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JOHN HANCOCK
INTERMEDIATE MATURITY
GOVERNMENT FUND
CLASS A AND CLASS B SHARES
PROSPECTUS
SEPTEMBER 25, 1995
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TABLE OF CONTENTS
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Page
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Expense Information................................................................... 2
The Fund's Financial Highlights....................................................... 3
Investment Objective and Policies..................................................... 4
Organization and Management of the Fund............................................... 6
Alternative Purchase Arrangements..................................................... 6
The Fund's Expenses................................................................... 8
Dividends and Taxes................................................................... 9
Performance........................................................................... 10
How to Buy Shares..................................................................... 11
Share Price........................................................................... 12
How to Redeem Shares.................................................................. 18
Additional Services and Programs...................................................... 20
Investments, Techniques and Risk Factors.............................................. 23
</TABLE>
This Prospectus sets forth the information about John Hancock Intermediate
Maturity Government Fund (the "Fund"), a diversified series of John Hancock Bond
Fund (the "Trust"), that you should know before investing. Please read and
retain it for future reference.
Additional information about the Fund and the Trust has been filed with the
Securities and Exchange Commission (the "SEC"). You can obtain a copy of the
Fund's Statement of Additional Information, dated September 25, 1995, and
incorporated by reference into this Prospectus, free of charge by writing or
telephoning: John Hancock Investor Services Corporation, P.O. Box 9116, Boston,
Massachusetts 02205-9116, 1-800-225-5291 (1-800-554-6713 TDD).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various fees and expenses you will bear, directly or indirectly, when you
purchase Fund shares. The operating expenses included in the table and
hypothetical example below are based on fees and expenses for the Fund and
Adjustable U.S. Government Fund (the "Portfolio"), the mutual fund in which the
Fund previously invested all of its assets, for the fiscal year ended March 31,
1995 adjusted to reflect current fees and expenses. Actual fees and expenses in
the future of Class A and Class B shares may be greater or less than those
indicated.
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CLASS A CLASS B
SHARES SHARES
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SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a percentage of offering price)......................... 3.00 % None
Maximum sales charge imposed on reinvested dividends.................................................. None None
Maximum deferred sales charge......................................................................... None* 3.00 %
Redemption fee+....................................................................................... None None
Exchange fee.......................................................................................... None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee (after expense limitation)............................................................. 0.00 % 0.00 %
12b-1 fee**........................................................................................... 0.25 % 0.90 %
Other expenses (after expense limitation)***.......................................................... 0.50 % 0.50 %
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Total Fund operating expenses (after expense limitation)(a)........................................... 0.75 % 1.40 %
</TABLE>
(a) Expenses reflect a temporary agreement by the Fund's investment adviser to
limit expenses, not including Rule 12b-1 fees or any other class-specific
expenses. Without such a limitation, the management fee, other expenses and
total fund operating expenses of the Class A and Class B shares,
respectively, would have been estimated as 0.40% and 0.40%; 0.72% and 0.72%;
and 1.37% and 2.02%.
* No sales charge is payable at the time of purchase on investments of $1
million or more, but for these investments a contingent deferred sales
charge may be imposed, in the event of certain redemption transactions
within one year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Class's average net assets, and the remaining portion will be
used to cover distribution expenses. The Fund has determined to pay Class B
Rule 12b-1 fees to 0.90% of average net assets attributable to Class B until
December 31, 1996, after which these fees may be increased to as much as
1.00% of such assets and total Fund operating expenses would be 2.12% of
such assets.
*** Other Expenses include transfer agent, legal, audit, custody and other
expenses.
+ Redemption by wire fee (currently $4.00) not included.
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EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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You would pay the following expenses for the indicated period of years on a
hypothetical $1,000 investment, assuming 5% annual return:
Class A Shares............................................................... $ 37 $53 $70 $120
Class B Shares
-- Assuming complete redemption at end of period......................... $ 44 $64 $69 $118
-- Assuming no redemption................................................ $ 14 $44 $69 $118
</TABLE>
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.)
The Fund's payment of a distribution fee may result in a long-term shareholder
indirectly paying more than the economic equivalent of the maximum front-end
sales charge permitted under the Rules of Fair Practice of the National
Association of Securities Dealers, Inc.
The management and 12b-1 fees referred to above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contracts."
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THE FUND'S FINANCIAL HIGHLIGHTS
The information in the following table of financial highlights for the periods
through the year ended March 31, 1995 has been audited by Ernst & Young LLP, the
Fund's independent auditors, whose unqualified report is included in the
Statement of Additional Information. Further information about the performance
of the shares of the Fund is contained in the Annual Report to shareholders
which may be obtained free of charge by writing or telephoning John Hancock
Investor Services Corporation ("Investor Services") at the address or telephone
number listed on the front page of this Prospectus.
Selected data for shares of the Fund outstanding during the periods indicated
is as follows.
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CLASS A SHARES CLASS B SHARES
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YEAR YEAR YEAR PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1995(d) 1994 1993 1992(f) 1995(d) 1994 1993 1992(f)
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PER SHARE
OPERATING
PERFORMANCE
Net Asset Value,
Beginning of
Period........ $ 9.89 $ 10.05 $ 10.03 $ 10.00(b) $ 9.89 $ 10.05 $ 10.03 $10.00(b)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Investment
Income........ 0.49 0.41 0.58 0.17 0.43 0.34 0.51 0.15
Net Realized and
Unrealized
Gain (Loss) on
Investments... (0.11) (0.16) 0.02 0.03 (0.11) (0.16) 0.02 0.03
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from
Investment
Operations... 0.38 0.25 0.60 0.20 0.32 0.18 0.53 0.18
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Less
Distributions:
Dividends from
Net Investment
Income........ (0.48) (0.41) (0.58) (0.17) (0.42) (0.34) (0.51) (0.15)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value,
End of
Period........ $ 9.79 $ 9.89 $ 10.05 $ 10.03 $ 9.79 $ 9.89 $ 10.05 $10.03
======== ======== ======== ======== ======== ======== ======== ========
Total Investment
Return at Net
Asset Value... 3.98% 2.51% 6.08% 1.96%(c) 3.33% 1.85% 5.40% 1.80%(c)
Total Adjusted
Investment
Return at Net
Asset
Value(a)...... 3.43% 2.27% 5.53% 0.84% 2.78% 1.61% 4.85% 0.68%
RATIOS AND
SUPPLEMENTAL
DATA
Net Assets, End
of Period
(000's
omitted)...... $ 12,950 $ 24,310 $ 33,273 $ 13,775 $ 9,506 $ 11,626 $ 13,753 $1,630
Ratio of
Expenses to
Average Net
Assets**(e)... 0.75% 0.75% 0.50% 0.50%* 1.40% 1.40% 1.15% 1.15%*
Ratio of
Adjusted
Expenses to
Average Net
Assets(a)(e)... 1.50% 0.99% 1.05% 1.62%* 2.15% 1.64% 1.70% 2.27%*
Ratio of Net
Investment
Income to
Average Net
Assets**...... 4.91% 4.09% 5.47% 6.47%* 4.26% 3.44% 4.82% 5.85%*
Ratio of
Adjusted Net
Investment
Income to
Average
Assets(a)..... 4.36% 3.85% 4.92% 5.35%* 3.71% 3.20% 4.27% 4.73%*
Portfolio
Turnover
Rate.......... 341% 244% 186% 1% 341% 244% 186% 1%
**Expense
Reimbursement
per share..... $ 0.05 $ 0.002 $ 0.06 $ 0.11 $ 0.05 $ 0.002 $ 0.06 $ 0.11
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(e) The expenses used in the ratios represent the total expenses of the Fund
plus the expenses of the Portfolio which were incurred indirectly through
the Fund's investment in the Portfolio.
(f) For the period December 31, 1991 (Commencement of Operations) to March 31,
1992.
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to achieve a high level of current income,
consistent with preservation of capital and maintenance of liquidity. The Fund
seeks to achieve its investment objective by investing primarily in U.S.
Government securities, including mortgage-backed securities issued or guaranteed
by U.S. Government agencies. The Fund may also invest in medium-term debt
obligations of governmental issuers. Under normal market conditions, the Fund
intends to maintain a weighted average remaining maturity or remaining average
life of three to ten years. There is no assurance that the Fund will achieve its
investment objective.
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THE FUND SEEKS TO ACHIEVE A HIGH LEVEL OF
CURRENT INCOME, CONSISTENT WITH
PRESERVATION OF CAPITAL AND MAINTENANCE OF
LIQUIDITY.
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Under normal market conditions, the Fund intends to invest primarily (at least
65% of its total assets) in U.S. Government securities. U.S. Government
securities consist of the following:
1. U.S. Treasury obligations, which differ only in their interest rates,
maturities and time of issuance, including U.S. Treasury bills (maturity of
one year or less), U.S. Treasury notes (maturity of one to ten years), and
U.S. Treasury bonds (generally maturities greater than ten years); and
2. Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities which are supported by: (i) the full faith and credit of
the U.S. Government (e.g., securities issued by the Government National
Mortgage Association ("Ginnie Maes")); (ii) the right of the issuer to borrow
an amount limited to a specific line of credit from the U.S. Government
(e.g., securities of the Federal Home Loan Bank Board); or (iii) the credit
of the instrumentality (e.g., bonds issued by the Federal National Mortgage
Association ("Freddie Macs") or the Federal National Mortgage Association
("Fannie Maes")).
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities which
provide monthly payments that are, in effect, a "pass-through" of the monthly
interest and principal payments (including prepayments) made by the individual
borrowers on the pooled mortgage loans. The Fund's investments in mortgage-
backed securities may also include certain classes of multiple class
collateralized mortgage obligations and "stripped" mortgage-backed securities
("SMBS"). During periods of declining interest rates, principal and interest on
mortgage-backed securities may be prepaid at faster-than-expected rates. The
proceeds of these prepayments typically can only be invested in lower-yielding
securities. Therefore, mortgage-backed securities may be less effective at
maintaining yields during periods of declining interest rates than traditional
debt obligations of similar maturity. Different types of mortgage-backed
securities are subject to different combinations of prepayment, extension,
interest rate and/or other market risks. See "Investments, Techniques and Risk
Factors" for a further discussion of U.S. Government securities and these risks.
Under normal conditions, the Fund may invest the remainder of its assets in
other U.S. Government securities and asset-backed securities and debt
obligations of corporate issuers each of which is rated in the highest rating
category by a
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nationally recognized statistical rating organization or, if unrated, determined
by the investment adviser to be of comparable quality.
The Fund may also buy and sell options contracts, financial futures contracts
and options on these futures contracts for hedging and non-hedging purposes.
These contracts may be based on securities and securities indices. All of the
Fund's futures contracts and options on futures contracts will be traded on a
U.S. commodity exchange or board of trade.
Options, futures contracts and mortgage-backed securities are generally
considered to be "derivative" instruments because they derive their value from
the performance of an underlying asset, index or other economic benchmark. See
"Investments, Techniques and Risk Factors" for additional discussion of
derivative instruments.
The Fund may also lend its portfolio securities; enter into repurchase
agreements, mortgage dollar rolls and reverse repurchase agreements; purchase
securities on a forward commitment or when-issued basis; and purchase restricted
and illiquid securities.
See "Investments, Techniques and Risk Factors" for more information about the
Fund's investments.
The Fund has adopted certain investment restrictions which are enumerated in
detail in the Statement of Additional Information where they are classified as
fundamental or nonfundamental. Those restrictions designated as fundamental may
not be changed without shareholder approval. The Fund's investment objective and
its policies, including its policy of investing at least 65% of its assets in
U.S. Government securities, are nonfundamental and may be changed by a vote of
the Trustees without shareholder approval.
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THE FUND FOLLOWS CERTAIN POLICIES WHICH
MAY HELP TO REDUCE INVESTMENT RISK.
