early in the New Year,
briefly buoying the hopes of investors. But growing concerns that
companies would have difficulty meeting earnings expectations kept
pressure on the market. For the year ended February 28, 2001, the
Russell 1000 Value Index returned 16.63%, compared to a -31.12% return
for the Russell 1000 Growth Index and a -8.19% return for the Standard
& Poor's 500 Index.
"...value stocks enjoyed a
rebound that began last
spring when high-priced
technology growth
stocks fell from favor."
PERFORMANCE REVIEW
In this environment, John Hancock Core Value Fund benefited from a
diversified strategy and strong stock selection that targeted cheap
names with improving prospects. For the year ended February 28, 2001,
the Fund's Class A, Class B, Class C and Class I shares returned 20.02%,
19.02%, 18.98% and 20.46%, respectively, at net asset value. By
comparison, the average multi-cap value fund returned 18.78%, according
to Lipper, Inc.1 Keep in mind that your net asset value return will
differ from these results if you were not invested for the exact same
period and did not reinvest all distributions. For historical
performance information, please see pages six and seven.
STRONG STOCK PICKING
The Fund gained ground from owning top-performing stocks in the utility
sector such as Duke Energy, an electric utility company that gained over
80% for the period as investors began recognizing the value of its
unregulated assets. In the health-care sector, Baxter International,
which previously sold off its non core businesses to focus on its core
blood and dialysis product businesses, did exceptionally well. Large
diversified drug companies like Merck and Abbott Laboratories also
charged ahead as earnings beat expectations. About 26% of the Fund's
assets were in financials, which rallied as interest rates stabilized
and then headed down. Among our best picks were AXA Financial, a
diversified financial services company that was bought during the period
by its parent; Washington Mutual, a solid banking and thrift company on
the West Coast; and Fannie Mae, which benefited as lower interest rates
stimulated mortgage activity. FleetBoston Financial and Citigroup also
continued to produce steady returns. Other strong performers included El
Paso Energy Corp., a leading natural gas company that benefited from
rising gas prices, as well as quintessential defensive names like
tobacco giant Philip Morris and energy leader ExxonMobil.
"Sprint, WorldCom and
AT&T were among our
worst performers for
the year..."
TELECOM AND TECHNOLOGY DISAPPOINTMENTS
Sprint, WorldCom and AT&T were among our worst performers for the year
as competition and pricing pressures increased for long distance
services. We sold all three stocks, starting in the fourth quarter. Our
focus shifted toward telephone companies with strong local presences,
including SBC Communications in the Southwest, Qwest Communications
International in the West and Verizon Communications on the East Coast.
We believe these companies will benefit from expanding their businesses
to include long distance services. In the technology area, we managed to
sidestep some of the carnage by focusing on transaction-processing
companies like First Data, SunGard Data Systems and Fiserv. All did
well, thanks to steady business and consistent earnings growth.
Unfortunately, we also owned names like Motorola and Hewlett-Packard,
which suffered as demand for their products weakened during the second
half of the period.
[Table at top left-hand side of page entitled "Top five standard
industry classifications." The first listing is Finance 11%, the
second is Medical 9%, the third Telecommunications 9%, the fourth
Oil & gas 8%, and the fifth Insurance 8%.]
[Pie chart at bottom of page with heading "Types of investments in the
Fund As of February 28, 2001." The chart is divided into two sections
(from top to left): Domestic common stocks 97% and Short-term
investments 3%.]
BUYS AND SELLS
We repositioned the Fund for an economic downturn starting last fall. In
the financial area, we cut or sold our stakes in companies like J.P.
Morgan Chase, Merrill Lynch and Stilwell Financial, all of which have
businesses that are closely tied to the capital markets. We expect the
stock market's slowdown to make it tougher for companies like these to
meet earnings expectations. In their place, we bought insurance
companies like American International Group and St. Paul that are more
likely to generate steady earnings growth. We also eliminated several
pharmaceutical names whose stock prices had had strong runs, including
Alza, American Home Products and Pharmacia. In their place, we added to
our stakes in more defensive names that should do well in a slower
growth environment. Among our additions were consumer noncyclicals like
Sara Lee and Kimberly-Clark, as well as capital goods companies like
General Electric and Tyco International.
[Table at top of page entitled "SCORECARD." The header for the left
column is "INVESTMENT" and the header for the right column is "RECENT
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Fannie Mae followed by an up arrow with the phrase "Lower interest rates
stimulate refinancing activity." The second listing is First Data
followed by an up arrow with the phrase "Rapid growth overseas in
Western Union subsidiary." The third listing is Stilwell Financial
followed by a down arrow with the phrase "Eroding prospects at growth
money manager subsidiary."]
VALUE STOCK ADVANTAGE
Going forward, we expect the economy to weaken further as both consumer
and corporate spending slows. The Federal Reserve will most likely
respond by aggressively lowering interest rates. No one knows how long
it will take for these rate cuts to work their way through the system
and revive the economy. Given this uncertainty, we expect the stock
market to remain volatile near term. In this environment, we believe
defensive value stocks remain attractive. Their prices are still more
reasonable than those of most technology stocks, even at current levels.
Plus, many value stocks are economically sensitive, which means they
will participate positively in any kind of economic recovery.
"In this environment, we
believe defensive value
stocks remain attractive."
This commentary reflects the views of the portfolio management team
through the end of the Fund's period discussed in this report. Of
course, the team's views are subject to change as market and other
conditions warrant.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
A LOOK AT
PERFORMANCE
For the period ending
February 28, 2001.
The index used for
comparison is the
Russell 1000 Value
Index, an unmanaged
index, which measures
the performance of
those Russell 1000
companies with lower
price-to-book ratios
and higher forecasted
growth values.
It is not possible to
invest directly in an
index. The returns
reflect past results and
should not be consid
ered indicative of
future performance.
Class A Class B Class C Class I* Index
Inception date 10-2-95 7-1-99 7-1-99 7-1-99 --
Average annual returns with maximum sales charge (POP)
One year 14.05% 14.02% 16.78% 20.46% 16.63%
Five years 13.19% -- -- -- 15.46%
Since inception 14.61% -4.65% -2.90% -1.26% --
Cumulative total returns with maximum sales charge (POP)
One year 14.05% 14.02% 16.78% 20.46% 16.63%
Five years 85.80% -- -- -- 105.18%
Since inception 109.03% -7.62% -4.77% -2.08% --
Performance figures assume all distributions are reinvested. Returns
with maximum sales charge reflect a sales charge on Class A shares of 5%
and Class C shares of 1%, and the applicable contingent deferred sales
charge (CDSC) on Class B and Class C shares. The Class B shares' CDSC
declines annually between years 1-6 according to the following
schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the
sixth year. Class C shares held for less than one year are subject to a
1% CDSC. Sales charge is not applicable for Class I shares. The return
and principal value of an investment in the Fund will fluctuate, so that
shares, when redeemed, may be worth more or less than the original cost.
Index figures do not reflect sales charges and would be lower if they
did.
The Fund's performance results reflect any applicable expense
reductions, without which the expenses would increase and results would
have been less favorable. These reductions can be terminated in the
future. See the prospectus for details.
* For certain institutional investors.
GROWTH OF
$10,000
This chart shows what happened to a hypothetical $10,000 investment of
Class A shares for the period indicated. For comparison, we've shown the
same investment in the Russell 1000 Value Index.
Line chart with the heading "GROWTH OF $10,000." Within the chart are
three lines. The first line represents the Russell 1000 Value Index and
is equal to $22,732 as of February 28, 2001. The second line represents
the value of the hypothetical $10,000 investment made in the John
Hancock Core Value Fund, before sales charge, and is equal to $22,010 as
of February 28, 2001. The third line represents the same hypothetical
investment made in the John Hancock Core Value Fund, after sales charge,
and is equal to $20,903 as of February 28, 2001.
Class B Class C Class I*
Inception date 7-1-99 7-1-99 7-1-99
Without sales charge $9,618 $9,615 $244,801
With maximum sales charge $9,234 $9,519 --
Index $9,933 $9,933 $248,318
Assuming all distributions were reinvested for the period indicated, the
chart above shows the value of a $10,000 investment in the Fund's Class
B and Class C shares, and a $250,000 investment in the Fund's Class I
shares, as of February 28, 2001. Performance will vary based on the
difference in sales charges paid by shareholders investing in the
different classes and the fee structure of those classes.
* For certain institutional investors.
FUND'S
INVESTMENTS
Securities owned
by the Fund on
February 28, 2001.
This schedule is divided into two main categories: common stocks and
short-term investments. Common stocks are further broken down by
industry groups. Short-term investments, which represent the Fund's cash
position, are listed last.
SHARES ISSUER VALUE
COMMON STOCKS 97.33% $29,639,184
(Cost $27,045,842)
Advertising 0.94% $285,354
3,400 Lamar Advertising Co.* 140,250
1,600 Omnicom Group, Inc. 145,104
Aerospace 2.38% 725,109
3,500 Boeing Co. (The) 217,700
2,300 General Dynamics Corp. 156,814
4,500 United Technologies Corp. 350,595
Automobile / Trucks 2.02% 615,717
13,700 Ford Motor Co. 380,997
16,300 Visteon Corp. 234,720
Banks -- United States 7.24% 2,203,701
9,900 Bank of America Corp. 494,505
7,800 Bank of New York Co., Inc. (The) 403,884
3,300 Comerica, Inc. 210,045
11,400 FleetBoston Financial Corp. 470,250
4,700 Mellon Financial Corp. 217,657
9,000 U.S. Bancorp 208,800
4,000 Wells Fargo & Co. 198,560
Beverages 1.44% 439,922
4,900 Anheuser-Busch Cos., Inc. 214,130
4,900 PepsiCo, Inc. 225,792
Building 1.75% 534,095
4,100 Black & Decker Corp. (The) 170,191
1,900 Centex Corp. 78,204
3,000 Danaher Corp. 190,320
3,800 Sherwin-Williams Co. 95,380
Chemicals 2.95% 898,342
5,000 Air Products & Chemicals, Inc. 202,750
5,500 Dow Chemical Co. 180,455
4,300 Du Pont (E.I.) de Nemours & Co. 187,867
2,200 Eastman Chemical Co. 113,190
4,800 Praxair, Inc. 214,080
Computers 3.53% 1,075,121
4,700 Cadence Design Systems, Inc.* 119,145
2,000 DST Systems, Inc.* 122,000
7,600 First Data Corp. 469,376
2,200 International Business Machines Corp. 219,780
2,600 SunGard Data Systems, Inc.* 144,820
Cosmetics & Personal Care 0.47% 144,364
3,400 Avon Products, Inc. 144,364
Diversified Operations 2.42% 736,986
2,800 Honeywell International, Inc. 130,788
2,300 Minnesota Mining & Manufacturing Co. 259,325
2,600 Parker-Hannifin Corp. 111,878
4,300 Tyco International Ltd. 234,995
Electronics 1.36% 413,825
5,700 Motorola, Inc. 86,469
3,700 Sanmina Corp.* 110,306
5,700 Solectron Corp.* 155,325
2,500 Tektronix, Inc.* 61,725
Finance 10.56% 3,215,046
26,100 Citigroup, Inc. 1,283,598
9,600 Fannie Mae 765,120
8,500 General Electric Co. 395,250
5,500 J.P. Morgan Chase & Co. 256,630
2,600 Stilwell Financial, Inc.* 82,940
8,400 Washington Mutual, Inc. 431,508
Food 1.71% 519,965
7,600 Archer-Daniels-Midland Co. 114,380
10,800 ConAgra, Inc. 212,544
8,900 Sara Lee Corp. 193,041
Insurance 8.18% 2,491,775
6,200 Allstate Corp. (The) 247,132
7,800 American International Group, Inc. 638,040
2,500 Chubb Corp. (The) 179,375
600 CIGNA Corp. 65,802
6,800 Hartford Financial Services Group, Inc. (The) 434,180
7,100 Lincoln National Corp. 311,477
1,200 Marsh & McLennan Cos., Inc. 128,400
1,600 PartnerRe Ltd. (United Kingdom) 84,496
6,900 St. Paul Cos., Inc. (The) 319,401
2,400 Torchmark Corp. 83,472
Leisure 1.14% 346,640
11,200 Disney (Walt) Co. (The) 346,640
Machinery 0.59% 179,095
1,700 Caterpillar, Inc. 70,720
2,500 Ingersoll-Rand Co. 108,375
Media 3.11% 948,456
28,300 AT&T Corp. -- Liberty Media Corp. (Class A)* 416,010
3,000 Clear Channel Communications, Inc.* 171,450
1,900 Gannett Co., Inc. 125,666
4,735 Viacom, Inc. (Class B)* 235,330
Medical 8.75% 2,663,732
7,500 Abbott Laboratories 367,425
3,300 Baxter International, Inc. 303,897
3,300 Bristol-Myers Squibb Co. 209,253
6,400 Johnson & Johnson 622,912
2,400 Lincare Holdings, Inc.* 141,450
7,700 Merck & Co., Inc. 617,540
1,600 Tenet Healthcare Corp.* 73,808
3,800 Trigon Healthcare, Inc.* 228,722
1,100 Universal Health Services, Inc. (Class B) 98,725
Metal 1.36% 413,552
9,300 AK Steel Holding Corp. 88,629
6,800 Alcoa, Inc. 243,168
8,300 Worthington Industries, Inc. 81,755
Office 0.56% 169,600
3,200 Avery Dennison Corp. 169,600
Oil & Gas 8.30% 2,527,832
1,100 Apache Corp. 64,570
4,300 Baker Hughes, Inc. 168,560
3,300 Chevron Corp. 282,678
3,300 Conoco Inc. (Class A)* 93,225
3,800 El Paso Energy Corp. 267,140
16,500 Exxon Mobil Corp. 1,337,325
2,000 Kerr-McGee Corp. 129,280
6,700 USX -- Marathon Group 185,054
Paper & Paper Products 1.13% 343,200
4,800 Kimberly-Clark Corp. 343,200
Printing -- Commercial 0.25% 77,090
2,600 Donnelley (R.R.) & Sons 77,090
Retail 5.08% 1,546,481
3,400 Brinker International, Inc.* 100,504
3,700 CVS Corp. 225,700
4,800 Family Dollar Stores, Inc. 126,048
2,600 Kohl's Corp.* 171,366
4,700 Limited, Inc. (The) 82,955
2,300 Lowe's Cos., Inc. 128,524
6,700 RadioShack Corp. 286,760
2,400 Safeway, Inc.* 130,344
6,000 TJX Cos., Inc. 183,480
2,500 Walgreen Co. 110,800
Soap & Cleaning Preparations 0.79% 239,700
3,400 Procter & Gamble Co. (The) 239,700
Telecommunications 8.74% 2,662,929
3,700 AT&T Wireless Group* 77,737
10,000 BellSouth Corp. 419,600
5,900 Broadwing, Inc.* 138,768
6,500 General Motors Corp. (Class H)* 147,355
9,200 Qwest Communications International, Inc.* 340,124
15,300 SBC Communications, Inc. 729,810
1,300 Telephone and Data Systems, Inc. 121,485
13,900 Verizon Communications 688,050
Tobacco 2.33% 708,246
14,700 Philip Morris Cos., Inc. 708,246
Transportation 1.17% 357,001
5,400 Burlington Northern Santa Fe Corp. 162,054
1,900 FedEx Corp.* 77,767
6,300 Southwest Airlines Co. 117,180
Utilities 7.08% 2,156,308
2,900 Allegheny Energy, Inc. 137,605
4,000 Constellation Energy Group, Inc. 170,800
3,800 Dominion Resources, Inc. 249,128
7,600 Duke Energy Corp. 309,700
1,800 Dynegy, Inc. (Class A) 84,600
5,400 Exelon Corp. 352,998
3,600 Mirant Corp. * 90,000
2,600 Pinnacle West Capital Corp. 120,770
8,700 Reliant Energy, Inc. 365,487
6,600 Williams Cos., Inc. (The) 275,220
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s omitted) VALUE
SHORT-TERM INVESTMENTS 2.77% $843,000
(Cost $843,000)
Joint Repurchase Agreement 2.77%
Investment in a joint repurchase agreement
transaction with UBS Warburg, Inc. -- Dated
02-28-01, due 03-01-01 (Secured by
U.S. Treasury Bonds 7.25% thru 13.25%
due 11-15-09 thru 02-15-19) -- Note A 5.38% $843 $843,000
TOTAL INVESTMENTS 100.10% $30,482,184
OTHER ASSETS AND LIABILITIES, NET (0.10%) ($29,246)
TOTAL NET ASSETS 100.00% $30,452,938
* Non-income-producing security.