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The primary consideration in choosing brokerage firms to carry out the Fund's
transactions is execution at the most favorable prices, taking into account the
broker's professional ability and quality of service. Consideration may also be
given to the broker's sales of Fund shares. Pursuant to procedures determined by
the Trustees, the Fund's investment adviser, John Hancock Advisers, Inc. (the
"Adviser"), may place securities transactions with brokers affiliated with the
Adviser. Affiliated brokers include Tucker Anthony Incorporated, Sutro and
Company, Inc. and John Hancock Distributors, Inc., which are indirectly owned by
the John Hancock Mutual Life Insurance Company (the "Life Company"), which in
turn indirectly owns the Adviser.
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BROKERS ARE CHOSEN ON BEST PRICE AND
EXECUTION.
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5
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ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a diversified series of the Trust, an open-end management investment
company organized as a Massachusetts business trust in 1984. The Trust reserves
the right to create and issue a number of series of shares, or funds or classes
of these series, which are separately managed and have different investment
objectives. The Trustees have authorized the issuance of two classes of the
Fund, designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund. Each class has equal
rights as to voting, redemption, dividends and liquidation. However, each class
bears different distribution and transfer agent fees and other expenses. Also,
Class A and Class B shareholders have exclusive voting rights with respect to
their distribution plans. The Trust is not required and does not intend to hold
annual meetings of shareholders, although special meetings may be held for such
purposes as electing or removing Trustees, changing fundamental policies or
approving a management contract. The Fund, under certain circumstances, will
assist in shareholder communications with other Fund shareholders.
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THE TRUSTEES ELECT OFFICERS AND RETAIN THE
INVESTMENT ADVISER WHO IS RESPONSIBLE FOR
THE DAY-TO-DAY OPERATIONS OF THE FUND,
SUBJECT TO THE TRUSTEES' POLICIES AND
SUPERVISION.
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The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Fund,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds, Inc.
("John Hancock Funds") distributes shares for all of the John Hancock funds
through brokers which have agreements with John Hancock Funds ("Selling
Brokers"). Certain Fund officers are also officers of the Adviser and John
Hancock Funds.
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JOHN HANCOCK ADVISERS, INC. ADVISES
INVESTMENT COMPANIES HAVING AN AGGREGATE
NET ASSET VALUE OF MORE THAN $13 BILLION.
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The Fund is managed by the Adviser's government team, and no single person is
primarily responsible for making recommendations to the team.
In order to avoid any conflict with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities trading
by personnel of the Adviser and its affiliates. Some of these restrictions are:
preclearance for all personal trades and a ban on the purchase of initial public
offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
ALTERNATIVE PURCHASE ARRANGEMENTS
You can purchase shares of the Fund at a price equal to their net asset value
per share plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge Alternative --
Class A shares") or on a contingent deferred basis (the "Contingent Deferred
Sales Charge Alternative -- Class B shares"). If you do not specify on your
account application the class of shares you are purchasing, it will be assumed
that you are investing in Class A shares.
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AN ALTERNATIVE PURCHASE PLAN ALLOWS YOU TO
CHOOSE THE METHOD OF PAYMENT THAT IS BEST
FOR YOU.
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6
<PAGE> 7
CLASS A SHARES. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount of your purchase is $1 million or more.
If you purchase $1 million or more of Class A shares, you will not be subject to
an initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Share Price -- Qualifying for a Reduced Sales Charge."
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INVESTMENTS IN CLASS A SHARES ARE SUBJECT
TO AN INITIAL SALES CHARGE.
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CLASS B SHARES. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
four years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class B shares. John Hancock Funds and the Fund have agreed
until further notice to limit the Fund's 12b-1 fee for Class B shares to 0.90%
of the Fund's Class B average daily net assets. Investing in Class B shares
permits all of your dollars to work from the time you make your investment, but
the higher ongoing distribution fee will cause these shares to have higher
expenses than those of Class A shares. To the extent that any dividends are paid
by the Fund, these higher expenses will also result in lower dividends than
those paid on Class A shares.
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INVESTMENTS IN CLASS B SHARES ARE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.
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Class B shares are not available for full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE. The alternative purchase
arrangement allows you to choose the most beneficial way to buy shares, given
the amount of your purchase, the length of time you expect to hold your shares
and other circumstances. You should consider whether, during the anticipated
life of your Fund investment, the CDSC and accumulated fees on Class B shares
would be less than the initial sales charge and accumulated fees on Class A
shares purchased at the same time, and to what extent this differential would be
offset by the Class A shares' lower expenses. To help you make this
determination, the table under the caption "Expense Information" on the inside
cover page of this Prospectus shows examples of the charges applicable to each
class of shares. Class A shares will normally be more beneficial if you qualify
for reduced sales charges. See "Share Price -- Qualifying for a Reduced Sales
Charge."
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YOU SHOULD CONSIDER WHICH CLASS OF SHARES
WOULD BE MORE BENEFICIAL TO YOU.
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Class A shares are subject to lower distribution fees and, accordingly, pay
correspondingly higher dividends per share, to the extent any dividends are
paid. However, because initial sales charges are deducted at the time of
purchase, you would not have all of your funds invested initially and,
therefore, would initially own fewer shares. If you do not qualify for reduced
initial sales charges and expect to maintain your investment for an extended
period of time, you might consider purchasing Class A shares. This is because
the accumulated distribution and service charges on Class B shares may exceed
the initial sales charge and
7
<PAGE> 8
accumulated distribution and service charges on Class A shares during the life
of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you will
be subject to higher distribution and service fees and, for a four-year period,
a CDSC.
In the case of Class A shares, the distribution expenses that John Hancock Funds
incurs in connection with the sale of the shares will be paid from the proceeds
of the initial sales charge and ongoing distribution and service fees. In the
case of Class B shares, the expenses will be paid from the proceeds of the
ongoing distribution and service fees, as well as from the CDSC incurred upon
redemption within six years of purchase. The purpose and function of the Class B
shares' CDSC and ongoing distribution and service fees are the same as those of
the Class A shares' initial sales charge and ongoing distribution and service
fees. Sales personnel distributing the Fund's shares may receive different
compensation for selling each class of shares.
Dividends, if any, on Class A and Class B shares will be calculated in the same
manner, at the same time and on the same day. They also will be in the same
amount, except for differences resulting from each class bearing only its own
distribution and service fees, shareholder meeting expenses and any incremental
transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a monthly fee to
the Adviser equal to 0.40%.
During the Fund's fiscal year ended March 31, 1995, the advisory fee paid by the
Fund was equal to 0.20% of the Fund's average daily net assets, reflecting the
agreement by the Adviser and the former investment adviser to reduce operating
expenses and not to impose a portion of the management fee during that year. The
Adviser has temporarily agreed to continue to limit the Fund's aggregate
operating expenses until December 31, 1996 and not to impose its management fee
or to make other arrangements to the extent necessary to limit the total of the
management fees and the aggregate operating expenses of the Fund to 0.75% and
1.40% of the average net assets attributable to the Class A and Class B shares,
respectively.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). Under these Plans, the Fund will pay distribution and service fees
at an aggregate annual rate of up to 0.25% of the Class A shares' average daily
net assets and an aggregate annual rate of 1.00% of the Class B shares' average
daily net assets. The Fund has temporarily determined to limit the distribution
and services fees pursuant to the Class B Plan to 0.90% of average daily net
assets. In each case, up to 0.25% is for service expenses and the remaining
amount is for distribution expenses. The distribution fees will be used to
reimburse John Hancock Funds for its distribution expenses, including but not
limited to: (i) initial
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THE FUND PAYS DISTRIBUTION AND SERVICE
FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
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8
<PAGE> 9
and ongoing sales compensation to Selling Brokers and
others (including affiliates of John Hancock Funds) engaged in the sale of Fund
shares; (ii) marketing, promotional and overhead expenses incurred in connection
with the distribution of Fund shares; (iii) unreimbursed distribution expenses
under the Fund's prior distribution plans; (iv) distribution expenses incurred
by other investment companies which sell all or substantially all of their
assets to, merge with or otherwise engage in a reorganization transaction with
the Fund; and (v) with respect to Class B shares only, interest expenses on
unreimbursed distribution expenses. The service fees will be used to compensate
Selling Brokers for providing personal and account maintenance services to
shareholders.
In the event John Hancock Funds is not fully reimbursed for payments it makes or
expenses it incurs under the Class A Plan, these expenses will not be carried
beyond one year from the date they were incurred. Unreimbursed expenses under
the Class B Plan will be carried forward together with interest on the balance
of these unreimbursed expenses.
For the fiscal year ended March 31, 1995, an aggregate of $253,107 of
distribution expenses or 2.30% of the average net assets of the Fund's Class B
shares was not reimbursed or recovered by John Hancock Funds through the receipt
of deferred sales charges or Rule 12b-1 fees in prior periods.
Information on the Fund's total expenses is in the Financial Highlights section
of this Prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund generally declares daily and distributes monthly dividends
representing all or substantially all of its net investment income. The Fund
will distribute net realized long-term and short-term capital gains, if any, at
least annually.
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THE FUND GENERALLY DECLARES DIVIDENDS
DAILY AND DISTRIBUTES THEM MONTHLY.
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Dividends are reinvested in additional shares of your class unless you elect the
option to receive them in cash. If you elect the cash option and the U.S. Postal
Service cannot deliver your checks, your election will be converted to the
reinvestment option. Because of the higher expenses associated with Class B
shares, any dividend on these shares will be lower than those on the Class A
shares. See "Share Price."
TAXATION. Dividends from the Fund's net investment income and net short-term
capital gains are taxable to you as ordinary income and dividends from the
Fund's net long-term capital gains are taxable as long-term capital gain. These
dividends are taxable whether you take them in cash or reinvest in additional
shares. Certain dividends may be paid in January of a given year but may be
taxable as if you received them the previous December.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, the Fund will not be
subject to Federal income tax on any net investment income or net realized
capital gains that
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<PAGE> 10
are distributed to its shareholders within the time period prescribed by the
Code. When you redeem (sell) or exchange shares, you may realize a taxable gain
or loss.
On the account application you must certify that the social security or other
taxpayer identification number you provide is correct and that you are not
subject to backup withholding of Federal income tax. If you do not provide this
information or are otherwise subject to this withholding, the Fund may be
required to withhold 31% of your dividends and the proceeds of redemptions and
exchanges.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes with respect to your investment in and distributions from the Fund. In
some states, a portion of the Fund's dividends that represents interest received
by the Fund on direct U.S. Government obligations may be exempt from tax.
Non-U.S. shareholders and tax-exempt shareholders are subject to different tax
treatment not described above. You should consult your tax adviser for specific
advice.
PERFORMANCE
Yield reflects the Fund's rate of income on portfolio investments as a
percentage of its share price. Yield is computed by annualizing the result of
dividing the net investment income per share over a 30 day period by the maximum
offering price per share on the last day of that period. Yield is also
calculated according to accounting methods that are standardized for all stock
and bond funds. Because yield accounting methods differ from the methods used
for other accounting purposes, the Fund's yield may not equal the income paid on
shares or the income reported in the Fund's financial statements.
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THE FUND MAY ADVERTISE ITS YIELD AND TOTAL
RETURN.
- -------------------------------------------------------------------------------
The Fund's total return shows the overall dollar or percentage change in value
of a hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period of
time. Average annual total return shows the cumulative return divided over the
number of years included in the period. Because average annual total return
tends to smooth out variations in the Fund's performance, you should recognize
that it is not the same as actual year-to-year results.
Both total return and yield calculations for Class A shares generally include
the effect of paying the maximum sales charge of 3% (except as shown in "The
Fund's Financial Highlights"). Investments at lower sales charges would result
in higher performance figures. Total return and yield for Class B shares reflect
the deduction of the applicable CDSC imposed on a redemption of shares held for
the applicable period. All calculations assume that all dividends are reinvested
at net asset value on the reinvestment dates during the periods. Total return
and yield of Class A and Class B shares will be calculated separately and,
because each class is subject to different expenses, the total return may differ
with respect to that class for the same period. The relative performance of the
Class A and Class B shares will be affected by a variety of factors, including
the higher operating expenses attributable to the Class B shares, whether the
Fund's investment performance is better in the earlier or later portions of the
period measured and the
10
<PAGE> 11
level of net assets of the classes during the period. The Fund will include the
total return of Class A and Class B shares in any advertisement or promotional
materials including Fund performance data. The value of Fund shares, when
redeemed, may be more or less than their original cost. Both yield and total
return are historical calculations, and are not an indication of future
performance. See "Alternative Purchase Arrangements -- Factors to Consider in
Choosing an Alternative."