The percentages shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to
financial statements.
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
February 28, 2001.
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes. You'll
also find the
net asset value and
the maximum
offering price per
share.
ASSETS
Investments at value (cost $27,888,842) $30,482,184
Cash 346
Receivable for shares sold 8,649
Dividends and interest receivable 56,987
Other assets 954
Total assets 30,549,120
LIABILITIES
Payable for shares repurchased 39,136
Payable to affiliates 17,640
Other payables and accrued expenses 39,406
Total liabilities 96,182
NET ASSETS
Capital paid-in 28,415,780
Accumulated net realized loss on investments (571,295)
Net unrealized appreciation of investments 2,593,342
Undistributed net investment income 15,111
Net assets $30,452,938
NET ASSET VALUE PER SHARE
Based on net asset values and shares outstanding
Class A ($11,266,405 [DIV] 886,713 shares) $12.71
Class B ($14,811,330 [DIV] 1,167,050 shares) $12.69
Class C ($2,230,701 [DIV] 175,780 shares) $12.69
Class I ($2,144,502 [DIV] 168,639 shares) $12.72
MAXIMUM OFFERING PRICE PER SHARE
Class A 1 ($12.71 [DIV] 95.0%) $13.38
Class C ($12.69 [DIV] 99.0%) $12.82
1 On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
See notes to
financial statements.
OPERATIONS
For the year ended
February 28, 2001.
This Statement
of Operations
summarizes the
Fund's investment
income earned and
expenses incurred
in operating the
Fund. It also shows
net gains (losses)
for the period stated.
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $93) $500,818
Interest (including securities lending income of $335) 40,520
Total investment income 541,338
EXPENSES
Investment management fee 212,117
Class A distribution and service fee 30,560
Class B distribution and service fee 106,822
Class C distribution and service fee 11,198
Transfer agent fee 54,951
Registration and filing fees 38,856
Custodian fee 31,017
Auditing fee 18,950
Printing 12,608
Accounting and legal services fee 5,064
Miscellaneous 1,558
Organization expense 1,022
Trustees' fees 974
Legal fees 644
Interest expense 244
Total expenses 526,585
Less expense reductions (96,308)
Net expenses 430,277
Net investment income 111,061
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on investments sold (517,363)
Change in net unrealized appreciation (depreciation)
of investments 4,528,761
Net realized and unrealized gain 4,011,398
Increase in net assets from operations $4,122,459
See notes to
financial statements.
CHANGES IN
NET ASSETS
This Statement of
Changes in Net
Assets shows how
the value of the
Fund's net assets
has changed since
the end of the
previous period. The
difference reflects
earnings less
expenses,
any investment
gains and losses,
distributions
and any increase or
decrease in
money shareholders
invested in the
Fund.
YEAR YEAR
ENDED ENDED
2-29-00 2-28-01
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $111,434 $111,061
Net realized gain (loss) 533,950 (517,363)
Change in net unrealized
appreciation (depreciation) (2,969,929) 4,528,761
Increase (decrease) in net assets
resulting from operations (2,324,545) 4,122,459
Distributions to shareholders
From net investment income
Class A (74,593) (74,887)
Class B (8,743) (4,857)
Class C (270) (157)
Class I (3,333) (52,569)
From net realized gain
Class A (435,361) (20,026)
Class B (54,266) (26,828)
Class C (1,677) (3,088)
Class I (4,252) (10,427)
(582,495) (192,839)
From fund share transactions 16,193,047 6,552,580
NET ASSETS
Beginning of period 6,684,731 19,970,738
End of period 1 $19,970,738 $30,452,938
1 Includes undistributed net investment income of $36,324 and of
$15,111, respectively.
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS A SHARES 1
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
PERIOD ENDED 2-28-97 2-28-98 2-28-99 2-29-00 2-28-01
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $9.47 $10.88 $13.93 $12.36 $10.70
Net investment income 2 0.23 0.21 0.15 0.13 0.10
Net realized and unrealized
gain (loss) on investments 1.77 3.33 1.23 (1.01) 2.04
Total from investment operations 2.00 3.54 1.38 (0.88) 2.14
Distributions to shareholders
From net investment income (0.19) (0.13) (0.18) (0.08) (0.10)
From net realized gain (0.40) (0.36) (2.77) (0.70) (0.03)
(0.59) (0.49) (2.95) (0.78) (0.13)
Net asset value, end of period $10.88 $13.93 $12.36 $10.70 $12.71
Total return 3,4 (%) 21.36 32.97 9.87 (8.08) 20.02
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $1 $8 $7 $12 $11
Ratio of expenses
to average net assets (%) 0.95 0.95 0.95 0.95 1.30
Ratio of adjusted expenses
to average net assets 5,6 (%) 6.39 1.90 1.88 1.89 1.62
Ratio of net investment income
to average net assets (%) 2.26 1.60 1.03 1.09 0.79
Portfolio turnover (%) 66 119 61 76 131
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS B SHARES
PERIOD ENDED 2-29-00 7 2-28-01
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $13.35 $10.69
Net investment income (loss) 2 0.02 (0.01)
Net realized and unrealized
gain (loss) on investments (2.56) 2.05
Total from investment operations (2.54) 2.04
Distributions to shareholders
From net investment income (0.02) (0.01)
From net realized gain (0.10) (0.03)
(0.12) (0.04)
Net asset value, end of period $10.69 12.69
Total return 3,4 (%) (19.19) 8 19.02
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $8 $15
Ratio of expenses
to average net assets (%) 1.95 9 2.09
Ratio of adjusted expenses
to average net assets 5,6 (%) 2.59 9 2.41
Ratio of net investment income (loss)
to average net assets (%) 0.19 9 (0.05)
Portfolio turnover (%) 76 131
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS C SHARES
PERIOD ENDED 2-29-00 7 2-28-01
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $13.35 $10.69
Net investment income (loss) 2 0.02 (0.01)
Net realized and unrealized
gain (loss) on investments (2.56) 2.04
Total from investment operations (2.54) 2.03
Distributions to shareholders
From net investment income (0.02) -- 10
From net realized gain (0.10) (0.03)
(0.12) (0.03)
Net asset value, end of period $10.69 $12.69
Total return 3,4 (%) (19.19) 8 18.98
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $0.2 $2
Ratio of expenses
to average net assets (%) 1.95 9 2.18
Ratio of adjusted expenses
to average net assets 5,6 (%) 2.59 9 2.50
Ratio of net investment income (loss)
to average net assets (%) 0.21 9 (0.16)
Portfolio turnover (%) 76 131
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS I SHARES
PERIOD ENDED 2-29-00 7 2-28-01
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $13.35 $10.70
Net investment income 2 0.09 0.12
Net realized and unrealized
gain (loss) on investments (2.56) 2.07
Total from investment operations (2.47) 2.19
Distributions to shareholders
From net investment income (0.08) (0.14)
From net realized gain (0.10) (0.03)
(0.18) (0.17)
Net asset value, end of period $10.70 $12.72
Total return 3,4 (%) (18.71) 8 20.46
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $0.7 $2
Ratio of expenses
to average net assets (%) 0.95 9 0.95
Ratio of adjusted expenses
to average net assets 5,6 (%) 1.59 9 1.27
Ratio of net investment income
to average net assets (%) 1.09 9 0.97
Portfolio turnover (%) 76 131
1 Effective July 1, 1999, existing shares of the Fund were designated
Class A shares. The Fund, which had previously only been sold to
institutional investors, also became available for sale to individual
investors.
2 Based on the average of the shares outstanding at the end of each month.
3 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
4 The total returns would have been lower had certain expenses not been
reduced during the periods shown.
5 Does not take into consideration expense reductions during the periods shown.
6 Adjusted expenses as a percentage of average net assets are expected
to decrease as the net assets of the Fund grow.
7 Class B, Class C and Class I shares began operations on July 1, 1999.
8 Not annualized.
9 Annualized.
10 Less than $0.01.
See notes to
financial statements.
NOTES TO
STATEMENTS
NOTE A
Accounting policies
John Hancock Core Value Fund ("the Fund") is a diversified series of
John Hancock Institutional Series Trust, an open-end management
investment company, registered under the Investment Company Act of 1940.
The investment objective of the Fund is to seek above-average total
return through investments in large-capitalization stocks that appear
largely undervalued.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B, Class C and Class I shares.
The shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights to voting, redemptions,
dividends and liquidation, except that certain expenses, subject to the
approval of the Trustees, may be applied differently to each class of
shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a
class which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at
fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60
days are valued at amortized cost, which approximates market value.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, Inc. (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement transaction.
Aggregate cash balances are invested in one or more large repurchase
agreements, whose underlying securities are obligations of the U.S.
government and/or its agencies. The Fund's custodian bank receives
delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis. Capital gains realized on some
foreign securities are subject to foreign taxes, which are accrued as
applicable.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are
determined at the fund level and allocated daily to each class of shares
based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class
level based on the appropriate net assets of each class and the specific
expense rate(s) applicable to each class.
Expenses
The majority of the expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund will
be allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and
the relative sizes of the funds.
Organization expense
Expenses incurred in connection with the organization of the Fund have
been capitalized and are being charged to the Fund's operations ratably
over a five-year period that began with the commencement of the
investment operations of the Fund.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency
purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund has
entered into a syndicated line of credit agreement with various banks.
This agreement enables the Fund to participate with other funds managed
by the Adviser in an unsecured line of credit with banks, which permit
borrowings up to $500 million, collectively. Interest is charged to each
fund, based on its borrowing. In addition, a commitment fee is charged
to each fund based on the average daily unused portion of the line of
credit and is allocated among the participating funds. The Fund had no
borrowing activity under the line of credit during the year ended
February 28, 2001.
Securities lending
The Fund may lend its securities to certain qualified brokers who pay
the Fund negotiated lender fees. These fees are included in interest
income. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may
bear the risk of delay of the loaned securities in recovery or even loss
of rights in the collateral, should the borrower of the securities fail
financially. There were no securities loaned as of February 28, 2001.
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has $86,884 of capital loss
carryforwards available, to the extent provided by regulations, to
offset future net realized capital gains. To the extent such
carryforwards are used by the Fund, no capital gain distributions will
be made. The carryfor wards expire on February 28, 2009. Additionally,
net capital losses of $321,608 attributable to security transactions
incurred after October 31, 2000 are treated as arising on the first day
(March 1, 2001) of the Fund's next taxable year.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
The Fund records all dividends and distributions to shareholders from
net investment income and realized gains on the ex-dividend date. Such
distributions are determined in conformity with income tax regulations,
which may differ from generally accepted accounting principles.
Dividends paid by the Fund with respect to each class of shares will be
calculated in the same manner, at the same time and will be in the same
amount, except for the effect of expenses that may be applied
differently to each class.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of
America, incorporates estimates made by management in determining the
reported amount of assets, liabilities, revenues and expenses of the
Fund. Actual results could differ from these estimates.
NOTE B
Management fee and
transactions with
affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the Adviser equivalent, on an annual basis, to the sum of: (a)
0.80% of the first $500,000,000 of the Fund's average daily net asset
value and (b) 0.75% of the Fund's average daily net asset value in
excess of $500,000,000.
The Fund and the Adviser have a subadvisory contract with Independence
Investment LLC ("IIL," formerly Independence Investment Associates,
Inc.) IIL is a wholly owned indirect subsidiary of John Hancock Life
Insurance Company ("JHLICo"). The Fund is not responsible for payment of
subadviser's fees.
The Adviser has agreed to limit the Fund's expenses (excluding 12b-1 fee
and the transfer agent fee) to 0.90% of the Fund's average daily net
assets at least until June 30, 2001. Accordingly, the reduction in the
Fund's expenses amounted to $84,228 for the year ended February 28,
2001. The Adviser reserves the right to terminate this limitation in the
future.
The Fund has Distribution Plans with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. The Fund has adopted
Distribution Plans with respect to Class A, Class B and Class C pursuant
to Rule 12b-1 under the Investment Company Act of 1940 to reimburse JH
Funds for the services it provides as distributor of shares of the Fund.
Accordingly, the Fund makes payments to JH Funds at an annual rate not
to exceed 0.30% of Class A average daily net assets and 1.00% of Class B
and Class C average daily net assets, to reimburse JH Funds for its
distribution and service costs. JH Funds agreed not to impose the Fund's
Class A 12b-1 fee until July 1, 2000. Accordingly, the reduction in the
distribution and service fee amounted to $12,080 for the year ended
February 28, 2001. This limitation was terminated on July 1, 2000. A
maximum of 0.25% of distribution and service fee payments may be service
fees as defined by the Conduct Rules of the National Association of
Securities Dealers. Under the Conduct Rules, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.
Class A and Class C shares are assessed up-front sales charges. During
the year ended February 28, 2001, JH Funds received net up-front sales
charges of $71,320 with regard to sales of Class A shares. Of this
amount, $7,999 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $52,688 was paid as
sales commissions to unrelated broker-dealers and $10,633 was paid as
sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer. The Adviser's indirect
parent, JHLICo, is the indirect sole shareholder of Signator Investors.
During the year ended February 28, 2001, JH Funds received net up-front
sales charges of $21,380 with regard to sales of Class C shares. Of this
amount, $19,646 was paid as sales commissions to unrelated
broker-dealers and $1,734 was paid as sales commissions to sales
personnel of Signator Investors.
Class B shares which are redeemed within six years of purchase are
subject to a contingent deferred sales charge ("CDSC") at declining
rates, beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares being
redeemed. Class C shares which are redeemed within one year of purchase
will be subject to a CDSC at a rate of 1.00% of the lesser of the
current market value at the time of redemption or the original purchase
cost of the shares being redeemed. Proceeds from the CDSCs are paid to
JH Funds and are used in whole or in part to defray its expenses for
providing distribution related services to the Fund in connection with
the sale of Class B and Class C shares. For the year ended February 28,
2001, CDSCs received by JH Funds amounted to $31,518 for Class B shares
and $798 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo.
The Fund paid Signature Services a monthly transfer agent fee
equivalent, on an annual basis, to 0.05% of its average daily net
assets, through June 30, 2000. Effective July 1, 2000, Class A, Class B
and Class C shares pay monthly transfer agent fees based on the number
of shareholder accounts for Class A, Class B and Class C shares, plus
certain out-of-pocket expenses. For Class I shares, the Fund pays
Signature Services a monthly transfer agent fee equivalent, on an annual
basis, to 0.05% of the average daily net assets attributable to Class I
shares.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year was at an annual rate of less than 0.02% of the average net assets
of the Fund.
Mr. Stephen L. Brown and Ms. Maureen R. Ford are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of
the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes
their receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. The
Deferred Compensation Plan investments had no impact on the operations
of the Fund.
NOTE C
Investment
transactions
Purchases and proceeds from sales of securities, other than short-term
securities and obligations of the U.S. government, during the year ended
February 28, 2001, aggregated $39,712,657 and $33,865,159, respectively.
The cost of investments owned at February 28, 2001 for federal income
tax purposes was $28,051,645. Gross unrealized appreciation and
depreciation of investments aggregated $3,739,301 and $1,308,762,
respectively, resulting in net unrealized appreciation of $2,430,539.
NOTE D
Fund share transactions
The listing illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding
dollar value. The Fund has an unlimited number of shares authorized with
no par value.
YEAR ENDED 2-29-00 YEAR ENDED 2-28-01
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Sold 983,090 $11,856,359 969,558 $11,902,659
Distributions
reinvested 39,669 510,527 6,795 86,275
Repurchased (488,368) (5,886,379) (1,164,788) (14,110,468)
Net increase
(decrease) 534,391 $6,480,507 (188,435) ($2,121,534)
CLASS B SHARES 1
Sold 795,287 $9,680,255 831,628 $10,273,196
Distributions
reinvested 4,377 49,054 2,251 28,477
Repurchased (94,215) (1,095,387) (372,278) (4,562,772)
Net increase 705,449 $8,633,922 461,601 $5,738,901
CLASS C SHARES 1
Sold 32,121 $391,553 181,694 $2,251,192
Distributions
reinvested 120 1,264 217 2,761
Repurchased (8,107) (91,269) (30,265) (374,467)
Net increase 24,134 $301,548 151,646 $1,879,486
CLASS I SHARES 1
Sold 62,785 $783,431 515,685 $6,276,886
Distributions
reinvested 603 7,855 4,964 62,996
Repurchased (1,163) (14,216) (414,235) (5,284,155)
Net increase 62,225 $777,070 106,414 $1,055,727
NET INCREASE 1,326,199 $16,193,047 531,226 $6,552,580
1 Class B, Class C and Class I shares commenced operations on July 1, 1999.
NOTE E
Reclassification
of accounts
During the year ended February 28, 2001, the Fund has reclassified
amounts to reflect a decrease in net realized loss on investments of
$140, an increase in undistributed net investment income of $196 and a
decrease in capital paid-in of $336. This represents the amount
necessary to report these balances on a tax basis, excluding certain
temporary difference, as of February 28, 2001. Additional adjustments
may be needed in subsequent reporting periods. These reclassifications,
which have no impact on the net asset value of the Fund, are primarily
attributable to certain differences in computation of distributable
income and capital gains under federal tax rules versus generally
accepted accounting principles and the Fund's use of the tax accounting
practice known as equalization. The calculation of net investment income
(loss) per share in the financial highlights excludes these adjustments.
AUDITORS'
REPORT
Report of Deloitte
& Touche LLP,
Independent
Auditors
To the Board of Trustees and Shareholders,
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of John Hancock Core Value Fund
(the "Fund") as of February 28, 2001, the related statement of
operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 at
February 28, 2001 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the
Fund at February 28, 2001, the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated
periods in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 30, 2001
TAX
INFORMATION
Unaudited.
For federal income tax purposes, the following information is furnished
with respect to the taxable distributions of the Fund for the fiscal
year ended February 28, 2001.
With respect to the ordinary dividends paid by the Fund for the fiscal
year ended February 28, 2001, 100.00% of the dividends qualify for the
corporate dividends received deduction.
FOR YOUR
INFORMATION
TRUSTEES
Stephen L. Brown
James F. Carlin*
William H. Cunningham
Ronald R. Dion
Maureen R. Ford
Charles L. Ladner
Steven R. Pruchansky*
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman, President
and Chief Executive Officer
William L. Braman
Executive Vice President
and Chief Investment Officer
Richard A. Brown
Senior Vice President
and Chief Financial Officer
Susan S. Newton
Senior Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUBADVISER
Independence Investment Associates, Inc.
53 State Street
Boston, Massachusetts 02109
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By Regular Mail John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By Express Mail John Hancock Signature Services, Inc.
Attn: Mutual Fund Image Operations
529 Main Street
Charlestown, MA 02129
Customer Service Representatives 1-800-225-5291
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A tag line below reads "JOHN HANCOCK FUNDS."]
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1-800-225-5291
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1-800-338-8080 EASI-Line
www.jhfunds.com
This report is for the information of the shareholders of the John
Hancock Core Value Fund. It is not authorized for distribution to
prospective investors unless it is preceded or accompanied by the
current prospectus, which details charges, investment objectives and
operating policies.
8800A 2/01
4/01
John Hancock
Core
Growth
Fund
SEMI
ANNUAL
REPORT
8.31.01
Sign up for electronic delivery at
www.jhancock.com/funds/edelivery
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of Maureen R. Ford, Chairman and Chief Executive Officer,
flush left next to first paragraph.]
WELCOME
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
A look at performance
page 6
Growth of $10,000
page 7
Fund's investments
page 8
Financial statements
page 12
For your information
page 25
Dear Fellow Shareholders,
The U.S. stock market has had a very difficult time so far in 2001, as
the economy has slowed to a near standstill and the parade of corporate
earnings disappointments has continued. The Federal Reserve aggressively
began to attack the economic slowdown with interest-rate cuts totaling
three percentage points between January and the end of August.
The Standard & Poor's 500 Index, a leading benchmark of large-cap
stocks, lost 13.40% year-to-date through August. Bonds have outperformed
stocks overall, producing mostly positive results, as they were the
beneficiaries of the rate cuts and investors' search for safety. As we
entered September, the stock market remained in turmoil, as investors
were trying to get a clearer sense of the timetable for economic and
corporate recovery.
Then on September 11, 2001, a terrorist attack of unspeakable horror was
launched on the United States. We send our condolences to the victims'
families and friends.
Apart from the immediate impact of devastating human loss, the events
have understandably raised concerns about the broader repercussions on
our country's economy and financial markets. We have great confidence in
the United States economy, its financial systems and, above all, its
people. Throughout history, they have withstood a range of challenges --
from the Great Depression, to wars, natural disasters and global
financial turmoil -- and have emerged stronger thereafter. We encourage
shareholders to keep this longer-term perspective, difficult as it may
seem, when making investment decisions in the coming days.
Today, we are seeing the full resources of industry and the U.S.
government working to bolster and sustain our systems. Although we
expect market volatility in the near term, what remains certain is that
the U.S. economic and financial systems are working and resilient. "The
American economy is open for business," said Deputy Treasury Secretary
Ken Dam the day after the attack. We never had any doubts.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Chairman and Chief Executive Officer
YOUR FUND
AT A GLANCE
The Fund seeks
capital apprecia-
tion by investing
in large-capitaliza-
tion stocks with
high potential
earnings growth.
Over the last six months
* Stock prices declined across nearly all sectors, as the economy slowed
significantly.
* Semiconductor stocks were positive contributors to performance.
* The Fund focused on stocks with consistent earnings growth even in a
weak economy.
[Bar chart with heading "John Hancock Core Growth Fund." Under the
heading is a note that reads "Fund performance for the six months ended
August 31, 2001." The chart is scaled in increments of 5% with -15% at
the bottom and 0% at the top. The first bar represents the -12.61% total
return for Class A. The second bar represents the -12.83% total return
for Class B. The third bar represents the -12.90% total return for Class
C. The fourth bar represents the -12.20 total return for Class I. A note
below the chart reads "Total returns for the Fund are at net asset value
with all distributions reinvested."]
Top 10 holdings
9.1% General Electric
6.8% Pfizer
4.9% Microsoft
4.2% Intel
2.9% IBM
2.6% Wal-Mart Stores
2.5% Merck
2.3% Cisco Systems
2.2% Exelon
2.1% Dominion Resources
As a percentage of net assets on August 31, 2001.
MANAGERS'
REPORT
BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Core Growth Fund
Volatility plagued the stock market throughout the spring and summer
months, leaving investors with few places to hide. Early on, stock
prices sagged as investors worried about economic uncertainty and
disappointing corporate earnings. By April, however, the market was in a
turnaround mode, buoyed by the Federal Reserve's aggressive stance in
lowering short-term interest rates. Unfortunately, the rally was
short-lived, as prospects for an economic recovery were pushed further
out and second-quarter earnings for many companies fell below
expectations. Most sectors declined throughout the summer. Investors
renewed their focus on reasonable valuations, economic sensitivity and
stable earnings, leaving large-cap growth stocks well behind both
small-cap and value stocks. The Russell 1000 Growth Index closed the six
months ended August 31, 2001, with a -13.50% return, compared with a
- -3.08% return for the Russell 1000 Value Index.
"Volatility plagued the
stock market throughout
the spring and summer
months, leaving
investors with few
places to hide."
PERFORMANCE REVIEW
In this unfavorable environment, John Hancock Core Growth Fund held fast
to its disciplined strategy. The Fund's industry diversification and
risk characteristics continued to parallel those of the Russell 1000
Growth Index. Our stock selection, however, differed from the index, as
we concentrated on finding large-cap stocks with cheap valuations and
strong earnings growth prospects. For the six months ended August 31,
2001, the Fund's Class A, Class B, Class C and Class I shares returned
- -12.61%, -12.83%, -12.90% and -12.20%, respectively, at net asset
value. While disappointing, these returns outpaced the average large-cap
growth fund, which returned -15.16% over the same period, according to
Lipper, Inc.1 Keep in mind that your net asset value return will differ
from the Fund's if you were not invested for the exact same period and
did not reinvest all distributions. See pages six and seven for
historical performance information.
"Our focus is on companies
that we believe can meet
earnings expectations
even if the economy
remains weak..."
STRONG SELECTIONS
The Fund benefited from having sizable stakes in Microsoft and IBM, both
of which did well as investors searched for safe havens in a tumultuous
time. Several investments in the semiconductor area also rallied nicely
amid expectations of an impending upturn in the semiconductor cycle.
Among them were Analog Devices and Texas Instruments, both of which make
semiconductors for communications products. Cabot Microelectronics,
which supplies materials used in the manufacture of semiconductors, also
produced strong gains. In the telecom sector, QUALCOMM, which pioneered
the new technology used in digital wireless communications, did quite
well after signing an agreement to supply Nokia, the cell phone
manufacturer. In addition, Lowe's, the home-improvement retailer, saw
its stock price climb as sales and profits outpaced the competition.
ALZA, a pharmaceutical company, benefited from being acquired at a nice
premium by Johnson & Johnson. And Concord EFS, a financial transaction
processor, did well as investors rewarded its steady revenue stream.
NEAR-TERM DISAPPOINTMENTS
Our losses in other areas, however, overshadowed these gains. In the
technology sector, Cisco Systems faltered as telecom companies cut back
on capital expenditures, while EMC lost its price advantage as demand
weakened in the storage market. We held on to Cisco, which has the
ability to gain market share even in a weak economic environment, but
sold EMC. Telecom stocks continued to sink amid stiff competition,
financing problems among new entrants and a glut of bandwidth. Qwest
Communications International, a leading voice and data provider;
Comverse Technology, which makes software for telecom companies; and
Nokia all dropped sharply. With little prospect of near-term
improvement, we eliminated most of our stakes in these names. Some of
our retail investments also took hard hits, including CVS, a pharmacy
chain struggling with an industry-wide shortage of pharmacists, and
RadioShack, which lost money on its satellite television contracts. In
the health-care sector, Waters and Applera Corp -- Applied Biosystems,
which make medical instruments for biotech companies, suffered as demand
slowed. Pfizer and Merck, large pharmaceuticals, posted somewhat less
severe declines as investors abandoned health-care names. General
Electric tumbled as well, hurt by management succession issues and the
expectation that demand for its power turbines would slow.
[Table at top left-hand side of page entitled "Top five industry
groups." The first listing is Medical 23%, the second is Computers 19%,
the third Retail 11%, the fourth Electronics 11%, and the fifth
Utilities 4%.]
[Pie chart at middle of page with heading "Portfolio diversification As
a percentage of net assets on Aug. 31, 2001." The chart is divided into
two sections (from top to left): Common stock 98% and Short-term
investments 2%. ]
CURRENT CONCENTRATION
Our focus is on companies that we believe can meet earnings expectations
even if the economy remains weak, or that will benefit early on in an
economic recovery. We recently added American International Group (AIG),
a leading global financial service provider, and Verizon Communications,
an established telecom company, to the portfolio. Both have a history of
stable earnings growth. We also have sizable stakes in Exelon and
Dominion Resources, well-managed electric utilities that should fare
well regardless of the economy. Another portfolio stalwart is Wal-Mart
Stores, which has gained market share in the midst of a weak economy by
expanding into the food business as well as into international markets.
Our more economically sensitive investments include Intel and Dell
Computer, both of which should benefit as corporations begin upgrading
their personal computers, as expected, next year. We also recently added
to our stake in Oracle, believing it will benefit from easier
fourth-quarter year-over-year earnings comparisons.
[Table at top of page entitled "SCORECARD." The header for the left
column is "INVESTMENT" and the header for the right column is "RECENT
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Lowe's followed by an up arrow with the phrase "Strong sales, growing
market share." The second listing is RadioShack followed by a down arrow
with the phrase "Problems with satellite TV contracts." The third
listing is Waters followed by a down arrow with the phrase "Slowdown in
demand from biotech customers."]
"We also plan to monitor
carefully both consumer
spending and confidence, as
well as the Fed's moves and
unemployment levels."
A LOOK AHEAD
We expect the Fed's numerous interest-rate cuts this past year along
with recent tax cuts will eventually jumpstart the economy. The prospect
of a recovery should in turn boost stock prices, which typically move up
ahead of the economy.
Days after the period ended, the nation was struck by horrific acts of
terrorism. We plan to keep a close eye on potential repercussions to the
markets and the economy of these events. We also plan to monitor
carefully both consumer spending and confidence, as well as the Fed's
moves and unemployment levels.
This commentary reflects the views of the portfolio management team
through the end of the Fund's period discussed in this report. Of
course, the team's views are subject to change as market and other
conditions warrant.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
A LOOK AT
PERFORMANCE
For the period ended
August 31, 2001.
The index used for
comparison is the
Russell 1000 Growth
Index, an unmanaged
capitalization-
weighted price-only
index, which is com-
prised of 1,000 of the
largest capitalized U.S.-
domiciled companies
whose common stock
is traded on the New
York Stock Exchange.
The securities in this
index have a greater-
than-average growth
orientation.
It is not possible to
invest directly in an
index.
Class A Class B Class C Class I 1 Index
Inception date 7-1-99 7-1-99 7-1-99 10-2-95 --
Average annual returns with maximum sales charge (POP)
One year -46.90% -47.24% -45.61% -43.73% -45.32%
Five years -- -- -- 10.86% 10.31%
Since inception -16.93% -16.67% -15.90% 10.80% --
Cumulative total returns with maximum sales charge (POP)
Six months -17.01% -17.19% -14.61% -12.20% -13.50%
One year -46.90% -47.24% -45.61% -43.73% -45.32%
Five years -- -- -- 67.41% 63.30%
Since inception -33.10% -32.64% -31.28% 83.46% --
Performance figures assume all distributions are reinvested. Returns
with maximum sales charge reflect a sales charge on Class A shares of 5%
and Class C shares of 1%, and the applicable contingent deferred sales
charge (CDSC) on Class B and Class C shares. The Class B shares' CDSC
declines annually between years 1-6 according to the following
schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the
sixth year. Class C shares held for less than one year are subject to a
1% CDSC. Sales charge is not applicable for Class I shares. The return
and principal value of an investment in the Fund will fluctuate, so that
shares, when redeemed, may be worth more or less than the original cost.