HOW TO BUY SHARES
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The minimum initial investment in Class A and Class B shares is $1,000
($250 for group investments and retirement plans). Complete the Account
Application attached to this Prospectus. Indicate whether you are
purchasing Class A or Class B shares. If you do not specify which class of
shares you are purchasing, Investor Service will assume that you are
investing in Class A shares.
- --------------------------------------------------------------------------------
BY CHECK 1. Make your check payable to John Hancock Investor Services
Corporation ("Investor Services"), P.O. Box 9115,
Boston, MA, 02205-9115.
2. Deliver the completed application and check to your
registered representative or Selling Broker or mail it
directly to Investor Services.
- --------------------------------------------------------------------------------
BY WIRE 1. Obtain an account number by contacting your registered
representative or Selling Broker, or by calling
1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Intermediate Maturity
Government Fund
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative or Selling Broker or mail it directly to
Investor Services.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B
SHARES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONTHLY 1. Complete the "Automatic Investing" and "Bank Information"
AUTOMATIC sections on the Account Privileges Application,
ACCUMULATION designating a bank account from which funds may be drawn.
PROGRAM 2. The amount you elect to invest will be automatically
(MAAP) withdrawn from your bank or credit union account.
- --------------------------------------------------------------------------------
BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information"
sections on the Account Privileges Application,
designating a bank account from which your funds may be
drawn. Note that in order to invest by phone, your
account must be in a bank or credit union that is a
member of the Automated Clearing House system (ACH).
2. After your authorization form has been processed, you may
purchase additional Class A or Class B shares by calling
Investor Services toll-free 1-800-225-5291.
3. Give the Investor Services representative the name(s) in
which your account is registered, the Fund name, the
class of shares you own, your account number, and
the amount you wish to invest.
4. Your investment normally will be credited to your
account the business day following your phone
request.
- --------------------------------------------------------------------------------
11
<PAGE> 12
- --------------------------------------------------------------------------------
BY CHECK 1. Either complete the detachable stub included on your
account statement or include a note with your
investment listing the name of the Fund, the
class of shares you own, your account number and the
name(s) in which the account is registered.
2. Make your check payable to John Hancock Investor Services
Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or
Selling Broker.
- --------------------------------------------------------------------------------
BY WIRE Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Intermediate Maturity
Government Fund
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
- --------------------------------------------------------------------------------
Other Requirements: All purchases must be made in U.S. dollars. Checks
written on foreign banks will delay purchases until U.S. funds are
received, and a collection charge may be imposed. Shares of the Fund are
priced at the offering price based on the net asset value computed after
Investor Services receives notification of the dollar equivalent from the
Fund's custodian bank. Wire purchases normally take two or more hours to
complete and, to be accepted the same day, must be received by 4:00 P.M.,
New York time. Your bank may charge a fee to wire funds. Telephone
transactions are recorded to verify information. Certificates are not issued
unless a request is made in writing to Investor Services.
- --------------------------------------------------------------------------------
You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
- -------------------------------------------------------------------------------
YOU WILL RECEIVE ACCOUNT STATEMENTS THAT
YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL
RECORDKEEPING.
- -------------------------------------------------------------------------------
SHARE PRICE
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of outstanding
shares of that class. The NAV of each class can differ. Securities in the Fund's
portfolio are valued on the basis of market quotations, valuations provided by
independent pricing services or at fair value as determined in good faith
according to procedures approved by the Trustees. Short-term debt investments
maturing within 60 days are valued at amortized cost, which the Trustees have
determined approximates market value. The NAV is calculated once daily as of the
close of regular trading on the New York Stock Exchange (the "Exchange")
(generally at 4:00 P.M., New York time) on each day that the Exchange is open.
- -------------------------------------------------------------------------------
THE OFFERING PRICE OF YOUR SHARES IS THEIR
NET ASSET VALUE PLUS A SALES CHARGE, IF
APPLICABLE, WHICH WILL VARY WITH THE
PURCHASE ALTERNATIVE YOU CHOOSE.
- -------------------------------------------------------------------------------
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock Funds.
If you buy shares of the Fund through a Selling Broker, the Selling Broker must
receive your investment before the close of regular trading on the Exchange and
transmit it
12
<PAGE> 13
to John Hancock Funds before its close of business to receive that day's
offering price.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The offering price you pay
for Class A shares of the Fund equals the NAV plus a sales charge as follows:
<TABLE>
<CAPTION>
COMBINED
SALES CHARGE AS REALLOWANCE REALLOWANCE TO
AMOUNT INVESTED SALES CHARGE AS A PERCENTAGE OF AND SERVICE FEE AS SELLING BROKERS AS
(INCLUDING SALES A PERCENTAGE OF THE AMOUNT A PERCENTAGE OF A PERCENTAGE OF
CHARGE) OFFERING PRICE INVESTED OFFERING PRICE(+) THE OFFERING PRICE(*)
- ------------------------------------- --------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Less than $100,000 3.00% 3.09% 2.50% 2.26%
$100,000 to $499,999 2.50% 2.56% 2.25% 2.01%
$500,000 to $999,999 2.00% 2.04% 1.75% 1.51%
$1,000,000 and over 0.00%(**) 0.00(**) (***) 0.00(***)
</TABLE>
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales
charge. A Selling Broker to whom substantially the entire sales charge is
reallowed or who receives these incentives may be deemed to be an
underwriter under the Securities Act of 1933. Other than distribution and
service fees, the Fund does not bear distribution expenses.
(**) No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions within one year of purchase.
(***) John Hancock Funds may pay a commission and the first year's service fee
(as described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of $1 million or more in aggregate as follows:
1% on sales to $4,999,999, 0.50% on the next $5 million and 0.25% on
amounts of $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance in an amount equal to 0.25% of the net
assets invested in the Fund, and thereafter, it pays the service fee
periodically in arrears in an amount up to 0.25% of the Fund's average
annual net assets. Selling Brokers receive the fee as compensation for
providing personal and account maintenance services to shareholders.
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional
Class A shares of the Fund.
In addition, John Hancock Funds will pay certain affiliated Selling Brokers at
an annual rate of up to 0.05% of the daily net assets of accounts attributable
to these brokers.
Under certain circumstances described below, investors in Class A shares may be
entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales
Charge."
CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS A
SHARES. Purchases of $1 million or more of Class A shares will be made at net
asset value with no initial sales charge, but if the shares are redeemed within
13
<PAGE> 14
12 months after the end of the calendar month in which the purchase was made
(the CDSC period), a CDSC will be imposed. The rate of the CDSC will depend on
the amount invested as follows:
<TABLE>
<CAPTION>
AMOUNT INVESTED CDSC RATE
- ---------------------------------------------------------------------------------
<S> <C>
$1 million to $4,999,999................................................ 1.00%
Next $5 million to $9,999,999........................................... 0.50%
Amounts of $10 million and over......................................... 0.25%
</TABLE>
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994 and participant-directed defined
contribution plans with at least 100 eligible employees at the inception of the
Fund account may purchase Class A shares with no initial sales charge. However,
if the shares are redeemed within 12 months after the end of the calendar year
in which the purchase was made, a CDSC will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the redeemed Class A shares. Accordingly,
no CDSC will be imposed on increases in account value above the initial purchase
price, including any distributions which have been reinvested in additional
Class A shares.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
Therefore, it will be assumed that the redemption is first made from any shares
in your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver of Contingent Deferred Sales
Charges" below.
QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $100,000 in
Class A shares of the Fund or a combination of funds within the John Hancock
family of funds (except John Hancock Money Market Fund), you may qualify for a
reduced sales charge on your investments in Class A shares through a LETTER OF
INTENTION. You may also be able to use the ACCUMULATION PRIVILEGE and the
COMBINATION PRIVILEGE to take advantage of the value of your previous
investments in Class A shares of the John Hancock funds in meeting the
breakpoints for a reduced sales charge. For the ACCUMULATION PRIVILEGE and
COMBINATION PRIVILEGE, the applicable sales charge will be based on the total
of:
- -------------------------------------------------------------------------------
YOU MAY QUALIFY FOR A REDUCED SALES CHARGE
ON YOUR INVESTMENT IN CLASS A SHARES.
- -------------------------------------------------------------------------------
1. Your current purchase of Class A shares of the Fund.
2. The net asset value (at the close of business on the previous day) of (a) all
Class A shares of the Fund you hold, and (b) all Class A shares of any other
John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
14
<PAGE> 15
EXAMPLE:
If you hold Class A shares of a John Hancock fund with a net asset value of
$20,000 and, subsequently, invest $80,000 in Class A shares of the Fund, the
sales charge on this subsequent investment would be 2.50% and not 3.00%. (The
rate that would otherwise be applicable to investments of less than $100,000.
See "Initial Sales Charge Alternative -- Class A Shares.")
If you are in one of the following categories, you may purchase Class A shares
of the Fund without paying a sales charge:
- - A Trustee or officer of the Fund; a Director or officer of the Adviser and its
affiliates or Selling Brokers; employees or sales representatives of any of
the foregoing; retired officers, employees or Directors of any of the
foregoing; a member of the immediate family of any of the foregoing; or any
fund, pension, profit sharing or other benefit plan for the individuals
described above.
- -------------------------------------------------------------------------------
CLASS A SHARES MAY BE AVAILABLE WITHOUT A
SALES CHARGE TO CERTAIN INDIVIDUALS AND
ORGANIZATIONS.
- -------------------------------------------------------------------------------
- - Any state, county, city or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any registered
investment management company.*
- - A bank, trust company, credit union, savings institution or other type of
depository institution, its trust departments or common trust funds if it is
purchasing $1 million or more for non-discretionary customers or accounts.*
- - A broker, dealer, financial planner, consultant or registered investment
adviser that has entered into an agreement with John Hancock Funds providing
specifically for the use of Fund shares in fee-based investment products or
services made available to their clients.
- - A former participant in an employee benefit plan with John Hancock Funds, when
he/she withdraws from his/her plan and transfers any or all of his/her plan
distributions directly to the Fund.
- ------------------
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Fund may be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares
are offered at net asset value per share without a sales charge so that your
entire initial investment will go to work at the time of purchase. However,
Class B shares redeemed within four years of purchase will be subject to a CDSC
at the rates set forth below. This charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
shares being redeemed. Accordingly, you will not be assessed a CDSC on increases
in account value above the initial purchase price, including shares derived from
dividend reinvestment.
15
<PAGE> 16
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 four-year CDSC redemption period or those you acquired through
reinvestment of dividends, and next from the shares you have held the longest
during the four-year period. The CDSC is waived on redemptions in certain
circumstances. See the discussion "Waiver of Contingent Deferred Sales Charges"
below.
EXAMPLE:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time, your CDSC will be calculated as follows:
- - Proceeds of 50 shares redeemed at $12 per share........................ $600
- - Minus proceeds of 10 shares not subject to CDSC because they were
acquired through dividend reinvestment (10 x $12)...................... -120
- - Minus appreciation on remaining shares, also not subject to CDSC (40 x
$2).................................................................... -80
----
- - Amount subject to CDSC................................................. $400
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses
part of them to defray its expenses related to providing the Fund with
distribution services connected to the sale of Class B shares, such as
compensating Selling Brokers for selling these shares. The combination of the
CDSC and the distribution and service fees makes it possible for the Fund to
sell Class B shares without deducting a sales charge at the time of the
purchase.
The amount of the CDSC, if any, will vary depending on the number of years from
the time you purchase your Class B shares until the time you redeem them. Solely
for the purposes of determining this holding period, any payments you make
during the month will be aggregated and deemed to have been made on the last day
of the month.