Index figures do not reflect sales charges and would be lower if they
did.
The returns reflect past results and should not be considered indicative
of future performance. The performance table above and the chart on the
next page do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
The Fund's performance results reflect any applicable expense
reductions, without which the expenses would increase and results would
have been less favorable. These reductions can be terminated in the
future. See the prospectus for details.
1 For certain types of investors, as described in the Fund's prospectus
for Class I shares.
GROWTH OF
$10,000
This chart shows what happened to a hypothetical $10,000 investment in
Class I1 shares for the period indicated. For comparison, we've shown
the same investment in the Russell 1000 Growth Index.
Line chart with the heading "GROWTH OF $10,000." Within the chart are
two lines. The first line represents the Index and is equal to $20,894
as of August 31, 2001. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock Core Growth
Fund Class I1, before sales charge, and is equal to $18,479 as of August
31, 2001.
Class A Class B Class C 2
Inception date 7-1-99 7-1-99 7-1-99
Without sales charge $7,040 $6,940 $6,940
With maximum sales charge $6,690 $6,732 $6,871
Index $7,181 $7,181 $7,181
Assuming all distributions were reinvested for the period indicated, the
chart above shows the value of a $10,000 investment in the Fund's Class
A, Class B and Class C shares, as of August 31, 2001. Performance will
vary based on the difference in sales charges paid by shareholders
investing in the different classes and the fee structure of those
classes.
1 For certain types of investors, as described in the Fund's prospectus
for Class I shares.
2 No contingent deferred sales charge applicable.
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
August 31, 2001
(unaudited).
This schedule is divided into two main categories: common stocks and
short-term investments. Common stocks are further broken down by
industry group. Short-term investments, which represent the Fund's cash
position, are listed last.
SHARES ISSUER VALUE
COMMON STOCKS 98.47% $46,489,629
(Cost $49,597,464)
Advertising 1.37% $645,657
8,300 Omnicom Group, Inc. 645,657
Aerospace 0.29% 136,800
2,000 United Technologies Corp. 136,800
Banks -- United States 0.54% 256,944
10,600 U.S. Bancorp 256,944
Building 0.59% 279,243
7,100 Black & Decker Corp. (The) 279,243
Chemicals 0.90% 425,484
900 Cabot Microelectronics Corp.* 63,045
7,700 Praxair, Inc. 362,439
Computers -- Services 2.58% 1,218,277
6,200 Electronic Data Systems Corp. 365,676
2,700 First Data Corp. 177,795
7,700 Sabre Holdings Corp.* 324,786
14,800 SunGard Data Systems, Inc.* 350,020
Computers -- Software 8.61% 4,066,189
8,000 Adobe Systems, Inc. 268,880
400 BEA Systems, Inc.* 6,468
4,600 BMC Software, Inc.* 73,600
15,100 Cadence Design Systems, Inc.* 331,898
5,200 Citrix Systems, Inc.* 171,340
7,600 Intuit, Inc.* 287,128
40,800 Microsoft Corp.* 2,327,640
42,300 Oracle Corp.* 516,483
2,400 PeopleSoft, Inc.* 82,752
Computers 8.29% 3,912,860
3,100 CDW Computer Centers, Inc.* 126,480
67,100 Cisco Systems, Inc.* 1,095,743
30,400 Dell Computer Corp.* 649,952
13,900 International Business Machines Corp. 1,390,000
10,400 Lexmark International, Inc.* 541,320
6,900 Networks Associates, Inc.* 109,365
Cosmetics & Personal Care 0.42% 198,359
4,300 Avon Products, Inc. 198,359
Diversified Operations 9.87% 4,661,736
104,629 General Electric Co. 4,287,696
7,200 Tyco International Ltd. 374,040
Electronics 10.53% 4,971,106
6,500 Altera Corp.* 184,600
6,100 Analog Devices, Inc.* 291,458
7,600 Applied Materials, Inc.* 327,484
70,800 Intel Corp. 1,979,568
9,300 KLA-Tencor Corp.* 457,002
6,900 Linear Technology Corp. 283,452
6,100 Maxim Integrated Products, Inc.* 281,881
2,900 Novellus Systems, Inc.* 128,499
6,200 Tektronix, Inc.* 121,148
19,300 Texas Instruments, Inc. 638,830
7,100 Xilinx, Inc.* 277,184
Energy 0.29% 135,382
4,100 Calpine Corp.* 135,382
Finance 1.65% 779,583
9,700 Citigroup, Inc. 443,775
6,400 Concord EFS, Inc.* 335,808
Food 1.47% 695,118
12,700 General Mills, Inc. 563,118
6,000 Sara Lee Corp. 132,000
Instruments -- Scientific 0.39% 185,528
5,600 Waters Corp.* 185,528
Insurance 1.39% 654,440
5,800 American International Group, Inc. 453,560
3,100 Hartford Financial Services Group, Inc. (The) 200,880
Manufacturing 0.84% 394,547
7,100 Danaher Corp. 394,547
Media 3.01% 1,418,895
20,100 AOL Time Warner, Inc.* 750,735
5,500 EchoStar Communications Corp.* 154,880
20,100 Liberty Media Corp. (Class A)* 305,520
4,900 Viacom, Inc. (Class B)* 207,760
Medical 22.91% 10,817,935
5,900 Allergan, Inc. 426,275
16,300 American Home Products Corp. 912,800
10,400 Bristol-Myers Squibb Co. 583,856
3,700 Cephalon, Inc. 219,114
3,800 CV Therapeutics, Inc.* 189,126
5,600 Invitrogen Corp.* 380,968
16,500 Johnson & Johnson 869,715
12,400 Lincare Holdings, Inc.* 352,284
7,600 Medtronic, Inc. 346,104
17,800 Merck & Co., Inc. 1,158,780
83,400 Pfizer, Inc. 3,195,054
15,400 Pharmacia Corp. 609,840
20,300 Schering-Plough Corp. 774,039
5,200 Trigon Healthcare, Inc.* 336,700
5,000 UnitedHealth Group, Inc. 340,300
2,600 Universal Health Services, Inc. (Class B)* 122,980
Mortgage Banking 0.36% 167,662
2,200 Fannie Mae 167,662
Oil & Gas 1.51% 714,100
3,300 Baker Hughes, Inc. 108,702
9,400 BJ Services Co.* 210,842
8,400 Enron Corp. 293,916
3,700 Noble Drilling Corp.* 100,640
Retail 10.97% 5,179,624
5,300 Abercrombie & Fitch Co. (Class A)* 160,802
8,700 CVS Corp. 314,157
12,000 Family Dollar Stores, Inc. 360,000
16,000 Home Depot, Inc. (The) 735,200
12,000 Kohl's Corp.* 666,000
23,000 Lowe's Cos., Inc. 855,600
6,500 Target Corp. 225,225
8,000 TJX Cos., Inc. 280,800
10,800 Walgreen Co. 370,980
25,200 Wal-Mart Stores, Inc. 1,210,860
Telecommunications 4.29% 2,023,963
14,000 Broadwing, Inc.* 251,440
19,000 General Motors Corp. (Class H)* 354,350
11,200 Nokia Corp., American Depositary Receipts
(ADR) (Finland) 176,288
9,300 QUALCOMM, Inc.* 547,305
21,000 Sprint Corp.* 524,580
3,400 Verizon Communications, Inc. 170,000
Tobacco 1.06% 502,440
10,600 Philip Morris Cos., Inc. 502,440
Utilities 4.34% 2,047,757
15,400 Dominion Resources, Inc. 969,430
1,100 Dynegy, Inc. (Class A) 46,387
18,900 Exelon Corp. 1,031,940
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 1.89% $893,000
(Cost $893,000)
Joint Repurchase Agreement 1.89%
Investment in a joint repurchase agreement transaction
with UBS Warburg, Inc. -- Dated 08-31-01, due 09-04-01
(Secured by U.S. Treasury Bond 8.75% due 05-15-20
and U.S. Treasury Note 4.75% due 11-15-08) 3.64% $893 893,000
TOTAL INVESTMENTS 100.36% $47,382,629
OTHER ASSETS AND LIABILITIES, NET (0.36%) ($168,564)
TOTAL NET ASSETS 100.00% $47,214,065
* Non-income producing security.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to
financial statements.
ASSETS AND
LIABILITIES
August 31, 2001
(unaudited).
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes. You'll
also find the net
asset value and
the maximum
offering price
per share.
ASSETS
Investments at value (cost $50,490,464) $47,382,629
Cash 498
Receivable for investments sold 14,732
Receivable for shares sold 44,027
Dividends and interest receivable 50,866
Other assets 8,227
Total assets 47,500,979
LIABILITIES
Payable for shares repurchased 272,646
Payable to affiliates 14,268
Total liabilities 286,914
NET ASSETS
Capital paid-in 74,208,692
Accumulated net realized loss on investments (23,516,176)
Net unrealized depreciation of investments (3,107,835)
Accumulated net investment loss (370,616)
Net assets $47,214,065
NET ASSET VALUE PER SHARE
Based on net asset values and shares outstanding
Class A ($23,575,693 [DIV] 1,879,991 shares) $12.54
Class B ($19,917,489 [DIV] 1,611,855 shares) $12.36
Class C ($1,868,887 [DIV] 151,228 shares) $12.36
Class I ($1,851,996 [DIV] 146,195 shares) $12.67
MAXIMUM OFFERING PRICE PER SHARE
Class A1 ($12.54 [DIV] 95%) $13.20
Class C ($12.36 [DIV] 99%) $12.48
1 On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
See notes to
financial statements.
OPERATIONS
For the period ended
August 31, 2001
(unaudited).1
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in oper-
ating the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Dividends $194,708
Interest (including income on securities loaned of $333) 19,393
Total investment income 214,101
EXPENSES
Investment management fee 237,708
Class A distribution and service fee 48,448
Class B distribution and service fee 113,644
Class C distribution and service fee 9,435
Class A, B and C transfer agent fee 144,848
Class I transfer agent fee 628
Registration and filing fee 36,656
Custodian fee 21,362
Printing 9,060
Auditing fee 8,948
Accounting and legal services fee 5,955
Miscellaneous 2,883
Trustees' fee 1,760
Legal fee 401
Interest expense 17
Total expenses 641,753
Less expense reductions (57,330)
Net expenses 584,423
Net investment loss (370,322)
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on investments (15,763,572)
Change in net unrealized appreciation (depreciation)
on investments 9,082,097
Net realized and unrealized loss (6,681,475)
Decrease in net assets from operations ($7,051,797)
1 Semiannual period from 3-01-01 through 8-31-01.
See notes to
financial statements.
CHANGES IN
NET ASSETS
This Statement
of Changes in
Net Assets
shows how the
value of the
Fund's net assets
has changed
since the end of
the previous
period. The dif-
ference reflects
earnings less
expenses, any
investment gains
and losses, distri-
butions paid to
shareholders and
any increase or
decrease in
money share-
holders invested
in the Fund.
YEAR PERIOD
ENDED ENDED
2-28-01 8-31-01 1
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment loss ($813,677) ($370,322)
Net realized loss (6,132,232) (15,763,572)
Change in net unrealized
appreciation (depreciation) (17,794,404) 9,082,097
Decrease in net assets resulting
from operations (24,740,313) (7,051,797)
Distributions to shareholders
From net realized gain
on investments sold
Class A (668,487) --
Class B (515,655) --
Class C (34,612) --
Class I (89,326) --
(1,308,080) --
From fund share transactions 41,418,025 (14,086,668)
NET ASSETS
Beginning of period 52,982,898 68,352,530
End of period 2 $68,352,530 $47,214,065
1 Semiannual period from 3-01-01 through 8-31-01. Unaudited.
2 Includes accumulated net investment loss of $294 and $370,616, respectively.
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS A SHARES
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
PERIOD ENDED 2-29-00 1 2-28-01 8-31-01 2
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $18.14 $19.80 $14.35
Net investment loss 3 (0.05) (0.18) (0.07)
Net realized and unrealized
gain (loss) on investments 1.73 (4.95) (1.74)
Total from
investment operations 1.68 (5.13) (1.81)
Less distributions
From net realized gain (0.02) (0.32) --
Net asset value,
end of period $19.80 $14.35 $12.54
Total return 4,5 (%) 9.25 6 (26.26) (12.61)6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $21 $40 $24
Ratio of expenses
to average net assets (%) 1.25 7 1.49 1.71 7
Ratio of adjusted expenses
to average net assets 8,9 (%) 1.63 7 1.58 1.90 7
Ratio of net investment loss
to average net assets (%) (0.39)7 (0.91) (0.99)7
Portfolio turnover (%) 72 115 46
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS B SHARES
PERIOD ENDED 2-29-00 1 2-28-01 8-31-01 2
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $18.14 $19.73 $14.18
Net investment loss 3 (0.13) (0.31) (0.12)
Net realized and unrealized
gain (loss) on investments 1.74 (4.92) (1.70)
Total from
investment operations 1.61 (5.23) (1.82)
Less distributions
From net realized gain (0.02) (0.32) --
Net asset value,
end of period $19.73 $14.18 $12.36
Total return 4,5 (%) 8.86 6 (26.86) (12.83)6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $23 $23 $20
Ratio of expenses
to average net assets (%) 1.95 7 2.19 2.41 7
Ratio of adjusted expenses
to average net assets 8,9 (%) 2.33 7 2.28 2.60 7
Ratio of net investment loss
to average net assets (%) (1.09)7 (1.60) (1.68)7
Portfolio turnover (%) 72 115 46
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS C SHARES
PERIOD ENDED 2-29-00 1 2-28-01 8-31-01 2
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $18.14 $19.73 $14.19
Net investment loss 3 (0.13) (0.31) (0.12)
Net realized and unrealized
gain (loss) on investments 1.74 (4.91) (1.71)
Total from
investment operations 1.61 (5.22) (1.83)
Less distributions
From net realized gain (0.02) (0.32) --
Net asset value,
end of period $19.73 $14.19 $12.36
Total return 4,5 (%) 8.86 6 (26.81) (12.90)6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $1 $2 $2
Ratio of expenses
to average net assets (%) 1.95 7 2.19 2.41 7
Ratio of adjusted expenses
to average net assets 8,9 (%) 2.33 7 2.28 2.60 7
Ratio of net investment loss
to average net assets (%) (1.09)7 (1.61) (1.68)7
Portfolio turnover (%) 72 115 46
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS I SHARES 10
PERIOD ENDED 2-28-97 2-28-98 2-28-99 2-29-00 2-28-01 8-31-01 2
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $9.29 $11.01 $14.88 $17.65 $19.83 $14.43
Net investment income (loss) 3 0.05 0.04 0.01 (0.01) (0.07) (0.02)
Net realized and unrealized
gain (loss) on investments 2.16 4.34 3.40 3.31 (5.01) (1.74)
Total from
investment operations 2.21 4.38 3.41 3.30 (5.08) (1.76)
Less distributions
From net investment income (0.04) (0.03) (0.02) -- -- --
In excess of net investment income -- -- -- 11 -- -- --
From net realized gain (0.45) (0.48) (0.62) (1.12) (0.32) --
Net asset value,
end of period $11.01 $14.88 $17.65 $19.83 $14.43 $12.67
Total return 4,5 (%) 24.19 40.52 22.92 19.67 (25.96) (12.20)6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $1 $5 $8 $9 $3 $2
Ratio of expenses
to average net assets (%) 0.95 0.95 0.95 0.95 0.95 0.95 7
Ratio of adjusted expenses
to average net assets 8,9 (%) 7.74 3.52 1.98 1.33 1.04 1.14 7
Ratio of net investment income (loss)
to average net assets (%) 0.49 0.34 0.06 (0.06) (0.35) (0.26)7
Portfolio turnover (%) 142 91 54 72 115 46
1 Class A, Class B and Class C shares began operations on 7-1-99.
2 Semiannual period from 3-01-01 through 8-31-01. Unaudited.
3 Based on the average of the shares outstanding at the end of each month.
4 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
5 Total returns would have been lower had certain expenses not been
reduced during the periods shown.