<TABLE>
<CAPTION>
YEAR IN WHICH
CLASS B SHARES CONTINGENT DEFERRED SALES
REDEEMED FOLLOWING CHARGE AS A PERCENTAGE OF
PURCHASE DOLLAR AMOUNT SUBJECT TO CDSC
- --------------------------------------------------------------------------------
<S> <C>
First 3.0%
Second 2.0%
Third 2.0%
Fourth 1.0%
Fifth and thereafter None
</TABLE>
A commission equal to 2.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision of
personal and account maintenance services to shareholders during the twelve
months following the sale, and thereafter the service fee is paid in arrears.
16
<PAGE> 17
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in these circumstances:
- - Redemptions of Class B shares made under a Systematic Withdrawal Plan (see
"How to Redeem Shares"), as long as your annual redemptions do not exceed 10%
of your account value at the time you establish your Systematic Withdrawal
Plan and 10% of the value of your subsequent investments (less redemptions) in
that account at the time you notify Investor Services. This waiver does not
apply to Systematic Withdrawal Plan redemptions of Class A shares that are
subject to a CDSC.
- -------------------------------------------------------------------------------
UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON
CLASS B AND CERTAIN CLASS A SHARE
REDEMPTIONS WILL BE WAIVED.
- -------------------------------------------------------------------------------
- - Redemptions made to effect distributions from an Individual Retirement Account
either before or after age 59 1/2, as long as the distributions are based on
the life expectancy or the joint-and-last survivor life expectancy of you and
your beneficiary. These distributions must be free from penalty under the
Code.
- - Redemptions made to effect mandatory distributions under the Code after age
70 1/2 from a tax-deferred retirement plan.
- - Redemptions made to effect distributions to participants or beneficiaries from
certain employer-sponsored retirement plans including those qualified under
Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the
Code and deferred compensation plans under Section 457 of the Code. The waiver
also applies to certain returns of excess contributions made to these plans.
In all cases, the distributions must be free from penalty under the Code.
- - Redemptions due to death or disability.
- - Redemptions made under the Reinvestment Privilege, as described in "Additional
Services and Programs" of this Prospectus.
- - Redemptions made pursuant to the Fund's right to liquidate your account if you
have less than $100 invested in the Fund.
- - Redemptions made in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
- - Redemptions from certain IRA and retirement plans that purchased shares prior
to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services either directly or through your Selling Broker at the time you
make your redemption. The waiver will be granted once Investor Services has
confirmed that you are entitled to the waiver.
17
<PAGE> 18
CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of
reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following four years
after the shares were purchased, and will result in lower annual distribution
fees. If you exchanged Class B shares into the Fund from another John Hancock
fund, the calculation will be based on the time you purchased the shares in the
original fund. The Fund has been advised that the conversion of Class B shares
to Class A shares should not be taxable for Federal income tax purposes and
should not change a shareholder's tax basis or tax holding period for the
converted shares.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services, less any applicable CDSC. The Fund
may hold payment until it is reasonably satisfied that investments recently made
by check or Invest-by-Phone have been collected (which may take up to 10
calendar days).
- -------------------------------------------------------------------------------
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION
REQUEST, PLEASE FOLLOW THESE PROCEDURES.
- -------------------------------------------------------------------------------
Once your shares are redeemed, the Fund generally sends you payment on the next
business day. When you redeem your shares, you may realize a taxable gain or
loss depending usually on the difference between what you paid for them and what
you receive for them, subject to certain tax rules. Under unusual circumstances,
the Fund may suspend redemptions or postpone payment as permitted by Federal
securities laws, which could be up to seven days.
- --------------------------------------------------------------------------------
BY TELEPHONE All Fund shareholders are automatically eligible for the
telephone redemption privilege. Call 1-800-225-5291, from 8:00
A.M. to 4:00 P.M. (New York time), Monday through Friday,
excluding days on which the Exchange is closed. Investor
Service employs the following procedures to confirm that
instructions received by telephone are genuine. Your name,
the account number, taxpayer identification number
applicable to the account and other relevant information may
be requested. In addition, telephone instructions are
recorded. You may redeem up to $100,000 by telephone, but
the address on the account must not have changed for the
last thirty days. A check will be mailed to the exact
name(s) and address shown on the account.
If reasonable procedures, such as those described above, are
not followed, the Fund may be liable for any loss due to
unauthorized or fraudulent telephone instructions. In all
other cases, neither the Fund nor Investor Services will be
liable for any loss or expense for acting upon telephone
instructions made in accordance with the telephone
transaction procedures mentioned above.Telephone redemption
is not available for IRAs or other tax-qualified
retirement plans or shares of the Fund that are in
certificated form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement
due to a large volume of calls. During these times, you
should consider placing redemption requests in writing or
use EASI-Line. EASI-Line's telephone number is 1-800-338-8080.
- --------------------------------------------------------------------------------
18
<PAGE> 19
- --------------------------------------------------------------------------------
BY WIRE If you have a telephone redemption form on file with the Fund,
redemption proceeds of $1,000 or more can be wired on the next
business day to your designated bank account, and a fee
(currently $4.00) will be deducted. You may also use
electronic funds transfer to your assigned bank account, and
the funds are usually collectible after two business days.
Your bank may or may not charge a fee for this service.
Redemptions of less than $1,000 will be sent by check or
electronic funds transfer. This feature may be elected by
completing the "Telephone Redemption" section on the
Account Privileges Application included with this Prospectus.
- --------------------------------------------------------------------------------
IN WRITING Send a stock power or "letter of instruction" specifying the
name of the Fund, the dollar amount or the number of shares
to be redeemed, your name, class of shares, your account
number and the additional requirements listed below that
apply to your particular account.
- --------------------------------------------------------------------------------
TYPE OF
REGISTRATION REQUIREMENTS
- ----------------------------------- ---------------------------------------
Individual, Joint Tenants, Sole A letter of instruction signed (with
Proprietorship, Custodial titles where applicable) by all
(Uniform Gifts or Transfer to persons authorized to sign for the
Minors Act), General Partners account, exactly as it is registered
with the signature(s) guaranteed.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s)
authorized to act on the account with
the signature(s) guaranteed.
Trusts A letter of instruction signed by the
trustee(s) with the signature(s)
guaranteed. (If the trustee's name is
not registered on your account, also
provide a copy of the trust document,
certified within the last 60 days.)
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR SIGNATURE.
- -------------------------------------------------------------------------------
A signature guarantee is a widely accepted way to protect you and the Fund
by verifying the signature on your request. It may not be provided by a
notary public. If the net asset value of the shares redeemed is $100,000
or less, John Hancock Funds may guarantee the signature. The following
institutions may provide you with a signature guarantee, provided that the
institution meets credit standards established by Investor Services:
(i) a bank; (ii) a securities broker or dealer, including a government or
municipal securities broker or dealer, that is a member of a clearing
corporation or meets certain net capital requirements; (iii) a credit
union having authority to issue signature guarantees; (iv) a savings and
loan association, a building and loan association, a cooperative bank, a
federal savings bank or association; or (v) a national securities
exchange, a registered securities exchange or a clearing agency.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
- -------------------------------------------------------------------------------
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption.
Contact your broker for instructions.
- -------------------------------------------------------------------------------
If you have certificates for your shares, you must submit them with your
stock power or a letter of instructions. Unless you specify to the
contrary, any outstanding Class A shares will be redeemed before Class B
shares. You may not redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining small accounts, the Fund
reserves the right to redeem at net asset value all shares in an account
which holds less than $100 (except accounts under retirement plans) and to
mail the proceeds to the shareholder, or the transfer agent may impose an
annual fee of $10.00. No account will be involuntarily redeemed or
additional fee imposed, if the value of the account is in excess of the
Fund's minimum initial investment or if the value of the account falls
below the required minimum as a result of market action. No CDSC will be
imposed on involuntary redemptions of shares. Shareholders will be
notified before these redemptions are to be made or this fee is imposed,
and will have 30 days to purchase additional shares to bring their account
balance up to the required minimum. Unless the number of shares acquired
by further purchases and dividend reinvestments, if any, exceeds the
number of shares redeemed, repeated redemptions from a smaller account may
eventually trigger this policy.
- --------------------------------------------------------------------------------
19
<PAGE> 20
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of investment
goals. Contact your registered representative or Selling Broker and request a
prospectus for the John Hancock funds that interest you. Read the prospectus
carefully before exchanging your shares. You can exchange shares of each class
of the Fund only for shares of the same class of another John Hancock fund. For
this purpose, John Hancock funds with only one class of shares will be treated
as Class A, whether or not they have been so designated.
- -------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES OF THE FUND ONLY
FOR SHARES OF THE SAME CLASS OF ANOTHER
JOHN HANCOCK FUND.
- -------------------------------------------------------------------------------
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Class B shares of the Fund that are subject to a CDSC may be exchanged
into Class B shares of another John Hancock fund without incurring the CDSC;
however, these shares will be subject to the CDSC schedule of the shares
acquired (except that exchanges into the Fund, John Hancock Short-Term Strategic
Income Fund and John Hancock Limited-Term Government Fund will be subject to the
initial fund's CDSC). For purposes of computing the CDSC payable upon redemption
of shares acquired in an exchange, the holding period of the original shares is
added to the holding period of the shares acquired in an exchange. However, if
you exchange Class B shares purchased prior to January 1, 1994 for Class B
shares of any other John Hancock Fund, you will be subject to the CDSC schedule
in effect on your initial purchase date.
The Fund reserves the right to require you to keep previously exchanged shares
(and reinvested dividends) in the Fund for 90 days before you are permitted to
execute a new exchange. The Fund may also terminate or alter the terms of the
exchange privilege, upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares in another for Federal income tax purposes. An exchange may
result in a taxable gain or loss.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers and
investment advisers may exchange their clients' Fund shares, subject to the
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and other
restrictions that do not apply to exchanges requested by shareholders directly,
as described above.
Because Fund performance and shareholders can be hurt by excessive trading, the
Fund reserves the right to terminate the exchange privilege for any person or
group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that
20
<PAGE> 21
coincide with a "market timing" strategy that may disrupt the Fund's ability to
invest effectively according to its investment objective and policies, or might
otherwise affect the Fund and its shareholders adversely. The Fund may also
temporarily or permanently terminate the exchange privilege for any person who
makes seven or more exchanges out of the Fund per calendar year. Accounts under
common control or ownership will be aggregated for this purpose. Although the
Fund will attempt to give you prior notice whenever it is reasonably able to do
so, it may impose these restrictions at any time.
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable to
the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
IN WRITING
1. In a letter, request an exchange and list the following:
-- the name and class of the Fund whose shares you currently own
-- your account number
-- the name(s) in which the account is registered -- the name of the fund in
which you wish your exchange to be invested
-- the number of shares, all shares or dollar amount you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
21
<PAGE> 22
REINVESTMENT PRIVILEGE
1. You will not be subject to a sales charge on Class A shares reinvested in
shares of any John Hancock fund that is otherwise subject to a sales charge
as long as you reinvest within 120 days from the redemption date. If you paid
a CDSC upon a redemption, you may reinvest at net asset value in the same
class of shares from which you redeemed within 120 days. Your account will be
credited with the amount of the CDSC previously charged, and the reinvested
shares will continue to be subject to a CDSC. For purposes of computing the
CDSC payable upon a subsequent redemption, the holding period of the shares
acquired through reinvestment will include the holding period of the redeemed
shares.
- -------------------------------------------------------------------------------
IF YOU REDEEM SHARES OF THE FUND, YOU MAY
BE ABLE TO REINVEST ALL OR PART OF THE
PROCEEDS IN THE FUND OR ANOTHER JOHN
HANCOCK FUND WITHOUT PAYING AN ADDITIONAL
SALES CHARGE.
- -------------------------------------------------------------------------------
2. Any portion of your redemption may be reinvested in Fund shares or in shares
of any of the other John Hancock funds, subject to the minimum investment
limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the Fund's
name, the account number and class from which your shares were originally
redeemed.