6 Not annualized.
7 Annualized.
8 Does not take into consideration expense reductions during the periods shown.
9 Adjusted expenses as a percentage of average net assets are expected
to decrease as the net assets of the Fund grow.
10 Effective 7-1-99, existing shares of the Fund were designated Class I shares.
11 Less than $0.01 per share.
See notes to
financial statements.
NOTES TO
STATEMENTS
Unaudited.
NOTE A
Accounting policies
John Hancock Core Growth Fund (the "Fund") is a diversified series of
John Hancock Institutional Series Trust (the "Trust"), an open-end
investment management company registered under the Investment Company
Act of 1940. The investment objective of the Fund is to seek capital
appreciation by investing in large-capitalization stocks with high
potential earnings growth.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B, Class C and Class I shares.
The shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights to voting, redemptions,
dividends and liquidation, except that certain expenses, subject to the
approval of the Trustees, may be applied differently to each class of
shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a
class which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at
fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60
days are valued at amortized cost, which approximates market value.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, Inc. (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement transaction.
Aggregate cash balances are invested in one or more large repurchase
agreements, whose underlying securities are obligations of the U.S.
government and/or its agencies. The Fund's custodian bank receives
delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis. Capital gains realized on some
foreign securities are subject to foreign taxes, which are accrued as
applicable.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are
determined at the Fund level and allocated daily to each class of shares
based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, and transfer agent fees for Class
I shares, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
Expenses
The majority of the expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund will
be allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and
the relative sizes of the funds.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency
purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund has
entered into a syndicated line of credit agreement with various banks.
This agreement enables the Fund to participate with other funds managed
by the Adviser in an unsecured line of credit with banks, which permit
borrowings up to $500 million, collectively. Interest is charged to each
fund, based on its borrowing. In addition, a commitment fee is charged
to each fund based on the average daily unused portion of the line of
credit and is allocated among the participating funds. The Fund had no
borrowing activity under the line of credit during the period ended
August 31, 2001.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the
Fund negotiated lender fees. These fees are included in interest income.
The loans are collateralized at all times with cash or securities with a
market value at least equal to the market value of the securities on
loan. As with other extensions of credit, the Fund may bear the risk of
delay of the loaned securities in recovery or even loss of rights in
the collateral, should the borrower of the securities fail
financially. There were no securities loaned as of August 31, 2001.
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from accounting principles generally accepted in the United
States of America. Distributions paid by the Fund with respect to each
class of shares will be calculated in the same manner, at the same time
and will be in the same amount, except for the effect of expenses that
may be applied differently to each class.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of
America, incorporates estimates made by management in determining the
reported amount of assets, liabilities, revenues and expenses of the
Fund. Actual results could differ from these estimates.
NOTE B
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the Adviser equivalent, on an annual basis, to the sum of: (a)
0.80% of the first $500,000,000 of the Fund's average daily net asset
value and (b) 0.75% of the Fund's average daily net asset value in
excess of $500,000,000.
The Adviser has a subadvisory agreement with Independence Investment
LLC, a wholly owned indirect subsidiary of John Hancock Life Insurance
Company ("JHLICo"), the Adviser's indirect parent company. The Fund is
not responsible for the payment of the subadviser's fees.
The Adviser has agreed to limit the Fund's expenses, (excluding the
distribution and service fee and the transfer agent fee) to 0.90% of the
Fund's average daily net assets at least until June 30, 2002.
Accordingly, the expense reduction amounted to $57,330 for the period
ended August 31, 2001. The Adviser reserves the right to terminate this
limitation in the future.
The Fund has Distribution Plans with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. The Fund has adopted
Distribution Plans with respect to Class A, Class B and Class C pursuant
to Rule 12b-1 under the Investment Company Act of 1940 to reimburse JH
Funds for the services it provides as distributor of shares of the Fund.
Accordingly, the Fund makes payments to JH Funds at an annual rate not
to exceed 0.30% of Class A average daily net assets and 1.00% of Class
B and Class C average daily net assets, to reimburse JH Funds for its
distribution and service costs. A maximum of 0.25% of such payments may
be service fees as defined by the Conduct Rules of the National
Association of Securities Dealers. Under the Conduct Rules, curtailment
of a portion of the Fund's 12b-1 payments could occur under certain
circumstances.
Class A and Class C shares are assessed up-front sales charges. During
the period ended August 31, 2001, JH Funds received net up-front sales
charges of $67,389 with regard to sales of Class A shares. Of this
amount, $14,200 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $42,690 was paid as
sales commissions to unrelated broker-dealers and $10,499 was paid as
sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer. JHLICo is the indirect
sole shareholder of Signator Investors. During the period ended August
31, 2001, JH Funds received net up-front sales charges of $42,009 with
regard to sales of Class C shares. Of this amount, $35,028 was paid as
sales commissions to unrelated broker-dealers and $6,981 was paid as
sales commissions to sales personnel of Signator Investors.
Class B shares which are redeemed within six years of purchase are
subject to a contingent deferred sales charge ("CDSC") at declining
rates, beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares being
redeemed. Class C shares which are redeemed within one year of purchase
are subject to a CDSC at a rate of 1.00% of the lesser of the current
market value at the time of redemption or the original purchase cost of
the shares being redeemed. Proceeds from the CDSCs are paid to JH Funds
and are used in whole or in part to defray its expenses for providing
distribution related services to the Fund in connection with the sale of
Class B and Class C shares. For the period ended August 31, 2001, CDSCs
received by JH Funds amounted to $132,943 for Class B shares and $969
for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo.
The Fund pays monthly transfer agent fees to Signature Services for
Class A, Class B and Class C shares based on the number of shareholder
accounts, plus certain out-of-pocket expenses, based on relative net
asset values of the classes. For Class I shares, the Fund pays a monthly
transfer agent fee at an annual rate of 0.05% of the average daily net
assets attributable to Class I shares plus certain out-of-pocket
expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
period was at an annual rate of 0.02% of the average net assets of the
Fund.
Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of
the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes
their receipt of this compensation under the John Hancock Group of Funds
Deferred Compen-sation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. The
Deferred Compen-sation Plan investments had no impact on the operations
of the Fund.
NOTE C
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding
dollar value. The Fund has an unlimited number of shares authorized with
no par value.
YEAR ENDED 2-28-01 PERIOD ENDED 8-31-01 1
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Sold 4,170,090 $78,607,221 866,328 $12,721,030
Distributions reinvested 35,641 656,530 91 1,388
Repurchased (2,465,202) (45,602,022) (1,778,637) (25,700,675)
Net increase (decrease) 1,740,529 $33,661,729 (912,218) ($12,978,257)
CLASS B SHARES
Sold 923,333 $18,569,923 282,320 $3,862,724
Distributions reinvested 22,936 418,902 -- --
Repurchased (423,938) (8,285,894) (344,850) (4,653,004)
Net increase (decrease) 522,331 $10,702,931 (62,530) ($790,280)
CLASS C SHARES
Sold 112,707 $2,276,333 75,507 $1,017,503
Distributions reinvested 1,834 33,680 -- --
Repurchased (32,838) (649,067) (52,347) (722,770)
Net increase 81,703 $1,660,946 23,160 $294,733
CLASS I SHARES
Sold 170,572 $3,426,290 43,280 $597,340
Distributions reinvested 4,818 89,090 -- --
Repurchased (415,813) (8,122,961) (86,394) (1,210,204)
Net decrease (240,423) ($4,607,581) (43,114) ($612,864)
NET INCREASE (DECREASE) 2,104,140 $41,418,025 (994,702) ($14,086,668)
1 Semiannual period from 3-01-01 through 8-31-01. Unaudited.
NOTE D
Investment transactions
Purchases and proceeds from sales of securities, other than short-term
securities and obligations of the U.S. government, during the period
ended August 31, 2001, aggregated $26,699,723 and $39,948,180,
respectively.
The cost of investments owned at August 31, 2001 (including short-term
investments), for federal income tax purposes was $51,780,931. Gross
unrealized appreciation and depreciation of investments aggregated
$3,236,401 and $7,634,703, respectively, resulting in net unrealized
depreciation of $4,398,302.
FOR YOUR
INFORMATION
TRUSTEES
James F. Carlin*
William H. Cunningham
John M. DeCiccio
Ronald R. Dion
Maureen R. Ford
Charles L. Ladner
Steven R. Pruchansky*
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Maureen R. Ford
Chairman, President
and Chief Executive Officer
William L. Braman
Executive Vice President
and Chief Investment Officer
Richard A. Brown
Senior Vice President
and Chief Financial Officer
Susan S. Newton
Senior Vice President
and Secretary
William H. King
Vice President
and Treasurer
Thomas H. Connors
Vice President
and Compliance Officer
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUBADVISER
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By Regular Mail John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By Express Mail John Hancock Signature Services, Inc.
Attn: Mutual Fund Image Operations
529 Main Street
Charlestown, MA 02129
Customer Service Representatives 1-800-225-5291
24-hour Automated Information 1-800-338-8080
TDD Line 1-800-544-6713
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-225-5291
1-800-544-6713 (TDD)
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhancock.com/funds/edelivery
This report is for the information of the shareholders of the John
Hancock Core Growth Fund.
790SA 8/01
10/01
John Hancock
Core
Value
Fund
SEMI
ANNUAL
REPORT
8.31.01
Sign up for electronic delivery at
www.jhancock.com/funds/edelivery
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of Maureen R. Ford, Chairman and Chief Executive Officer,
flush left next to first paragraph.]
WELCOME
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
A look at performance
page 6
Growth of $10,000
page 7
Fund's investments
page 8
Financial statements
page 13
For your information
page 25
Dear Fellow Shareholders,
The U.S. stock market has had a very difficult time so far in 2001, as
the economy has slowed to a near standstill and the parade of corporate
earnings disappointments has continued. The Federal Reserve aggressively
began to attack the economic slowdown with interest-rate cuts totaling
three percentage points between January and the end of August.
The Standard & Poor's 500 Index, a leading benchmark of large-cap
stocks, lost 13.40% year-to-date through August. Bonds have outperformed
stocks overall, producing mostly positive results, as they were the
beneficiaries of the rate cuts and investors' search for safety. As we
entered September, the stock market remained in turmoil, as investors
were trying to get a clearer sense of the timetable for economic and
corporate recovery.
Then on September 11, 2001, a terrorist attack of unspeakable magnitude
was launched on the United States. We send our condolences to the
victims' families and friends.
Apart from the immediate impact of devastating human loss, the events
have understandably raised concerns about the broader repercussions on
our country's economy and financial markets. We have great confidence in
the United States economy, its financial systems and, above all, its
people. Throughout history, they have withstood a range of challenges --
from the Great Depression, to wars, natural disasters and global
financial turmoil -- and have emerged stronger thereafter. We encourage
shareholders to keep this longer-term perspective, difficult as it may
seem, when making investment decisions in the coming days.
Today, we are seeing the full resources of industry and the U.S.
government working to bolster and sustain our systems. Although we
expect market volatility in the near term, what remains certain is that
the U.S. economic and financial systems are working and resilient. "The
American economy is open for business," said Deputy Treasury Secretary
Ken Dam the day after the attack. We never had any doubts.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Chairman and Chief Executive Officer
YOUR FUND
AT A GLANCE
The Fund seeks
above-average
total return
through
investments
in large-
capitalization
stocks that
appear relatively
undervalued.
Over the last six months
* Value stocks beat growth stocks as investors renewed their focus on
valuation measures in the midst of continued economic weakness.
* Basic materials, health-care and financial stocks were among the
Fund's strongest contributors.
* The Fund remained defensively positioned with a well-diversified
portfolio of attractively priced stocks.
[Bar chart with heading "John Hancock Core Value Fund." Under the
heading is a note that reads "Fund performance for the six months ended
August 31, 2001." The chart is scaled in increments of 2% with -6% at
the bottom and 0% at the top. The first bar represents the -5.35% total
return for Class A. The second bar represents the -5.67% total return
for Class B. The third bar represents the -5.67% total return for Class
C. The fourth bar represents the -5.11% total return for Class I. A note
below the chart reads "Total returns for the Fund are at net asset value
with all distributions reinvested."]
Top 10 holdings
4.5% Citigroup
4.5% ExxonMobil
3.0% Verizon Communications
2.8% Bank of America
2.7% Fannie Mae
2.1% Washington Mutual
2.1% Wells Fargo
2.0% Philip Morris
2.0% Dominion Resources
1.9% SBC Communications
As a percentage of net assets on August 31, 2001.
MANAGERS'
REPORT
BY JOHN C. FORELLI FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Core Value Fund
The stock market continued its slide over the summer, despite the
Federal Reserve's aggressive efforts to stimulate economic growth. The
market rallied briefly in April and early May. But growing concerns that
the economy was still deteriorating, along with a barrage of negative
earnings announcements, soon sent stock prices tumbling. In this
environment, investors favored safe-haven stocks with high dividend
yields and little overseas exposure. Lower interest rates and cheaper
capital especially helped small companies, which beat large-cap stocks.
Value stocks outperformed growth sectors like technology and
telecommunications, as investors renewed their focus on valuation.
Defensive sectors, such as basic materials and health care, did
particularly well. For the six months ended August 31, 2001, the Russell
1000 Value Index returned -3.08%, compared with the -13.50% return of
the Russell 1000 Growth Index.
"The stock market contin-
ued its slide over the
summer, despite the
Federal Reserve's aggres-
sive efforts to stimulate
economic growth."
PERFORMANCE REVIEW
John Hancock Core Value Fund's strategy is to mirror the industry
weightings and risk characteristics of the Russell 1000 Value Index,
while focusing on stocks that are cheaper than the market average but
that have improving prospects. Some of our stock selections were
disappointments that caused the Fund's Class A, Class B, Class C and
Class I shares to return -5.35%, -5.67%, -5.67% and -5.11%,
respectively, at net asset value, during the six-month period ended
August 31, 2001. The average multi-cap value fund, which includes
investments in the better- performing small-cap sector, returned
-2.42%, according to Lipper, Inc.1 Keep in mind that your net asset
value return will differ from these results if you were not invested for
the exact same period and did not reinvest all distributions. For
historical performance information, please see pages six and seven.
LOSSES IN TELECOM AND ENERGY
Among our biggest disappointments were Qwest Communications
International, a telecom service provider dogged with accounting
problems during the period, and SBC Communications, a local phone
operator whose Latin American investments scared away investors. A
number of our energy-related names also tumbled, as oil and natural gas
prices pulled back over the summer. They included Enron, an energy
trader; BJ Services, an oil services company, and El Paso, a natural gas
distributor. Our largest energy investment, ExxonMobil, however,
benefited from being broadly diversified in a tough market. The Fund
also sustained sizable losses from retailers like CVS, a drugstore chain
whose expansion plans were postponed by an industry wide shortage of
pharmacists, and RadioShack, which had shortfalls related to the sale of
its satellite television contracts. Finally, Ford Motor Co. fell as the
company cut back on production and laid off workers in the slow economy,
causing investors to worry about the potential for future dividend cuts.
"We boosted our stake in
electric and gas utilities..."
STRENGTH IN BASIC MATERIALS, HEALTH CARE
Some of the Fund's strongest gains came from the basic materials sector.