SYSTEMATIC WITHDRAWAL PLAN
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You can
also obtain this application by calling your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
- -------------------------------------------------------------------------------
YOU CAN PAY ROUTINE BILLS FROM YOUR
ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF
FUNDS FROM YOUR RETIREMENT ACCOUNT TO
COMPLY WITH IRS REGULATIONS.
- -------------------------------------------------------------------------------
3. Payments from your account can be made monthly, quarterly, semi-annually or
annually or on a selected monthly basis to yourself or any other designated
payee.
4. There is no limit on the number of payees you may authorize, but all payments
must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently
with purchases of additional Class A or Class B shares, because you may be
subject to initial sales charges on your purchases of Class A shares or to a
CDSC on your redemptions of Class B shares. In addition, your redemptions are
taxable events.
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks or if deposits to a bank account are returned for any reason.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
1. You can authorize an investment to be automatically withdrawn each month from
your bank for investment in Fund shares under the "Automatic Investing" and
"Bank Information" sections of the Account Privileges Application.
- -------------------------------------------------------------------------------
YOU CAN MAKE AUTOMATIC INVESTMENTS AND
SIMPLIFY YOUR INVESTING.
- -------------------------------------------------------------------------------
22
<PAGE> 23
2. You can also authorize automatic investment through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program plan at any
time.
4. There is no charge to you for this program, and there is no cost to the Fund.
5. If you have payments being withdrawn from a bank account and we are notified
that the account has been closed, your withdrawals will be discontinued.
GROUP INVESTMENT PROGRAM
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate dollar
amount of all participants' investments. To determine how to qualify for this
program, contact your registered representative or call 1-800-225-5291.
- -------------------------------------------------------------------------------
ORGANIZED GROUPS OF AT LEAST FOUR PERSONS
MAY ESTABLISH ACCOUNTS.
- -------------------------------------------------------------------------------
2. The initial aggregate investment of all participants in the group must be at
least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at any
time.
RETIREMENT PLANS
1. You may use the Fund as a funding medium for various types of qualified
retirement plans, including Individual Retirement Accounts, Keogh Plans (H.R.
10), Pension and Profit Sharing Plans (including 401(k) plans), Tax Sheltered
Annuity Retirement Plans (403(b) Plan) and Section 457 Plans.
2. The initial investment minimum or aggregate minimum for any of the above
plans is $250. However, accounts being established as group IRA, SEP, SARSEP,
TSA, 401(k) and Section 457 Plans will be accepted without an initial minimum
investment.
INVESTMENTS, TECHNIQUES AND RISK FACTORS
MORTGAGE-BACKED SECURITIES. The Fund may invest in mortgage-backed securities.
A mortgage-backed security is an obligation of an issuer which is backed by a
mortgage or pool of mortgages or a direct interest in an underlying pool of
mortgages. Some mortgage-backed securities, such as collateralized mortgage
obligations ("CMOs"), make payments of both principal and interest at a variety
of intervals; others make semiannual interest payments at a predetermined rate
and repay principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages including those on
commercial real estate or residential properties. Mortgage-backed securities may
have less potential for capital appreciation than comparable fixed-income
securities, due to the likelihood of increased prepayments of mortgages as
interest rates decline. If the
23
<PAGE> 24
Fund buys mortgage-backed securities at a premium, mortgage foreclosures and
prepayments of principal by mortgagors (which may be made at any time without
penalty) may result in some loss of the Fund's principal investment to the
extent of the premium paid. The value of mortgage-backed securities may also
change due to shifts in the market's perception of issuers. In addition,
regulatory or tax changes may adversely affect the mortgage securities market as
a whole.
The Fund may also invest in "stripped" mortgage-backed securities ("SMBS"). SMBS
are created when a U.S. Government agency or a financial institution separates
the interest and principal components of a mortgage-backed security and sells
them as individual securities. The holder of the "principal-only" security
("PO") receives the principal payments made by the underlying mortgage-backed
security, while the holder of the "interest-only" security ("IO") receives
interest payments from the same underlying security. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates. As interest rates fall, prepayment rates tend to increase, which tends to
reduce prices of IOs and increase prices of POs. Rising interest rates can have
the opposite effect. Although the markets for such securities is increasingly
liquid, the Adviser may, in accordance with guidelines adopted by the Board of
Trustees, determine that certain stripped mortgage-backed securities issued by
the U.S. Government, its agencies or instrumentalities are not readily
marketable. If so, these securities, together with privately-issued stripped
mortgage-backed securities, will be considered illiquid for purposes of the
Fund's limitation of investments of illiquid securities.
Other types of mortgage-backed securities will likely be developed in the
future, and the Fund may invest in them if the Adviser determines they are
consistent with the Fund's investment objectives and policies.
RESTRICTED SECURITIES. The Fund may purchase restricted securities, including
those eligible for resale to "qualified institutional buyers" pursuant to Rule
144A under the Securities Act of 1933 (the "Securities Act"). The Trustees will
monitor the Fund's investments in these securities, focusing on certain factors,
including valuation, liquidity and availability of information. Purchases of
restricted securities are subject to an investment restriction limiting all the
Fund's illiquid securities to not more than 15% of its net assets.
LENDING OF SECURITIES. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities. When the Fund
lends portfolio securities, there is a risk that the borrower may fail to return
the loaned securities. As a result, the Fund may incur a loss or, in the event
of the borrower's bankruptcy, the Fund may be delayed in or prevented from
liquidating the collateral. It is a fundamental policy of the Fund not to lend
portfolio securities having a total value in excess of 33 1/3% of its total
assets.
REPURCHASE AGREEMENTS, FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. The Fund
may enter into repurchase agreements and may purchase
24
<PAGE> 25
securities on a forward commitment or when-issued basis. In a repurchase
agreement, the Fund buys a security subject to the right and obligation to sell
it back to the seller at a higher price. These transactions must be fully
collateralized at all times, but involve some credit risk to the Fund if the
other party defaults on its obligation and the Fund is delayed in or prevented
from liquidating the collateral. The Fund will segregate in a separate account
cash or liquid, high grade debt securities equal in value to its forward
commitments and when-issued securities. Purchasing debt securities for future
delivery or on a when-issued basis may increase the Fund's overall investment
exposure and involves a risk of loss if the value of the securities declines
before the settlement date.
REVERSE REPURCHASE AGREEMENTS. A reverse repurchase agreement involves the sale
of a security by the Fund and its agreement to repurchase the instrument at a
specified time and price. The Fund will maintain a segregated account consisting
of highly liquid, marketable debt securities to cover its obligations under
reverse repurchase agreements with selected firms approved in advance by the
Board of Trustees. The Fund will use the proceeds to purchase other investments.
Reverse repurchase agreements are considered to be borrowings by the Fund. As an
investment practice reverse repurchase agreements may have the effect of
leveraging the Fund's assets and may be considered speculative. Leveraging may
magnify the potential for gain or loss on the portfolio securities of the Fund
and therefore increase the possibility of fluctuation in the Fund's net asset
value. The Fund will limit its investments in reverse repurchase agreements and
other borrowings to no more than 33 1/3% of its total net assets.
SHORT-TERM TRADING AND PORTFOLIO TURNOVER. Short-term trading means the
purchase and subsequent sale of a security after it has been held for a
relatively brief period of time. Short-term trading may have the effect of
increasing portfolio turnover rate. Short-term trading of fixed-income
securities should not increase direct transaction costs since fixed-income
securities are normally traded on a principal basis without brokerage
commissions. The Fund does not invest for the purpose of seeking short-term
profits. The Fund's investment securities may be changed, however, without
regard to the holding period of these securities (subject to certain tax
restrictions), when the Adviser deems that this action will help achieve the
Fund's objective given a change in an issuer's operations or changes in general
market conditions. A rate of turnover of 100% would occur if the value of the
lesser of purchases and sales of investment securities for a particular year
equaled the average monthly value of investment securities owned during the year
(excluding short-term securities). A high rate of portfolio turnover (100% or
more) may make it more difficult for the Fund to qualify as a regulated
investment company under the Code. The Fund's portfolio turnover rate is set
forth in the table under "Financial Highlights."
MORTGAGE "DOLLAR ROLL" TRANSACTIONS. The Fund may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which the
Fund sells mortgage-backed securities and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. The Fund will only enter into covered rolls. A "covered roll"
25
<PAGE> 26
is a specific type of dollar roll for which there is an offsetting cash position
or a cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction. Covered rolls are not treated as
a borrowing or other senior security and will be excluded from the calculation
of the Fund's borrowings and other senior securities. For financial reporting
and tax purposes, the Fund treats mortgage dollar rolls as two separate
transactions; one involving the purchase of a security and a separate
transaction involving a sale. The Fund does not currently intend to enter into
mortgage dollar roll transactions that are accounted for as a financing.
OPTIONS AND FUTURES TRANSACTIONS. The Fund may buy and sell options contracts,
financial futures contracts and options on futures contracts. Options and
futures contracts are bought and sold to manage the Fund's exposure to changing
interest rates, and security prices. Some options and futures strategies,
including selling futures, buying puts, and writing calls, tend to hedge the
Fund's investments against price fluctuations. Other strategies, including
buying futures, writing puts, and buying calls, tend to increase market
exposure. Options and futures may be combined with each other or with forward
contracts to adjust the risk and return characteristics of the overall strategy.
The Fund may invest in options and futures based on securities or indices,
including options and futures traded on foreign exchanges and options not traded
on exchanges.
Options and futures can be volatile investments and involve certain risks. If
the Adviser applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures strategies may lower the Fund's return. The
Fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or if it could not
close out its positions because of an illiquid secondary market. Options and
futures do not pay interest, but may produce capital gains.
The Fund will not engage in a transaction in futures or options on futures for
non-hedging purposes if, immediately thereafter, the sum of initial margin
deposits and premiums required to establish speculative positions in futures
contracts and options on futures would exceed 5% of the Fund's net assets. The
loss incurred by the Fund investing in futures contracts and in writing options
on futures is potentially unlimited and may exceed the amount of any premium
received. The Fund's transactions in options and futures contracts may be
limited by the requirements of the Code or qualification as a regulated
investment company.
RISKS ASSOCIATED WITH OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS. The
risks associated with the Fund's transactions in options, futures and other
derivative instruments, including mortgage-backed securities, may include some
or all of the following:
Market Risk. Options and futures transactions, as well as other derivative
instruments, involve the risk that the applicable market will move against the
Fund's derivative position and that the Fund will incur a loss. For derivative
contracts other than purchased options, this loss may exceed the amount of the
initial investment made or the premium received by the Fund. Investments in
26
<PAGE> 27
mortgage-backed securities are subject to the prepayment, extension, interest
rate and other market risks described above.
Leverage and Volatility Risk. Derivative instruments may increase or leverage
the Fund's exposure to a particular market risk, which may increase the
volatility of the Fund's net asset value. The Fund may partially offset the
leverage inherent in derivative instruments by maintaining a segregated account
consisting of cash and liquid, high grade debt securities, by holding offsetting
portfolio securities or currency positions or by covering written options.
Correlation Risk. The Fund's success in using derivative instruments to hedge
portfolio assets depends on the degree of price correlation between the
derivative instrument and the hedged asset. Imperfect correlation may be caused
by several factors, including temporary price disparities among the trading
markets for the derivative instruments, the assets underlying the derivative
instrument and the Fund's portfolio assets.
Credit Risk. Over-the-counter instruments involve a risk that the issuer or
counterparty will fail to perform its contractual obligations.
Liquidity and Valuation Risk. Some derivative instruments are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, an exchange may suspend or limit
trading in an exchange-traded derivative instrument, which may make the contract
temporarily illiquid and difficult to price. The staff of the SEC takes the
position that certain over-the-counter options are subject to the Fund's 15%
limit on illiquid investments. The Fund's ability to terminate over-the-counter
derivative instruments may depend on the cooperation of the counterparties to
these instruments. For derivative instruments that are not heavily traded, the
only source of price quotations may be the selling dealer or counterparty.
27
<PAGE> 28
JOHN HANCOCK INTERMEDIATE
MATURITY GOVERNMENT FUND
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services
Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For Service Information
For Telephone Exchange call
1-800-225-5291
For Investment-by-Phone
For Telephone Redemption
For TDD call 1-800-554-6713
JHD 5500P 9/95 (LOGO) Printed
on Recycled Paper
JOHN HANCOCK
INTERMEDIATE
MATURITY
GOVERNMENT FUND
CLASS A AND CLASS B SHARES
PROSPECTUS
SEPTEMBER 25, 1995
FOR INVESTORS SEEKING TO
ACHIEVE A HIGH LEVEL OF
CURRENT
INCOME, CONSISTENT WITH
PRES-
ERVATION OF CAPITAL AND
MAINTE-
NANCE OF LIQUIDITY.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
TELEPHONE 1-800-225-5291
<PAGE> 29
JOHN HANCOCK INTERMEDIATE MATURITY GOVERNMENT FUND
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 25, 1995
This Statement of Additional Information ("SAI") provides information
about the John Hancock Intermediate Maturity Government Fund (the "Fund"), a
diversified series of John Hancock Bond Fund (the "Trust"), in addition to the
information that is contained in the Fund's Prospectus, dated September 25,
1995.
This SAI is not a prospectus. It should be read in conjunction with the
Fund's Prospectus, a copy of which can be obtained free of charge by writing or
telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Statement of
Additional
Information
Page
------------
<S> <C>
Organization of the Trust................................................................... 1
Investment Objective and Policies........................................................... 1
Certain Investment Practices................................................................ 1
Investment Restrictions..................................................................... 13
Those Responsible for Management............................................................ 16
Investment Advisory and Other Services...................................................... 26
Distribution Contracts...................................................................... 30
Net Asset Value............................................................................. 33
Initial Sales Charge on Class A Shares...................................................... 33
Deferred Sales Charge on Class B Shares..................................................... 35
Special Redemptions......................................................................... 36
Additional Services and Programs............................................................ 36
Description of the Fund's Shares............................................................ 37
Tax Status.................................................................................. 39
Calculation of Performance.................................................................. 42
Brokerage Allocation........................................................................ 44
Transfer Agent Services..................................................................... 46
Custody of Portfolio ....................................................................... 47
Independent Auditors........................................................................ 47
Appendix A.................................................................................. A-1
Financial Statements........................................................................ F-1
</TABLE>
<PAGE> 30
ORGANIZATION OF THE TRUST
The Trust is an open-end management investment company organized as a
Massachusetts business trust under a Declaration of Trust dated December 12,
1984. The Trust currently has only one series, the Fund. Prior to September 22,
1995, the Fund was called John Hancock Adjustable U.S. Government Trust. Prior
to December 22, 1994, the Fund was called Transamerica Adjustable U.S.
Government Trust.
The Fund is managed by John Hancock Advisers, Inc. (the "Adviser"), a
wholly-owned indirect subsidiary of John Hancock Mutual Life Insurance Company
(the "Life Company"), chartered in 1862 with national headquarters at John
Hancock Place, Boston, Massachusetts. John Hancock Funds, Inc. ("John Hancock
Funds") acts as principal distributor of the shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to achieve a high level of current
income, consistent with preservation of capital and maintenance of liquidity.
The Fund seeks to achieve its investment objective by investing primarily in
U.S. Government securities, including mortgage-backed securities issued or
guaranteed by U.S. Government agencies. The Fund may also invest in obligations
of the Tennessee Valley Authority and the World Bank and medium-term debt
obligations of governmental issuers. Under normal market conditions, the Fund
intends to maintain a weighted average remaining maturity or average remaining
life of three to ten years. There is no assurance that the Fund will achieve its
investment objective.
CERTAIN INVESTMENT PRACTICES
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 Government National Mortgage
Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie
Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). Ginnie Mae
certificates are guaranteed by the full faith and credit of the U.S. Government
for timely payment of principal
<PAGE> 31
and interest on the certificates. Fannie Mae certificates are guaranteed by
Fannie Mae, a federally chartered and privately owned corporation, for full and
timely payment of principal and interest on the certificates. Freddie Mac
certificates are guaranteed by Freddie Mac, 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 Ginnie Mae, Fannie Mae or Freddie
Mac 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
Internal Revenue Code of 1986, as amended (the "Code") and invests in certain
mortgages primarily secured by interests in real property and other permitted
investments.
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
Securities and Exchange Commission ("SEC") considers privately issued SMBS to be
illiquid.
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,
-2-
<PAGE> 32
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.
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,
-3-
<PAGE> 33
extension and interest rate risk associated with the underlying mortgage assets.
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.
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.
ASSET-BACKED SECURITIES. The Fund may invest a portion of its assets in
asset-backed securities which are rated in the highest rating category by a
nationally recognized statistical rating organization (e.g., Standard & Poor's
Corporation or Moody's Investors Services, Inc.) or if not so rated, of
equivalent investment quality in the opinion of the Adviser.
Asset-backed securities are often subject to more rapid repayment than
their stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can be
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expected to accelerate. Accordingly, the Fund's ability to maintain positions in
these securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the returns
of principal at comparable yields is subject to generally prevailing interest
rates at that time.
Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than
residential real property. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
WHEN-ISSUED AND FORWARD COMMITMENT 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, high grade debt securities equal in value to the Fund's
commitment. These
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assets will be valued daily at market, and additional cash or securities will be
segregated in a separate account to the extent that the total value of the
assets in the account declines below the amount of the when-issued commitments.
Alternatively, the Fund may enter into offsetting contracts for the forward sale
of other securities that it owns.
REPURCHASE AGREEMENTS. A repurchase agreement is a contract under which
the Fund would acquire a security for a relatively short period (usually not
more than 7 days) subject to the obligation of the seller to repurchase and the
Fund to resell the security at a fixed time and price (representing the Fund's
cost plus interest). The Fund will enter into repurchase agreements only with
member banks of the Federal Reserve System and with securities dealers. The
Adviser will continuously monitor the creditworthiness of the parties with whom
the Fund enters into repurchase agreements. The Fund has established a procedure
providing that the securities serving as collateral for each repurchase
agreement must be delivered to the Fund's custodian either physically or in
book-entry form and that the collateral must be marked to market daily to ensure
that each repurchase agreement is fully collateralized at all times. In the
event of bankruptcy or other default by a seller of a repurchase agreement, the
Fund could experience delays in liquidating the underlying securities and could
experience losses, including the possible decline in the value of the underlying
securities during the period in which the Fund seeks to enforce its rights
thereto, possible subnormal levels of income and lack of access to income during
this period, and the expense of enforcing its rights.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse
repurchase agreements which involve the sale of securities held in its portfolio
to a bank or securities firm with an agreement that the Fund will buy back the
securities at a fixed future date at a fixed price plus an agreed amount of
interest which may be reflected in the repurchase price. Reverse repurchase
agreements are considered to be borrowings by the Fund. The Fund will use
proceeds obtained from the sale of securities pursuant to reverse repurchase
agreements to purchase other investments. The use of borrowed funds to make
investments is a practice known as "leverage," which is considered speculative.
Use of reverse repurchase agreements is an investment technique that is intended
to increase income. Thus, the Fund will enter into a reverse repurchase
agreement only when the Adviser determines that the interest income to be earned
from the investment of the proceeds is greater than the interest expense of the
transaction. However there is a risk that interest expense will nevertheless
exceed the income earned. Reverse repurchase agreements involve the risk that
the market value of securities purchased by the Fund with proceeds of the
transaction may decline below the repurchase price of the securities sold by the
Fund which it is obligated to repurchase. The Fund would also continue
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to be subject to the risk of a decline in the market value of the securities
sold under the agreements because it will reacquire those securities upon
effecting their repurchase. To minimize various risks associated with reverse
repurchase agreements, the Fund will establish and maintain with the Fund's
custodian a separate account consisting of highly liquid, marketable debt
securities 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 exceeding
in the aggregate 33 1/3% of the value of its total net assets (including for
this purpose other borrowings of the Fund). The Fund will enter into reverse
repurchase agreements only with selected registered broker/dealers or with
federally insured banks or savings and loan associations which are approved in
advance as being creditworthy by the Trustees. Under procedures established by
the Trustees, the Adviser will monitor the creditworthiness of the firms
involved.
FINANCIAL FUTURES CONTRACTS. The Fund may buy and sell futures
contracts (and related options) on securities in which it may invest, interest
rate indices, and other instruments. The Fund may hedge its portfolio by selling
or purchasing financial futures contracts as an offset against the effects of
changes in interest rates or in security values. Although other techniques could
be used to reduce exposure to interest rate fluctuations, the Fund may be able
to hedge its exposure more effectively and perhaps at a lower cost by using
financial futures contracts. The Fund may enter into financial futures contracts
for hedging and speculative purposes to the extent permitted by regulations of
the Commodity Futures Trading Commission ("CFTC").
Financial futures contracts have been designed by boards of trade which
have been designated "contract markets" by the CFTC. Futures contracts are
traded on these markets in a manner that is similar to the way a stock is traded
on a stock exchange. The boards of trade, through their clearing corporations,
guarantee that the contracts will be performed. Currently, financial futures
contracts are based on interest rate instruments such as long-term U.S. Treasury
bonds, U.S. Treasury notes, Government National Mortgage Association ("GNMA")
modified pass-through mortgage-backed securities, three-month U.S. Treasury
bills, 90-day commercial paper, bank certificates of deposit and Eurodollar
certificates of deposit. It is expected that if other financial futures
contracts are developed and traded the Fund may engage in transactions in such
contracts.
Although some financial futures contracts by their terms call for
actual delivery or acceptance of financial instruments, in most cases the
contracts are closed out prior to delivery by offsetting purchases or sales of
matching financial futures contracts (same exchange, underlying security and
delivery month). Other financial futures contracts, such as futures contracts on
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securities indices, by their terms call for cash settlements. If the offsetting
purchase price is less than a Fund's original sale price, the Fund realizes a
gain, or if it is more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than the Fund's original purchase price, the Fund realizes a
gain, or if it is less, the Fund realizes a loss. The transaction costs must
also be included in these calculations. Each Fund will pay a commission in
connection with each purchase or sale of financial futures contracts, including
a closing transaction. For a discussion of the Federal income tax considerations
of trading in financial futures contracts, see the information under the caption
"Tax Status" below.
At the time the Fund enters into a financial futures contract, it is
required to deposit with its custodian a specified amount of cash or U.S.
Government securities, known as "initial margin," ranging upward from 1.1% of
the value of the financial futures contract being traded. The margin required
for a financial futures contract is set by the board of trade or exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the financial futures contract which is returned to the Fund
upon termination of the contract, assuming all contractual obligations have been
satisfied. The Fund expects to earn interest income on their initial margin
deposits. Each day, the futures contract is valued at the official settlement
price of the board of trade or exchange on which it is traded. Subsequent
payments, known as "variation margin," to and from the broker are made on a
daily basis as the market price of the financial futures contract fluctuates.
This process is known as "mark to market." Variation margin does not represent a
borrowing or lending by the Fund but is instead settlement between the Fund and
the broker of the amount one would owe the other if the financial futures
contract expired. In computing net asset value, the Fund will mark to market its
open financial future positions.
Successful hedging depends on a strong correlation between the market
for the underlying securities and the futures contract market for those
securities. There are several factors that will probably prevent this
correlation from being a perfect one, and even a correct forecast of general
interest rate trends may not result in a successful hedging transaction. There
are significant differences between the securities and futures markets which
could create an imperfect correlation between the markets and which could affect
the success of a given hedge. The degree of imperfection of correlation depends
on circumstances such as: variations in speculative market demand for financial
futures and debt securities, including technical influences in futures trading
and differences between the financial instruments being hedged and the
instruments underlying the standard financial futures contracts available for
trading in such respects as interest rate
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levels, maturities and creditworthiness of issuers. The degree of imperfection
may be increased where the underlying debt securities are lower-rated and, thus,
subject to greater fluctuation in price than higher-rated securities.