Excellent cost controls and improving balance sheets boosted the stock
of specialty metal producers such as AK Steel Holding and Worthington
Industries. Chemicals stocks, including Dow Chemical, Air Products &
Chemicals and Praxair, also contributed positively to performance. These
stocks benefited from reasonable valuations, attractive dividend yields
and falling energy prices, which lowered their production costs.
Investors also flocked to health-care stocks as health-care insurance
prices went up. Companies like Trigon Healthcare, a health management
organization, and Tenet Healthcare, a hospital management company, did
well because of their consistent earnings growth in a weak economy.
Johnson & Johnson, which we sold, rallied in anticipation of strong
sales for a new product. Another good performer was Lowe's, the
home-improvement retailer, which generated strong earnings growth
through efficient operation and aggressive expansion.
[Table at top left-hand side of page entitled "Top five industry
groups." The first listing is Oil & gas 10%, the second is U.S. banks
10%, the third Utilities 8%, the fourth Telecommunications 8%, and the
fifth Finance 8%.]
[Pie chart at middle of page with heading "Portfolio diversification As
a percentage of net assets on Aug. 31, 2001." The chart is divided into
two sections (from top to left): Common stock 99% and Short-term
investments 1%.]
MIXED RESULTS FOR FINANCIALS
Financial stocks, including banks, finance, asset managers and insurance
companies, accounted for 26% of the Fund's assets. Among our largest
investments were Bank of America, Washington Mutual and U.S. Bancorp.
These stocks benefited as interest rates came down, boosting the
difference between what banks pay on deposits and what they charge for
loans. Lower rates also helped them by stimulating mortgage refinancing
activity. Lincoln National rallied as pricing for property and casualty
insurance began to improve. By contrast, some of our other top financial
investments, including Wells Fargo, Citigroup and Fannie Mae, had posted
strong gains earlier in the cycle and saw flat or modestly negative
returns during the period.
SECTOR SHIFTS
We boosted our stake in electric and gas utilities, adding to our
investments in Dominion Resources and Exelon, while also purchasing new
names like UtiliCorp United. Our focus was on undervalued companies with
non-regulated assets that could be spun out as separate entities. We
also increased our stake in technology names, buying stocks like Apple
Computer and KLA-Tencor (a semiconductor equipment company) that appear
reasonably priced and offer strong growth opportunities. We cut back on
retail, eliminating weak performers like RadioShack and cutting back on
CVS. We also reduced our health-care stake because of concerns about
increasing regulation in the pharmaceutical area and a dwindling supply
of new products. In the telecom area, we shifted toward conservative
names with more predicable earnings growth like Verizon Communications
and SBC Communications, while moving out of newer entrants like Qwest.
[Table at top of page entitled "SCORECARD." The header for the left
column is "INVESTMENT" and the header for the right column is "RECENT
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Lowe's followed by an up arrow with the phrase "Aggressive expansion,
strong operating results." The second listing is CVS followed by a down
arrow with the phrase "Pharmacist shortage, disappointing same-store
sales." The third listing is Ford Motor Co. followed by a down arrow with
the phrase "Lower production, lower earnings in slow economy."]
"We believe the market will
remain volatile near term..."
STAYING THE COURSE
We believe the market will remain volatile near term as investors worry
about the economic outlook, the possibility of a slowdown in consumer
spending, and, above all, the repercussions from the tragic acts of
terrorism that occurred shortly after the end of the period.
Third-quarter earnings were already expected to be weak due to the soft
economy and seasonal slowdowns in business. What will happen further out
to both the economy and the market is less clear. Once justice is
restored, however, we are confident the market will return to a more
normal course. We believe the best way to be prepared for that
eventuality is to stay fully invested now. In our opinion, value stocks
offer both attractive valuations and diversification that will continue
to serve long-term investors well.
This commentary reflects the views of the portfolio management team
through the end of the Fund's period discussed in this report. Of
course, the team's views are subject to change as market and other
conditions warrant.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
A LOOK AT
PERFORMANCE
For the period ended
August 31, 2001.
The index used for
comparison is the
Russell 1000 Value
Index, an unmanaged
index, which measures
the performance of
those Russell 1000
companies with lower
price-to-book ratios
and higher forecasted
growth values.
It is not possible to
invest directly in an
index.
Class A Class B Class C Class I 1 Index
Inception date 10-2-95 7-1-99 7-1-99 7-1-99 --
Average annual returns with maximum sales charge (POP)
One year -8.40% -9.00% -6.18% -3.09% -1.12%
Five years 11.51% -- -- -- 14.20%
Since inception 12.23% -5.71% -4.83% -3.33% --
Cumulative total returns with maximum sales charge (POP)
Six months -10.09% -10.39% -7.56% -5.11% -3.08%
One year -8.40% -9.00% -6.18% -3.09% -1.12%
Five years 72.40% -- -- -- 94.21%
Since inception 97.85% -11.96% -10.18% -7.08% --
Performance figures assume all distributions are reinvested. Returns
with maximum sales charge reflect a sales charge on Class A shares of 5%
and Class C shares of 1%, and the applicable contingent deferred sales
charge (CDSC) on Class B and Class C shares. The Class B shares' CDSC
declines annually between years 1-6 according to the following
schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the
sixth year. Class C shares held for less than one year are subject to a
1% CDSC. Sales charge is not applicable for Class I shares. The return
and principal value of an investment in the Fund will fluctuate, so that
shares, when redeemed, may be worth more or less than the original cost.
Index figures do not reflect sales charges and would be lower if they did.
The returns reflect past results and should not be considered indicative
of future performance. The performance table above and the chart on the
next page do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
The Fund's performance results reflect any applicable expense
reductions, without which the expenses would increase and results would
have been less favorable. These reductions can be terminated in the
future. See the prospectus for details.
1 For certain types of investors, as described in the Fund's prospectus
for Class I shares.
GROWTH OF
$10,000
This chart shows what happened to a hypothetical $10,000 investment in
Class A shares for the period indicated. For comparison, we've shown the
same investment in the Russell 1000 Value Index.
Line chart with the heading "GROWTH OF $10,000." Within the chart are
three lines. The first line represents the Index and is equal to $22,031
as of August 31, 2001. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock Core Value
Fund Class A, before sales charge, and is equal to $20,832 as of August
31, 2001. The third line represents the same hypothetical $10,000
investment made in the John Hancock Core Value Fund Class A, after sales
charge, and is equal to $19,785 as of August 31, 2001.
Class B Class C 1 Class I 2
Inception date 7-1-99 7-1-99 7-1-99
Without sales charge $9,073 $9,070 $9,292
With maximum sales charge $8,800 $8,979 --
Index $9,627 $9,627 $9,627
Assuming all distributions were reinvested for the period indicated, the
chart above shows the value of a $10,000 investment in the Fund's Class
B, Class C and Class I shares as of August 31, 2001. Performance will
vary based on the difference in sales charges paid by shareholders
investing in the different classes and the fee structure of those
classes.
1 No contingent deferred sales charge applicable.
2 For certain types of investors as described in the Fund's prospectus
for Class I shares.
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
August 31, 2001
(unaudited).
This schedule is divided into two main categories: common stocks and
short-term investments. Common stocks are further broken down by
industry group. Short-term investments, which represent the Fund's cash
position, are listed last.
SHARES ISSUER VALUE
COMMON STOCKS 98.59% $33,225,789
(Cost $32,019,793)
Aerospace 2.54% $857,086
3,500 Boeing Co. (The) 179,200
2,300 General Dynamics Corp. 181,608
2,700 Precision Castparts Corp. 92,718
5,900 United Technologies Corp. 403,560
Automobile / Trucks 2.71% 914,299
21,400 Ford Motor Co. 425,218
4,900 General Motors Corp. 268,275
4,400 Ryder System, Inc. 99,396
7,100 Visteon Corp. 121,410
Banks -- United States 9.85% 3,320,634
15,200 Bank of America Corp. 934,800
8,200 Bank of New York Co., Inc. (The) 325,540
3,300 Comerica, Inc. 197,175
5,800 FleetBoston Financial Corp. 213,614
4,700 Mellon Financial Corp. 165,675
3,600 TCF Financial Corp. 163,440
26,000 U.S. Bancorp 630,240
15,000 Wells Fargo & Co. 690,150
Beverages 1.32% 445,896
4,900 Anheuser-Busch Cos., Inc. 210,896
5,000 PepsiCo, Inc. 235,000
Building 1.61% 542,304
4,800 Black & Decker Corp. (The) 188,784
2,300 Centex Corp. 100,740
3,000 Danaher Corp. 166,710
3,800 Sherwin-Williams Co. 86,070
Chemicals 3.66% 1,232,615
7,600 Air Products & Chemicals, Inc. 322,240
14,000 Dow Chemical Co. 490,840
2,200 Eastman Chemical Co. 85,338
7,100 Praxair, Inc. 334,197
Computers 5.53% 1,864,192
5,000 Apple Computer, Inc.* 92,750
4,900 Cadence Design Systems, Inc.* 107,702
3,000 Electronic Data Systems Corp. 176,940
4,600 First Data Corp. 302,910
3,500 International Business Machines Corp. 350,000
3,100 Intuit, Inc.* 117,118
4,700 Lexmark International, Inc.* 244,635
6,900 Network Associates, Inc.* 109,365
4,900 Sabre Holdings Corp.* 206,682
6,600 SunGard Data Systems, Inc.* 156,090
Cosmetics & Personal Care 0.74% 249,102
5,400 Avon Products, Inc. 249,102
Diversified Operations 1.74% 586,185
1,400 Johnson Controls, Inc. 102,550
2,500 Minnesota Mining & Manufacturing Co. 260,250
4,300 Tyco International Ltd. 223,385
Electronics 2.76% 929,262
4,100 Advanced Micro Devices, Inc.* 55,555
4,500 General Electric Co. 184,410
4,700 KLA-Tencor Corp.* 230,958
14,200 Motorola, Inc. 247,080
5,200 Tektronix, Inc.* 101,608
4,700 Vishay Intertechnology, Inc.* 109,651
Finance 8.03% 2,705,399
33,300 Citigroup, Inc. 1,523,475
5,500 J.P. Morgan Chase & Co. 216,700
9,400 Stilwell Financial, Inc. 268,840
18,600 Washington Mutual, Inc. 696,384
Food 1.17% 394,712
12,915 Archer Daniels Midland Co. 173,448
2,600 Heinz (H.J.) Co. 117,468
4,718 Sara Lee Corp. 103,796
Insurance 5.73% 1,931,795
6,100 Allstate Corp. (The) 206,973
5,500 American International Group, Inc. 430,100
6,200 Hartford Financial Services Group,
Inc. (The) 401,760
6,900 Lincoln National Corp. 344,034
1,600 PartnerRe Ltd. (United Kingdom) 78,960
6,400 St. Paul Cos., Inc. (The) 268,992
2,400 Torchmark Corp. 101,376
1,200 XL Capital Ltd. (Class A) (Bermuda) 99,600
Leisure 1.08% 365,222
11,200 Disney (Walt) Co. (The) 284,816
1,800 Eastman Kodak Co. 80,406
Media 2.43% 817,454
2,000 Clear Channel Communications, Inc.* 100,540
1,900 Gannett Co., Inc. 117,154
28,300 Liberty Media Corp. (Class A)* 430,160
4,000 Viacom, Inc. (Class B)* 169,600
Medical 5.21% 1,755,167
3,400 Abbott Laboratories 168,980
4,100 American Home Products Corp. 229,600
2,600 Baxter International, Inc. 134,160
2,600 Lincare Holdings, Inc.* 73,866
7,500 Merck & Co., Inc. 488,250
3,800 Tenet Healthcare Corp.* 210,596
4,900 Trigon Healthcare, Inc.* 317,275
2,800 Universal Health Services, Inc.
(Class B)* 132,440
Metal 1.52% 511,712
4,400 Alcan, Inc. (Canada) 159,808
4,200 Alcoa, Inc. 160,104
13,700 Worthington Industries, Inc. 191,800
Mortgage Banking 2.74% 922,141
12,100 Fannie Mae 922,141
Office 1.07% 361,801
3,400 Avery Dennison Corp. 174,794
4,300 Pitney Bowes, Inc. 187,007
Oil & Gas 9.88% 3,329,394
3,400 Ashland, Inc. 144,160
4,400 Baker Hughes, Inc. 144,936
6,000 BJ Services Co.* 134,580
2,800 BP Amoco Plc, American Depositary
Receipts (United Kingdom) 142,464
3,600 Chevron Corp. 326,700
3,300 Conoco, Inc. (Class A)* 97,845
7,700 El Paso Corp. 374,143
4,800 Enron Corp. 167,952
37,600 Exxon Mobil Corp. 1,509,640
2,000 Kerr-McGee Corp. 116,820
5,400 USX -- Marathon Group 170,154
Paper & Paper Products 0.91% 307,720
2,800 Kimberly-Clark Corp. 173,740
4,400 Westvaco Corp. 133,980
Retail 4.69% 1,579,216
3,200 Brinker International, Inc.* 85,120
3,600 CVS Corp. 129,996
4,800 Family Dollar Stores, Inc. 144,000
2,700 Kohl's Corp.* 149,850
10,400 Lowe's Cos., Inc. 386,880
5,400 May Department Stores Co. (The) 181,710
8,400 Target Corp. 291,060
6,000 TJX Cos., Inc. 210,600
Soap & Cleaning Preparations 1.44% 484,125
3,600 Colgate-Palmolive Co. 194,940
3,900 Procter & Gamble Co. (The) 289,185
Steel 0.83% 280,512
9,600 AK Steel Holding Corp. 124,992
3,200 Nucor Corp. 155,520
Telecommunications 8.11% 2,733,521
8,000 Broadwing, Inc.* 143,680
7,100 General Motors Corp. (Class H)* 132,415
15,600 SBC Communications, Inc. 638,196
11,600 Sprint Corp. (PCS Group)* 289,768
6,700 Sprint Corp. (FON Group) 156,378
19,900 Verizon Communications, Inc. 995,000
29,400 WorldCom, Inc.* 378,084
Tobacco 2.01% 677,820
14,300 Philip Morris Cos., Inc. 677,820
Transportation 0.86% 288,922
6,500 Burlington Northern Santa Fe Corp. 176,215
6,300 Southwest Airlines Co. 112,707
Utilities 8.42% 2,837,581
7,200 Allegheny Energy, Inc. 317,376
10,600 Dominion Resources, Inc. 667,270
7,800 Duke Energy Corp. 306,618
9,900 Energy East Corp. 208,494
8,900 Exelon Corp. 485,940
5,000 Mirant Corp.* 143,250
7,900 Sempra Energy 214,011
8,700 UtiliCorp United, Inc. 279,792
6,600 Williams Cos., Inc. (The) 214,830
INTEREST PAR VALUE
ISSUER, DESCRIPTION, MATURITY DATE RATE (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 1.32% $444,000
(Cost $444,000)
Joint Repurchase Agreement (1.32%)
Investment in a joint repurchase agreement
transaction with UBS Warburg, Inc. -- Dated
08-31-01, due 09-04-01 (Secured by U.S.
Treasury Bond 8.75% due 05-15-20
and U.S. Treasury Note 4.75% due 11-15-08) 3.64% $444 $444,000
TOTAL INVESTMENTS 99.91% $33,669,789
OTHER ASSETS AND LIABILITIES, NET 0.09% $29,921
TOTAL NET ASSETS 100.00% $33,699,710
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to
financial statements.
ASSETS AND
LIABILITIES
August 31, 2001
(unaudited).
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the fund
owns, is due
and owes. You'll
also find the net
asset value and
the maximum
offering price
per share.