A decision as to whether, when and how to hedge involves the exercise
of skill and judgment, and even a well-conceived hedge may be unsuccessful to
some degree because of market behavior or unexpected interest rate trends. The
Fund will bear the risk that the price of the securities being hedged will not
move in complete correlation with the price of the futures contracts used as a
hedging instrument. Although the Adviser believes that the use of financial
futures contracts will benefit the Fund, an incorrect prediction could result in
a loss on both the hedged securities in the Fund's portfolio and the hedging
vehicle so that the Fund's return might have been better had hedging not been
attempted. However, in the absence of the ability to hedge, the Adviser might
have taken portfolio actions in anticipation of the same market movements with
similar investment results but, presumably, at greater transaction costs. The
low margin deposits required for futures transactions permit an extremely high
degree of leverage. A relatively small movement in a futures contract may result
in losses or gains in excess of the amount invested.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount the price of a futures contract may vary either
up or down from the previous day's settlement price, at the end of the current
trading session. Once the daily limit has been reached in a futures contract
subject to the limit, no more trades may be made on that day at a price beyond
that limit. The daily limit governs only price movements during a particular
trading day and, therefore, does not limit potential losses because the limit
may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
Finally, although the Fund engages in financial futures transactions
only on boards of trade or exchanges where there appears to be an adequate
secondary market, there is no assurance that a liquid market will exist for a
particular futures contract at any given time. The liquidity of the market
depends on participants closing out contracts rather than making or taking
delivery. In the event participants decide to make or take delivery, liquidity
in the market could be reduced. In addition, the Fund could be prevented from
executing a buy or sell order at a specified price or closing out a position due
to limits on open positions or daily price fluctuation limits imposed by the
exchanges or boards of trade. If the Fund cannot close out a
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<PAGE> 39
position, it will be required to continue to meet margin requirements until the
position is closed.
Options on Financial Futures Contracts. The Fund may buy and sell
options on financial futures contracts on securities in which it may invest,
interest rate indices, and other instruments. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. The Fund would be required
to deposit with its custodian initial and variation margin with respect to put
and call options on futures contracts written by it. Options on futures
contracts involve risks similar to the risks relating to transactions in
financial futures contracts. Also, an option purchased by the Fund may expire
worthless, in which case the Fund would lose the premium it paid for the option.
Other Considerations. The Fund will engage in futures and options
transactions for bona fide hedging or speculative purposes to the extent
permitted by CFTC regulations. The Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, the Fund's
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities that the Fund owns, or futures contracts will be purchased to
protect the Fund against an increase in the price of securities, or the currency
in which they are denominated, the Fund intends to purchase. As evidence of this
hedging intent, the Fund expects that on 75% or more of the occasions on which
they take 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 at the time when the futures
contract 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.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits the Fund to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish speculative positions in futures contracts and options on futures
will not exceed 5% of the net asset value of the Fund's portfolio, after taking
into account unrealized profits and losses on any such positions and excluding
the amount by which such options were in-the-money at the time of purchase. The
Fund will engage in transactions in futures contracts only to the extent such
transactions are consistent with
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<PAGE> 40
the requirements of the Code for maintaining their qualifications as regulated
investment companies for Federal income tax purposes.
When the Fund purchases financial futures contracts, or write put
options or purchase call options thereon, cash or liquid, high grade debt
securities will be deposited in a segregated account with the Fund's custodian
in an amount that, together with the amount of initial and variation margin held
in the account of its broker, equals the market value of the futures contracts.
Options Transactions. The Fund may write listed and over-the-counter
covered call options and covered put options on securities in order to earn
additional income from the premiums received. In addition, this Fund may
purchase listed and over-the-counter call and put options. The extent to which
covered options will be used by the Fund will depend upon market conditions and
the availability of alternative strategies. The Fund may write listed and
over-the-counter call and put options on up to 100% of its net assets.
The Fund will write listed and over-the-counter call options only if
they are "covered," which means that the Fund owns or has the immediate right to
acquire the securities underlying the options without additional cash
consideration upon conversion or exchange of other securities held in its
portfolio. A call option written by the Fund may also be "covered" if the Fund
holds on a share-for-share basis a covering call on the same securities where
(i) the exercise price of the covering call held is equal to or less than the
exercise price of the call written if the difference is maintained by the Fund
in cash, U.S. Treasury bills or high grade liquid debt obligations in a
segregated account with the Fund's custodian, and (ii) the covering call expires
at the same time as the call written. If a covered call option is not exercised,
the Fund would keep both the option premium and the underlying security. If the
covered call option written by the Fund is exercised and the exercise price,
less the transaction costs, exceeds the cost of the underlying security, the
Fund would realize a gain in addition to the amount of the option premium it
received. If the exercise price, less transaction costs, is less than the cost
of the underlying security, the Fund's loss would be reduced by the amount of
the option premium.
As the writer of a covered put option, the Fund will write a put option
only with respect to securities it intends to acquire for its portfolio and will
maintain in a segregated account with its custodian bank cash, U.S. Government
securities or high-grade liquid debt securities with a value equal to the price
at which the underlying security may be sold to the Fund in the event the put
option is exercised by the purchaser. The Fund may also write a "covered" put
option by purchasing on a share-for-share basis a put on the same security as
the put written by the Fund if the exercise price of the covering put held is
equal to or greater
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than the exercise price of the put written and the covering put expires at the
same time or later than the put written.
When writing listed and over-the-counter covered put options on
securities, the Fund would earn income from the premiums received. If a covered
put option is not exercised, the Fund would keep the option premium and the
assets maintained to cover the option. If the option is exercised and the
exercise price, including transaction costs, exceeds the market price of the
underlying security, the Fund would realize a loss, but the amount of the loss
would be reduced by the amount of the option premium.
If the writer of an exchange-traded option wishes to terminate its
obligation prior to its exercise, it may effect a "closing purchase
transaction." This is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that the Fund's
position will be offset by the Options Clearing Corporation. The Fund may not
effect a closing purchase transaction after they have been notified of the
exercise of an option. There is no guarantee that a closing purchase transaction
can be effected. Although the Fund will generally write only those options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange or board of trade will exist for any
particular option or at any particular time, and for some options no secondary
market on an exchange may exist.
In the case of a written call option, effecting a closing transaction
will permit the Fund to write another call option on the underlying security
with either a different exercise price, expiration date or both. In the case of
a written put option, it will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a gain from a closing transaction if the cost of
the closing transaction is less than the premium received from writing the
option. The Fund will realize a loss from a closing transaction if the cost of
the closing transaction is more than the premium received for writing the
option. However, because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
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Over-the-Counter Options. The Fund may engage in options transactions
on exchanges and in the over-the-counter markets. In general, exchange-traded
options are third-party contracts (i.e., performance of the parties' obligations
is guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. Over-the-counter ("OTC") transactions are two-party
contracts with price and terms negotiated by the buyer and seller. The Fund will
acquire only those OTC options for which management believes the Fund can
receive on each business day at least two separate bids or offers (one of which
will be from an entity other than a party to the option) or those OTC options
valued by an independent pricing service. The Fund will write and purchase OTC
options only with member banks of the Federal Reserve System and primary dealers
in U.S. Government securities or their affiliates which have capital of at least
$50 million or whose obligations are guaranteed by an entity having capital of
at least $50 million. The SEC has taken the position that OTC options are
illiquid securities subject to the restriction that illiquid securities are
limited to not more than 15% of the Fund's net assets. The SEC, however, has a
partial exemption from the above restrictions on transactions in OTC options.
The SEC allows the Fund to exclude from the 15% limitation on illiquid
securities a portion of the value of the OTC options written by the Fund,
provided that certain conditions are met. First, the other party to the OTC
options has to be a primary U.S. Government securities dealer designated as such
by the Federal Reserve Bank. Second, the Fund must have an absolute contractual
right to repurchase the OTC options at a formula price. If the above conditions
are met, the Fund may treat as illiquid only that portion of the OTC option's
value (and the value of its underlying securities) which is equal to the formula
price for repurchasing the OTC option, less the OTC option's intrinsic value.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions.
These restrictions may not be changed without approval by holders of a "majority
of the outstanding shares" of the Fund. A majority for this purpose means the
holders of: (a) more than 50% of the outstanding shares, or (b) 67% or more of
the shares represented at a meeting where more that 50% of the outstanding
shares are represented, whichever is less.
The Fund may not:
1. borrow money, except that as a temporary measure for extraordinary or
emergency purposes the Fund may borrow from banks in aggregate amounts
at any one time outstanding not exceeding 33 1/3% of the total assets
(including the amount borrowed) of the Fund valued at market; and the
Fund may not
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purchase any securities at any time when borrowings exceed 5% of the
total assets of the Fund (taken at market value). This borrowing
restriction does not prohibit the use of reverse repurchase agreements
(see "Reverse Repurchase Agreements"). For purposes of this investment
restriction, forward commitment transactions shall not constitute
borrowings. Interest paid on any borrowings will reduce the Fund's net
investment income;
2. make short sales of securities or purchase any security on margin,
except that the Fund may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of securities (this
restriction does not apply to securities purchased on a when-issued
basis);
3. underwrite securities issued by other persons, except insofar as the
Fund may technically be deemed an underwriter under the Securities Act
of 1933 in selling a security, and except that the Fund may invest all
or substantially all of its assets in another registered investment
company having substantially the same investment objectives as the
Fund;
4. make loans to other persons except (a) through the lending of
securities held by the Fund, (b) through the purchase of debt
securities in accordance with the investment policies of the Fund (the
entry into repurchase agreements is not considered a loan for purposes
of this restriction);
5. with respect to 75% of its total assets, purchase the securities of any
one issuer (except securities issued or guaranteed by the U.S.
Government and its agencies or instrumentalities, as to which there are
no percentage limits or restrictions) if immediately after and as a
result of such purchase (a) more than 5% of the value of its assets
would be invested in that issuer, or (b) the Fund would hold more than
10% of the outstanding voting securities of that issuer, except that
the Fund may invest all or substantially all of its assets in another
registered investment company having substantially the same investment
objectives as the Fund;
6. purchase or sell real estate (including limited partnership interests)
other than securities secured by real estate or interests therein
including mortgage-related securities or interests in oil, gas or
mineral leases in the ordinary course of business (the Fund reserves
the freedom of action to hold and to sell real estate acquired as a
result of the ownership of securities);
7. invest more than 25% of its total assets in the securities of issuers
whose principal business activities are in the same industry (excluding
obligations of the U.S. Government, its agencies and instrumentalities
and repurchase agreements)
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except that the Fund may invest all or substantially all of its assets
in another registered investment company having substantially the same
objectives as the Fund;
8. issue any senior security (as that term is defined in the Investment
Company Act of 1940 (the "1940 Act")) if such issuance is specifically
prohibited by the 1940 Act or the rules and regulations promulgated
thereunder; or
9. invest in securities of any company if, to the knowledge of the Trust,
any officer or director of the Trust or its Adviser owns more than 1/2
of 1% of the outstanding securities of such company, and all such
officers and directors own in the aggregate more than 5% of the
outstanding securities of such company.
The Fund has also adopted the following additional operating
restrictions that may be required by various state laws and administrative
positions. These operating restrictions are not fundamental policies and may be
changed by the Fund without approval of its shareholders.