ASSETS
Investments at value (cost $32,463,793) $33,669,789
Cash 729
Receivable for shares sold 16,963
Dividends and interest receivable 69,028
Other assets 1,520
Total assets 33,758,029
LIABILITIES
Payable for shares repurchased 26,758
Payable to affiliates 18,810
Other payables and accrued expenses 12,751
Total liabilities 58,319
NET ASSETS
Capital paid-in 33,610,115
Accumulated net realized loss on investments (1,117,511)
Net unrealized appreciation of investments 1,205,996
Undistributed net investment income 1,110
Net assets $33,699,710
NET ASSET VALUE PER SHARE
Based on net asset values and shares outstanding
Class A ($12,140,245 [DIV] 1,009,565 shares) $12.03
Class B ($17,290,065 [DIV] 1,444,499 shares) $11.97
Class C ($2,591,441 [DIV] 216,503 shares) $11.97
Class I ($1,677,959 [DIV] 139,025 shares) $12.07
MAXIMUM OFFERING PRICE PER SHARE
Class A1 ($12.03 [DIV] 95%) $12.66
Class C ($11.97 [DIV] 99%) $12.09
1 On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
See notes to
financial statements.
OPERATIONS
For the period ended
August 31, 2001
(unaudited).1
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in oper-
ating the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $300) $293,058
Interest 13,292
Total investment income 306,350
EXPENSES
Investment management fee 137,150
Class A distribution and service fee 18,751
Class B distribution and service fee 85,888
Class C distribution and service fee 13,220
Class A, B and C transfer agent fee 47,832
Class I transfer agent fee 491
Registration and filing fee 31,032
Custodian fee 16,870
Auditing fee 10,007
Printing 6,070
Accounting and legal services fee 3,451
Miscellaneous 831
Trustees' fee 791
Legal fee 218
Total expenses 372,602
Less expense reductions (52,251)
Net expenses 320,351
Net investment loss (14,001)
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on investments sold (546,216)
Change in net unrealized appreciation (depreciation)
on investments (1,387,346)
Net realized and unrealized loss (1,933,562)
Decrease in net assets from operations ($1,947,563)
1 Semiannual period from 3-01-01 through 8-31-01.
See notes to
financial statements.
CHANGES IN
NET ASSETS
This Statement
of Changes in
Net Assets
shows how the
value of the
Fund's net assets
has changed
since the end of
the previous
period. The dif-
ference reflects
earnings less
expenses, any
investment gains
and losses, distri-
butions paid to
shareholders and
any increase or
decrease in
money share-
holders invested
in the Fund.
YEAR PERIOD
ENDED ENDED
2-28-01 8-31-01 1
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss) $111,061 ($14,001)
Net realized loss (517,363) (546,216)
Change in net unrealized
appreciation (depreciation) 4,528,761 (1,387,346)
Increase (decrease) in net assets
resulting from operations 4,122,459 (1,947,563)
Distributions to shareholders
From net investment income
Class A (74,887) --
Class B (4,857) --
Class C (157) --
Class I (52,569) --
From net realized gain
Class A (20,026) --
Class B (26,828) --
Class C (3,088) --
Class I (10,427) --
(192,839) --
From fund share transactions 6,552,580 5,194,335
NET ASSETS
Beginning of period 19,970,738 30,452,938
End of period 2 $30,452,938 $33,699,710
1 Semiannual period from 3-01-01 through 8-31-01. Unaudited.
2 Includes undistributed net investment income of $15,111 and $1,110,
respectively.
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS A SHARES 1
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
PERIOD ENDED 2-28-97 2-28-98 2-28-99 2-29-00 2-28-01 8-31-01 2
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $9.47 $10.88 $13.93 $12.36 $10.70 $12.71
Net investment income 3 0.23 0.21 0.15 0.13 0.10 0.02
Net realized and unrealized
gain (loss) on investments 1.77 3.33 1.23 (1.01) 2.04 (0.70)
Total from
investment operations 2.00 3.54 1.38 (0.88) 2.14 (0.68)
Less distributions
From net investment income (0.19) (0.13) (0.18) (0.08) (0.10) --
From net realized gain (0.40) (0.36) (2.77) (0.70) (0.03) --
(0.59) (0.49) (2.95) (0.78) (0.13) --
Net asset value,
end of period $10.88 $13.93 $12.36 $10.70 $12.71 $12.03
Total return 4,5 (%) 21.36 32.97 9.87 (8.08) 20.02 (5.35)6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $1 $8 $7 $12 $11 $12
Ratio of expenses
to average net assets (%) 0.95 0.95 0.95 0.95 1.30 1.50 7
Ratio of adjusted expenses
to average net assets 8,9 (%) 6.39 1.90 1.88 1.89 1.62 1.80 7
Ratio of net investment income
to average net assets (%) 2.26 1.60 1.03 1.09 0.79 0.29 7
Portfolio turnover (%) 66 119 61 76 131 36
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS B SHARES
PERIOD ENDED 2-29-00 10 2-28-01 8-31-01 2
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $13.35 $10.69 $12.69
Net investment income (loss) 3 0.02 (0.01) (0.03)
Net realized and unrealized
gain (loss) on investments (2.56) 2.05 (0.69)
Total from
investment operations (2.54) 2.04 (0.72)
Less distributions
From net investment income (0.02) (0.01) --
From net realized gain (0.10) (0.03) --
(0.12) (0.04) --
Net asset value,
end of period $10.69 $12.69 $11.97
Total return 4,5 (%) (19.19)6 19.02 (5.67)6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $8 $15 $17
Ratio of expenses
to average net assets (%) 1.95 7 2.09 2.20 7
Ratio of adjusted expenses
to average net assets 8,9 (%) 2.59 7 2.41 2.50 7
Ratio of net investment income (loss)
to average net assets (%) 0.19 7 (0.05) (0.40)7
Portfolio turnover (%) 76 131 36
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS C SHARES
PERIOD ENDED 2-29-00 10 2-28-01 8-31-01 2
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $13.35 $10.69 $12.69
Net investment income (loss) 3 0.02 (0.01) (0.03)
Net realized and unrealized
gain (loss) on investments (2.56) 2.04 (0.69)
Total from
investment operations (2.54) 2.03 (0.72)
Less distributions
From net investment income (0.02) -- 11 --
From net realized gain (0.10) (0.03) --
(0.12) (0.03) --
Net asset value,
end of period $10.69 $12.69 $11.97
Total return 4,5 (%) (19.19)6 18.98 (5.67)6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) -- 12 $2 $3
Ratio of expenses
to average net assets (%) 1.95 7 2.18 2.20 7
Ratio of adjusted expenses
to average net assets 8,9 (%) 2.59 7 2.50 2.50 7
Ratio of net investment income (loss)
to average net assets (%) 0.21 7 (0.16) (0.41)7
Portfolio turnover (%) 76 131 36
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS I SHARES
PERIOD ENDED 2-29-00 10 2-28-01 8-31-01 2
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $13.35 $10.70 $12.72
Net investment income 3 0.09 0.12 0.05
Net realized and unrealized
gain (loss) on investments (2.56) 2.07 (0.70)
Total from
investment operations (2.47) 2.19 (0.65)
Less distributions
From net investment income (0.08) (0.14) --
From net realized gain (0.10) (0.03) --
(0.18) (0.17) --
Net asset value,
end of period $10.70 $12.72 $12.07
Total return 4,5 (%) (18.71)6 20.46 (5.11)6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $1 $2 $2
Ratio of expenses
to average net assets (%) 0.95 10 0.95 0.95 7
Ratio of adjusted expenses
to average net assets 8,9 (%) 1.59 10 1.27 1.25 7
Ratio of net investment income
to average net assets (%) 1.09 10 0.97 0.83 7
Portfolio turnover (%) 76 131 36
1 Effective 7-1-99, existing shares of the Fund were designated Class A
shares. The Fund, which had previously only been sold to institutional
investors, also became available for sale to individual investors.
2 Semiannual period from 3-01-01 through 8-31-01. Unaudited.
3 Based on the average of the shares outstanding at the end of each month.
4 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
5 Total returns would have been lower had certain expenses not been
reduced during the periods shown.
6 Not annualized.
7 Annualized.
8 Does not take into consideration expense reductions during the periods shown.
9 Adjusted expenses as a percentage of average net assets are expected
to decrease as the net assets of the fund grow.
10 Class B, Class C and Class I shares began operations on 7-1-99.
11 Less than $0.01 per share.
12 Less than $500,000.
See notes to
financial statements.
NOTES TO
STATEMENTS
Unaudited.
NOTE A
Accounting policies
John Hancock Core Value Fund (the "Fund") is a diversified series of
John Hancock Institutional Series Trust, an open-end investment
management company registered under the Investment Company Act of 1940.
The investment objective of the Fund is to seek above-average total
return through investments in large-capitalization stocks that appear
relatively undervalued.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B, Class C and Class I shares.
The shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights to voting, redemptions,
dividends and liquidation, except that certain expenses, subject to the
approval of the Trustees, may be applied differently to each class of
shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a
class which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at
fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60
days are valued at amortized cost, which approximates market value.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, Inc. (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement transaction.
Aggregate cash balances are invested in one or more large repurchase
agreements, whose underlying securities are obligations of the U.S.
government and/or its agencies. The Fund's custodian bank receives
delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are
determined at the fund level and allocated daily to each class of shares
based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, and transfer agent fees for Class
I shares, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
Expenses
The majority of the expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund
will be allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and
the relative sizes of the funds.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency
purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund has
entered into a syndicated line of credit agreement with various banks.
This agreement enables the Fund to participate with other funds managed
by the Adviser in an unsecured line of credit with banks, which permit
borrowings up to $500 million, collectively. Interest is charged to each
fund, based on its borrowing. In addition, a commitment fee is charged
to each fund based on the average daily unused portion of the line of
credit and is allocated among the participating funds. The Fund had no
borrowing activity under the line of credit during the period ended
August 31, 2001.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the
Fund negotiated lender fees. These fees are included in interest income.
The loans are collateralized at all times with cash or securities with a
market value at least equal to the market value of the securities on
loan. As with other extensions of credit, the Fund may bear the risk of
delay of the loaned securities in recovery or even loss of rights in the
collateral, should the borrower of the securities fail financially. At
August 31, 2001, the Fund loaned securities having a market value of
$104,420 collateralized by securities in the amount of $106,508.
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has $86,884 of capital loss
carryforwards available, to the extent provided by regulations, to
offset future net realized capital gains. To the extent such
carryforwards are used by the Fund, no capital gain distributions will
be made. The carryforwards expire on February 28, 2009.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from accounting principles generally accepted in the United
States of America. Distributions paid by the Fund with respect to each
class of shares will be calculated in the same manner, at the same time
and will be in the same amount, except for the effect of expenses that
may be applied differently to each class.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of
America, incorporates estimates made by management in determining the
reported amount of assets, liabilities, revenues and expenses of the
Fund. Actual results could differ from these estimates.
NOTE B
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the Adviser equivalent, on an annual basis, to the sum of: (a)
0.80% of the first $500,000,000 of the Fund's average daily net asset
value and (b) 0.75% of the Fund's average daily net asset value in
excess of $500,000,000.
The Fund and the Adviser have a subadvisory contract with Independence
Investment LLC, a wholly owned indirect subsidiary of John Hancock Life
Insurance company ("JHLICo"), the Adviser's indirect parent company. The
Fund is not responsible for the payment of the subadviser's fees.
The Adviser had agreed to limit the Fund's expenses, (excluding the
distribution and service fee and the transfer agent fee) to 0.90% of the
Fund's average daily net assets, at least until June 30, 2002.
Accordingly, the expense reduction amounted to $52,251 for the period
ended August 31, 2001. The Adviser reserves the right to terminate this
limitation in the future.
The Fund has Distribution Plans with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. The Fund has adopted
Distribution Plans with respect to Class A, Class B and Class C pursuant
to Rule 12b-1 under the Investment Company Act of 1940 to reimburse JH
Funds for the services it provides as distributor of shares of the Fund.
Accordingly, the Fund makes payments to JH Funds at an annual rate not
to exceed 0.30% of Class A average daily net assets and 1.00% of Class B
and Class C average daily net assets, to reimburse JH Funds for its
distribution and service costs. A maximum of 0.25% of such payments may
be service fees as defined by the Conduct Rules of the National
Association of Securities Dealers. Under the Conduct Rules, curtailment
of a portion of the Fund's 12b-1 payments could occur under certain
circumstances.
Class A and Class C shares are assessed up-front sales charges. During
the period ended August 31, 2001, JH Funds received net up-front sales
charges of $40,324 with regard to sales of Class A shares. Of this
amount, $5,525 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $26,432 was paid as
sales commissions to unrelated broker-dealers and $8,367 was paid as
sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer. JHLICo is the indirect
sole shareholder of Signator Investors. During the period ended August
31, 2001, JH Funds received net up-front sales charges of $27,367 with
regard to sales of Class C shares. Of this amount, $24,791 was paid as
sales commissions to unrelated broker-dealers and $2,576 was paid as
sales commissions to sales personnel of Signator Investors.
Class B shares which are redeemed within six years of purchase are
subject to a contingent deferred sales charge ("CDSC") at declining
rates, beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares being
redeemed. Class C shares which are redeemed within one year of purchase
are subject to a CDSC at a rate of 1.00% of the lesser of the current
market value at the time of redemption or the original purchase cost of
the shares being redeemed. Proceeds from the CDSCs are paid to JH Funds
and are used in whole or in part to defray its expenses for providing
distribution related services to the Fund in connection with the sale of
Class B and Class C shares. For the period ended August 31, 2001, CDSCs
received by JH Funds amounted to $51,443 for Class B shares and $840 for
Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo.
The Fund pays monthly transfer agent fees to Signature Services for
Class A, Class B and Class C shares, based on the number of shareholder
accounts plus certain out-of-pocket expenses, based on relative net
asset values of the Classes. For Class I shares, the Fund pays a monthly
transfer agent fee at an annual rate of 0.05% of the average daily net
assets attributable to Class I shares plus certain out-of-pocket
expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
period was at an annual rate of 0.02% of the average net assets of the
Fund.
Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of
the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes
their receipt of this compensation under the John Hancock Group of Funds
Deferred Compen-sation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. The
Deferred Compen-sation Plan investments had no impact on the operations
of the Fund.
NOTE C
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding
dollar value. The Fund has an unlimited number of shares authorized with
no par value.
YEAR ENDED 2-28-01 PERIOD ENDED 8-31-01 1
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Sold 969,558 $11,902,659 628,417 $7,987,589
Distributions reinvested 6,795 86,275 -- --
Repurchased (1,164,788) (14,110,468) (505,565) (6,441,270)
Net increase (decrease) (188,435) ($2,121,534) 122,852 $1,546,319
CLASS B SHARES
Sold 831,628 $10,273,196 476,001 $5,997,646
Distributions reinvested 2,251 28,477 -- --
Repurchased (372,278) (4,562,772) (198,552) (2,491,599)
Net increase 461,601 $5,738,901 277,449 $3,506,047
CLASS C SHARES
Sold 181,694 $2,251,192 70,399 $888,454
Distributions reinvested 217 2,761 -- --
Repurchased (30,265) (374,467) (29,676) (368,932)
Net increase 151,646 $1,879,486 40,723 $519,522
CLASS I SHARES
Sold 515,685 $6,276,886 8,495 $108,658
Distributions reinvested 4,964 62,996 -- --
Repurchased (414,235) (5,284,155) (38,109) (486,211)
Net increase (decrease) 106,414 $1,055,727 (29,614) ($377,553)
NET INCREASE 531,226 $6,552,580 411,410 $5,194,335
1 Semiannual period from 3-01-01 through 8-31-01. Unaudited.
NOTE D
Investment transactions
Purchases and proceeds from sales of securities, other than short-term
securities and obligations of the U.S. government, during the period
ended August 31, 2001, aggregated $17,675,222 and $12,155,055,
respectively.
The cost of investments owned at August 31, 2001 (including short-term
investments) for federal income tax purposes was $32,583,933. Gross
unrealized appreciation and depreciation of investments aggregated
$3,218,427 and $2,132,571, respectively, resulting in net unrealized
appreciation of $1,085,856.
FOR YOUR
INFORMATION
TRUSTEES
James F. Carlin*
William H. Cunningham
John M. DeCiccio
Ronald R. Dion
Maureen R. Ford
Charles L. Ladner
Steven R. Pruchansky*
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Maureen R. Ford
Chairman, President
and Chief Executive Officer
William L. Braman
Executive Vice President
and Chief Investment Officer
Richard A. Brown
Senior Vice President
and Chief Financial Officer
Susan S. Newton
Senior Vice President
and Secretary
William H. King
Vice President
and Treasurer
Thomas H. Connors
Vice President
and Compliance Officer
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUBADVISER
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By Regular Mail John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By Express Mail John Hancock Signature Services, Inc.
Attn: Mutual Fund Image Operations
529 Main Street
Charlestown, MA 02129
Customer Service Representatives 1-800-225-5291
24-hour Automated Information 1-800-338-8080
TDD Line 1-800-544-6713
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-225-5291
1-800-544-6713 (TDD)
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhancock.com/funds/edelivery
This report is for the information of the shareholders of the John
Hancock Core Value Fund.
880SA 8/01
10/01
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
No change from the information set forth in Item 27 of the Registration
Statement of John Hancock Capital Series (the "Registrant") on Form N-1A under
the Securities Act of 1933 and the Investment company Act of 1940 (File Nos.
2-29502 and 811-1677), which information is incorporated herein by reference.
ITEM 16. EXHIBITS:
1 Registrant's Amended and Restated Filed as Exhibit 99.a to Registrant's
Declaration of Trust Registration Statement on Form N-1A and
incorporated herein by reference to
post-effective amendment no. 54 (file
nos. 811-1677 and 2-29502 on February 29,
2000; accession
no. 0001010521-00-000204)
("PEA 54 ")
1.1 Amendment to Declaration of Trust Filed as Exhibit 99.a.1 to PEA 54 and
incorporated herein by reference
1.2 Amendment to Declaration of Trust Filed as Exhibit 99.a.2 to Registrant's
Registration Statement on Form N-1A and
incorporated herein by reference to
post-effective amendment no. 58 (file
nos. 811-1677 and 2-29502 on December 28,
2001; accession no. 0001010521-01-500304)
("PEA 58")
1.3 Amendment to Declaration of Trust Filed herewith as Exhibit 1.
2 Amended and Restated By-Laws of Filed as Exhibit 99.b to Registrant's
Registrant Registration Statement on Form N-1A and
incorporated herein by reference to
post-effective amendment no. 48 (file
nos. 811-1677 and 2-29502 on February 27,
1997; accession
no. 0001010521-97-000229)
("PEA 48 ")
2.1 Amendment to Amended and Restated Filed herewith as Exhibit 2.
By-Laws of Registrant
3 Not applicable
4 Form of Agreement and Plan of Filed herewith as Exhibit A to the Proxy
reorganization Statement and Prospectus included as Part
A of this Registration Statement
5 Not applicable
6 Investment Management Contract Filed as Exhibit 99.d. to Registrant's
between Core Equity Fund and John Registration Statement on Form N-1A and
Hancock Advisers, LLC incorporated herein by reference to
post-effective amendment no. 52 (file
nos. 811-1677 and 2-29502 on February
22,1999; accession no.
0001010521-99-000135) ("PEA 52")
6.1 Sub-Investment Advisory Contract Filed as Exhibit 99.d.1 to PEA 48 and
between Core Equity Fund, incorporated herein by reference
Independence Investment LLC and John
Hancock Advisers, LLC
6.2 Form of Investment Management Filed as Exhibit 99.d.2 to Registrant's
Contract between John Hancock U.S. Registration Statement on Form N-1A and
Global Leaders Growth Fund and John incorporated herein by reference to
Hancock Advisers, LLC post-effective amendment no. 60 (file
nos. 811-1677 and 2-29502 on February
27,2002; accession no.
0001010521-02-000114) ("PEA 60")
6.3 Form of Sub-Investment Advisory Filed as Exhibit 99.d.3 to PEA 60 and
Contract between U.S. Global Leaders incorporated herein by reference
Growth Fund, Yeager, Wood & Marshall,
Inc. and John Hancock Advisers, LLC
7 Distribution Agreement between the Filed as Exhibit 99.e to Registrant's
Registrant and John Hancock Funds, Registration Statement on Form N-1A and
LLC. (formerly named John Hancock incorporated herein by reference to
Broker Distribution Services, Inc post-effective amendment no. 44 (file
nos. 811-1677 and 2-29502 on April 26,
1995; accession
no.0000950146-95-000180)
("PEA 44 ")
7.1 Amendment to Distribution Agreement Filed as Exhibit 99.e.1 to PEA 44 and
between the Registrant and John incorporated herein by reference
Hancock Funds, LLC
7.2 Form of Soliciting Dealer Agreement Filed as Exhibit 99.e.2 to PEA 52 and
between John Hancock Funds, LLC and incorporated herein by reference
Selected Dealers
7.3 Form of Financial Institution Sales Filed as Exhibit 99.e.3 to PEA 44 and
and Services Agreement incorporated herein by reference
7.4 Amendment to Distribution Agreement Filed as Exhibit 99.e.4 to PEA 48 and
between the Registrant and John incorporated herein by reference
Hancock Funds, LLC
8 Not applicable.
9 Master Custodian Agreement between Filed as Exhibit 99.g to PEA 58 and
John Hancock Mutual Funds (including incorporated herein by reference
Registrant) and The Bank of New York
10 Amended & Restate Master Transfer Filed as Exhibit 99.h to PEA 52 and
Agent Service Agreement between John incorporated herein by reference
Hancock Mutual Funds (including
Registrant) and John Hancock Funds,
LLC
10.1 Class A and Class B Distribution Filed as Exhibit 99.m to PEA 48 and
Plans between Registrant and John incorporated herein by reference
Hancock Funds, LLC
10.2 Class C Distribution Plans between Filed as Exhibit 99.m.1 to PEA 52 and
Registrant and John Hancock Funds, LLC incorporated herein by reference
10.3 John Hancock Funds Class A, Class B Filed as Exhibit 99.o to PEA 52 and
and Class C Amended and restated incorporated herein by reference
Multiple Class Plan pursuant to Rule
18f-3
10.4 John Hancock Funds Class A, Class B, Filed as Exhibit 99.p to PEA 53 and
Class C and Class I Amended and incorporated herein by reference
restated Multiple Class Plan pursuant
to
Rule 18f-3
11 Opinion as to legality of shares and Filed herewith as Exhibit 14
consent
12 Form of opinion as to tax matters and Filed herewith as Exhibit 15
consent
13 Accounting and Legal Services Filed as Exhibit 99.h.1 to Registrant's
Agreement between John Hancock Registration Statement on Form N-1A and
Advisers, LLC and Registrant. incorporated herein by reference to
post-effective amendment no. 46 (file
nos. 811-1677 and 2-29502 on June 14,
1996; accession no. 0001010521-96-000095)
("PEA 46")
13.1 Amended and Restated Master Transfer Filed as Exhibit 99.h to PEA 52 and
Agent Service Agreement between John incorporated herein by reference
Hancock Mutual Funds (including
Registrant) and John Hancock Funds,
LLC
14 Consents of Deloitte & Touche LLP Filed herewith as Exhibit 17
regarding the audited financial
statement of Core Growth Fund and
Core Value Fund.
Consents of PricewaterhouseCoopers
regarding the audited financial
statement of Core Equity Fund
15 Not applicable
16 Powers of Attorney Filed as addendum to signature pages and
incorporated herein by reference
17 Code of Ethics- John Hancock Funds, Filed as Exhibit 99.p to Registrant's
LLC and Independence Investment LLC Registration Statement on Form N-1A and
incorporated herein by reference to
post-effective amendment no. 55 (file
nos. 811-1677 and 2-29502 on June 14,
1996; accession no. 0001010521-00-000251)
("PEA 55")
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is part of this
registration statement by any person or party which is deemed to be an
underwriter within the meaning of Rule 145(c) under the Securities Act of 1933,
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as part of an amendment to the registration
statement and will not be used until the amendment is effective, and that, in
determining any liability under the Securities Act of 1933, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has caused this Registration Statement on Form N-14 to be signed on
its behalf by the undersigned, duly authorized, in the City of Boston and The
Commonwealth of Massachusetts on the 8th day of March, 2002.
JOHN HANCOCK CAPITAL SERIES
By: *
----------------------
Maureen R. Ford
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
*
- ------------------------ Trustee, Chairman, President
Maureen R. Ford and Chief Executive Officer
* Senior Vice President and
- ------------------------ Chief Financial Officer
Richard A. Brown
/s/William H. King Vice President, Treasurer March 8, 2002
- ------------------------ (Chief Accounting Officer)
William H. King
________*_______________ Trustee
Dennis S. Aronowitz
________*_______________ Trustee
Richard P. Chapman, Jr.
________*_______________ Trustee
William J. Cosgrove
________*_______________ Trustee
John M. DeCiccio
________*_______________ Trustee
Richard A. Farrell
________*_______________ Trustee
Gail D. Fosler
_________*______________ Trustee
William F. Glavin
________*________________ Trustee
John A. Moore
_________*_______________ Trustee
Patti McGill Peterson
_________*_______________ Trustee
John W. Pratt
By: /s/Susan S. Newton March 8, 2002
------------------
Susan S. Newton,
Attorney-in-Fact.
Power of Attorney dated
June 23, 2001 and
September 12, 2001.
Panel A
- -------
John Hancock Capital Series John Hancock Strategic Series
John Hancock Declaration Trust John Hancock Tax-Exempt Series Fund
John Hancock Income Securities Trust John Hancock World Fund
John Hancock Investors Trust John Hancock Investment Trust II
John Hancock Equity Trust John Hancock Investment Trust III
John Hancock Sovereign Bond Fund
Panel B
- -------
John Hancock Bank and Thrift Opportunity Fund John Hancock Patriot Global Dividend Fund
John Hancock Bond Trust John Hancock Patriot Preferred Dividend Fund
John Hancock California Tax-Free Income Fund John Hancock Patriot Premium Dividend Fund I
John Hancock Current Interest John Hancock Patriot Premium Dividend Fund II
John Hancock Institutional Series Trust John Hancock Patriot Select Dividend Trust
John Hancock Investment Trust John Hancock Series Trust
John Hancock Cash Reserve, Inc. John Hancock Tax-Free Bond Trust
POWER OF ATTORNEY
-----------------
The undersigned Officer of each of the above listed Trusts, each a
Massachusetts business trust, or Maryland Corporation, does hereby severally
constitute and appoint SUSAN S. NEWTON, WILLIAM H. KING, AND AVERY P. MAHER, and
each acting singly, to be my true, sufficient and lawful attorneys, with full
power to each of them, and each acting singly, to sign for me, in my name and in
the capacity indicated below, any Registration Statement on Form N-1A and any
Registration Statement on Form N-14 to be filed by the Trust under the
Investment Company Act of 1940, as amended (the "1940 Act"), and under the
Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments
to said Registration Statements, with respect to the offering of shares and any
and all other documents and papers relating thereto, and generally to do all
such things in my name and on my behalf in the capacity indicated to enable the
Trust to comply with the 1940 Act and the 1933 Act, and all requirements of the
Securities and Exchange Commission thereunder, hereby ratifying and confirming
my signature as it may be signed by said attorneys or each of them to any such
Registration Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 23rd day of June, 2001.
/s/Richard A. Brown
-------------------
Richard A. Brown
Chief Financial Officer
Commonwealth of Massachusetts )ss
- ----------------------------------------------------------
COUNTY OF Suffolk )
------------------------------------------------
Then personally appeared the above-named Richard A. Brown, who
acknowledged the foregoing instrument to be his free act and deed, before me,
this 23rd day of June, 2001.
/s/Erika L. Nager
-----------------
Notary Public
My Commission Expires: June 14, 2007
-------------
s:\general\prwattn\01June23.doc
John Hancock Capital Series John Hancock Strategic Series
John Hancock Declaration Trust John Hancock Tax-Exempt Series Fund
John Hancock Income Securities Trust John Hancock World Fund
John Hancock Investors Trust John Hancock Investment Trust II
John Hancock Equity Trust John Hancock Investment Trust III
John Hancock Sovereign Bond Fund
POWER OF ATTORNEY
The undersigned Trustee/Officer of each of the above listed Trusts,
each a Massachusetts business trust or Maryland corporation, does hereby
severally constitute and appoint Susan S. Newton, WILLIAM h. KING, and AVERY P.
MAHER, and each acting singly, to be my true, sufficient and lawful attorneys,
with full power to each of them, and each acting singly, to sign for me, in my
name and in the capacity indicated below, any Registration Statement on Form
N-1A and any Registration Statement on Form N-14 to be filed by the Trust under
the Investment Company Act of 1940, as amended (the "1940 Act"), and under the
Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments
to said Registration Statements, with respect to the offering of shares and any
and all other documents and papers relating thereto, and generally to do all
such things in my name and on my behalf in the capacity indicated to enable the
Trust to comply with the 1940 Act and the 1933 Act, and all requirements of the
Securities and Exchange Commission thereunder, hereby ratifying and confirming
my signature as it may be signed by said attorneys or each of them to any such
Registration Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 12th day of September, 2001.
/s/ Maureen R. Ford /s/Gail D. Fosler
- ------------------- -----------------
Maureen R. Ford, as Chairman and Chief Gail D. Fosler
Exective Officer
/s/John M. DeCiccio /s/William F. Glavin
- ------------------- --------------------
John M. DeCiccio, as Trustee William F. Glavin
/s/Dennis S. Aronowitz /s/John A. Moore
- ---------------------- ----------------
Dennis S. Aronowitz John A. Moore
/s/Richard P. Champman, Jr. /s/Patti McGill Peterson
- --------------------------- ------------------------
Richard P. Chapman, Jr. Patti McGill Peterson
/s/William J. Cosgrove /s/John W. Pratt
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William J. Cosgrove John W. Pratt
/s/Richard A. Farell
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Richard A. Farrell
COMMONWEALTH OF MASSACHIUSETTS)
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)ss
COUNTY OF SUFFOLK )
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Then personally appeared the above-named Richard A. Brown, who
acknowledged the foregoing instrument to be his free act and deed, before me,
this 23rd day of June, 2001.
/s/Erika Nager
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Notary Public
My Commission Expires: June 14, 2007
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s:\general\prwattn\01Sept12.doc
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement:
Exhibit No. Description
2 Amendment to Amended and Restated By-Laws of Registrant
4 Agreement and Plan of Reorganization between the John Hancock Core
Equity Fund (the "Acquiring Fund") and John Hancock Core Growth Fund
and John Hancock Core Value Fund (the "Acquired Funds") (filed as
EXHIBIT A to Part A of this Registration Statement).
14 Opinion as to legality of shares and consent.
15 Form of opinion as to tax matters and consent.
17 Consent of PricewaterhouseCoopers LLP regarding the audited financial
statements and highlights of the John Hancock Core Equity Fund. Consent
of Deloitte & Touche LLP regarding the audited financial statements and
highlights of the John Hancock Core Growth Fund and John Hancock Core
Value Fund.