Under those operating restrictions, the Fund may not:
(a) invest in companies for the purpose of exercising control or
management, except that the Fund may invest all or substantially all of
its assets in another registered investment company having
substantially the same investment restrictions as the Fund;
(b) make investments in the securities of other investment companies,
except as otherwise permitted by the 1940 Act or in connection with a
merger, consolidation, or reorganization;
(c) invest in securities of issuers (other than U.S. Government Securities)
having a record of less than three years of continuous operation (for
this purpose, the period of operation of any issuer shall include the
period of operation of any predecessor or unconditional guarantor of
such issuer) if, regarding all securities, more than 5% of the total
assets (taken at market value at the time of each investment) of the
Fund would be invested in such securities, except that the Fund may
invest all or substantially all of its assets in another registered
investment company having substantially the same investment
restrictions as the Fund;
(d) invest in commodities, except that the Fund may purchase and sell:
options on securities and securities indices, futures contracts on
securities and securities indices and options on these futures, forward
commitments, when-issued securities, securities index put or call
warrants and repurchase
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<PAGE> 45
agreements entered into in accordance with the Fund's investment
policies;
(e) mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned by the Fund except as may be
necessary in connection with borrowings mentioned in investment
restriction no. 1 above;
(f) purchase warrants of any issuer, except on a limited basis, if, as a
result, more than 2% of the value of its total assets would be invested
in warrants which are not listed on the New York Stock Exchange and
more than 5% of the value of its total assets would be invested in
warrants, whether or not so listed, such warrants in each case to be
valued at the lesser of cost or market, but assigning no value in each
case to warrants acquired by the Fund in units or attached to debt
securities; or
(g) purchase any security, including any repurchase agreement maturing in
more than seven days, which is not readily marketable, if more than 15%
of the net assets of the Fund, taken at market value, would be invested
in such securities.
(h) Notwithstanding any investment restriction to the contrary, the Fund
may, in connection with the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees/Directors, purchase
securities of other investment companies within the John Hancock Group
of Funds provided that, as a result (i) no more than 10% of the Fund's
assets would be invested in securities of all other investment
companies, (ii) such purchase would not result in more than 3% of the
total outstanding voting securities of any one such investment company
being held by the Fund and (iii) no more than 5% of the Fund's assets
would be invested in any one such investment company.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by 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 and directors of the Adviser or officers and directors of
John Hancock Funds.
Set forth below is the principal occupation or employment of the
Trustees and officers of the Trust during the past five years.
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<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- ----------------------
<S> <C> <C>
Edward J. Boudreau, Jr.* Trustee, Chairman and Chief
101 Huntington Avenue Chairman and Executive Officer of
Boston, MA 02199 Chief Executive the Adviser, The Berkeley
Officer(1)(2) Financial Group ("The
Berkeley Group"); Chairman,
NM Capital Management, Inc.
("NM Capital"); John Hancock
Advisers International
Limited ("Advisers
International"); John
Hancock Funds, Inc.; John
Hancock Investor Services
Corporation ("Investor
Services"); and Sovereign
Asset Management
Corporation ("SAMCorp");
(hereinafter the Adviser,
the Berkeley Group, NM
Capital, Advisers
International, John
Hancock Funds, Inc.,
Investor Services and
SAMCorp are collectively
referred to as the
"Affiliated Companies");
Chairman, First Signature
Bank & Trust; Director,
John Hancock Freedom
Securities Corporation,
John Hancock Capital
Corporation, New
England/Canada Business
Council; Member,
Investment Company
Institute Board of
Governors; Trustee,
Museum of Science;
President, the Adviser
(until July 1992);
Trustee or Director of
other investment
companies managed by the
Adviser; and Chairman,
John Hancock
Distributors, Inc. (until
April, 1994).
</TABLE>
-17-
<PAGE> 47
<TABLE>
<S> <C> <C>
James F. Carlin Trustee(3) Chairman and CEO,
233 West Central Street Carlin Consolidated, Inc.
Natick, MA 01760 (insurance); Director,
Arbella Mutual Insurance
Company (insurance),
Consolidated Group Trust
(group health plan),
Carlin Insurance Agency,
Inc. and West Insurance
Agency, Inc.; Receiver,
the City of Chelsea
(until August 1992); and
Trustee or Director of
other investment
companies managed by the
Adviser.
William H. Cunningham Trustee Chancellor, University
601 Colorado Street of Texas System and
O'Henry Hall former President of the
Austin, TX 78701 University of Texas,
Austin, Texas; Regents
Chair in Higher Education
Leadership; James L.
Bayless Chair for Free
Enterprise; Professor of
Marketing and Dean
College of Business
Administration/
Administration/Graduate
School of Business (1983-
1985); Centennial Chair
in Business Education
Leadership, 1983-1985;
Director, LaQuinta Motor
Inns, Inc. (hotel
management company);
Director, Jefferson-Pilot
Corporation (diversified
life insurance company);
Director,
Freeport-McMoran Inc.
(oil and gas company);
Director, Barton Creek
Properties, Inc.
(1988-1990) (real estate
development) and LBJ
Foundation Board
(education foundation);
and Advisory Director,
Texas Commerce Bank -
Austin.
</TABLE>
-18-
<PAGE> 48
<TABLE>
<S> <C> <C>
Charles F. Fretz Trustee(3) Consultant, self
RD #5, Box 300B employed; Vice President
Clothier Springs Road and Director, Towers,
Malvern, PA 19355 Perrin, Forster & Crosby,
Inc. (international
management consultants)
(until 1985).
Harold R. Hiser, Jr. Trustee(3) Executive Vice President,
Schering-Plough Corporation Schering-Plough
One Giralda Farms Corporation (pharma-
Madison, NJ 07940-1000 ceuticals); Director,
ReCapital Corporation
(reinsurance).
Charles L. Ladner Trustee(3) Director, Energy North,
UGI Corporation Inc. (public utility
460 North Gulph Road holding company); Senior
King of Prussia, PA 19406 Vice President, Finance
UGI Corp. (public utility
holding company) (until
1992); and Trustee or
Director of other
investment companies
managed by the Adviser.
Leo E. Linbeck, Jr. Trustee Chairman, President,
3810 W. Alabama Chief Executive Officer
Houston, TX 77027 and Director, Linbeck
Corporation (a holding
company engaged in
various phases of the
construction industry and
warehousing interests);
Director and Chairman,
Federal Reserve Bank of
Dallas; Chairman of the
Board and Chief Executive
Officer, Linbeck
Construction Corporation;
Director, Panhandle
Eastern Corporation (a
diversified energy
company); Director,
Daniel Industries, Inc.
(manufacturer of gas
measuring products and
energy related
equipment); Director,
GeoQuest International,
Inc. (a geophysical
</TABLE>
-19-
<PAGE> 49
<TABLE>
<S> <C> <C>
consulting firm); and
Director, Greater Houston
Partnership.
Patricia P. McCarter Trustee(3) Director and Secretary,
Swedesford Road the McCarter Corp.
RD #3, Box 121 (machine manufacturer);
Malvern, PA 19355 and Trustee or Director
of other investment
companies managed by the
Adviser.
Steven R. Pruchansky Trustee(1)(3) Director and Treasurer,
360 Horse Creek Drive, #208 Mast Holdings, Inc.;
Naples, FL 33942 Director, First Signature
Bank & Trust Company
(until August 1991);
General Partner, Mast
Realty Trust; President,
Maxwell Building Corp.
until 1991); and Trustee
or Director of other
investment companies
managed by the Adviser.
Norman H. Smith Trustee(3) Lieutenant General,
Rt. 1, Box 249 E USMC, Deputy Chief
Linden, VA 22642 of Staff for Manpower
and Reserve Affairs,
Headquarters Marine
Corps; Commanding General
III Marine Expeditionary
Force/3rd Marine Division
(retired 1991); and
Trustee or Director of
other investment
companies managed by the
Adviser.
John P. Toolan Trustee(3) Director, The Smith
13 Chadwell Place Barney Muni Bond
Morristown, NJ 07960 Funds, The Smith Barney
Tax-Free Money Fund,
Inc., Vantage Money
Market Funds (mutual
funds), The
Inefficient-Market Fund,
Inc. (closed-end
investment company) and
Smith Barney Trust
Company of Florida;
Chairman, Smith Barney
Trust Company (retired
</TABLE>
-20-
<PAGE> 50
<TABLE>
<S> <C> <C>
December, 1991);
Director, Smith Barney,
Inc., Mutual Management
Company and Smith, Barney
Advisers, Inc.
(investment advisers)
(retired 1991); and
Senior Executive Vice
President, Director and
member of the Executive
Committee, Smith Barney,
Harris Upham & Co.,
Incorporated (investment
bankers) (until 1991);
and Trustee or Director
of other investment
companies managed by the
Adviser.
Robert G. Freedman* Vice Chairman President and Chief
101 Huntington Avenue and Chief Investment Officer,
Boston, MA 02199 Investment the Investment
Officer(2) Adviser.
Anne C. Hodsdon* President(2) President and Chief
101 Huntington Avenue Operations Officer,
Boston, MA 02199 the Adviser.
James B. Little* Senior Vice Senior Vice President,
101 Huntington Avenue President, the Adviser.
Boston, MA 02199 Chief Financial
Officer
Thomas H. Drohan* Senior Vice Senior Vice President
101 Huntington Avenue President and and Secretary, the
Boston, MA 02199 Secretary Adviser.
James K. Ho* Senior Vice Senior Vice President,
101 Huntington Avenue President the Adviser.
Boston, MA 02199
Barry Evans* Vice Vice President,
101 Huntington Avenue President the Adviser.
Boston, MA 02199
Anne M. McDonley* Vice Vice President,
101 Huntington Avenue President the Adviser.
Boston, MA 02199
</TABLE>
-21-
<PAGE> 51
<TABLE>
<S> <C> <C>
B.J. Willingham* Senior Vice Senior Vice President,
101 Huntington Avenue President the Adviser. Formerly,
Boston, MA 02199 Director and Chief
Investment Officer of
Transamerica Fund
Management Company.
James J. Stokowski* Vice President Vice President, the
101 Huntington Avenue and Treasurer Adviser.
Boston, MA 02199
Susan S. Newton* Vice President Vice President and
101 Huntington Avenue and Compliance Assistant Secretary,
Boston, MA 02199 Officer the Adviser.
John A. Morin* Vice President Vice President, the
101 Huntington Avenue Adviser.
Boston, MA 02199
</TABLE>
- ---------------------
* An "interested person" of the Fund, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of
Trust, the Executive Committee may generally exercise most of the
powers of the Board of Directors.
(2) Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of June 30, 1995, there were 1,817,177 Class A and 938,578 Class B
shares of the Fund outstanding and officers and trustees of the Fund as a group
beneficially owned less than 1% of these outstanding shares. At such date, the
following shareholders held, as record owner, 5% or more of the Fund's shares:
-22-
<PAGE> 52
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
CLASS A OF OUTSTANDING SHARES
- ------- ---------------------
<S> <C>
NFSC FEBO # A1R-096814 12.42%
First Trust Company TTEE
Prespective Advisory Co.
Datalynx #006
P.O. Box 173736
Denver, CO 80217-3736
NFSC FEBO # A1R-018473 10.00%
First Trust Corp. & Co.
#006-001
Datalynx
P.O. Box 173736
Denver, CO 80217-3736
Merrill Lynch Pierce Fenner & Smith, Inc. 9.04%
Trade House Account - Book Entry
Team B - 3rd Floor
P.O. Box 173736
Jacksonville, FL 32246-6484
NFSC FEBO # A1R-018538 7.04%
First Trust Corp.
#006-002
P.O. Box 173736
Denver, CO 80217-3736
NFSC FEBO # A1R-018546 5.85%
First Trust Corp. & Co.
#006-002
P.O. Box 173736
Denver, CO 80217-3736
San Diego County Credit Union 5.56%
9985 Pacific Heights Blvd.
San Diego, CA 92121-4337
Standard Savings Bank 5.47%
ATNN Danny Lau
228 W. Garvey Ave.
Monterey Park, CA 91757-1603
CLASS B
Merrill Lynch Pierce Fenner & Smith, Inc. 6.72%
Trade House Account - Book Entry
Team B - 3rd Floor
P.O. Box 173736
Jacksonville, FL 32246-6484
</TABLE>
-23-
<PAGE> 53
At such date, no other person owned of record or beneficially as much
as 5% of the outstanding shares of the Fund.
As of December 22, 1994, the Trustees have established an Advisory
Board which acts to facilitate a smooth transition of management over a two-year
period between Transamerica Fund Management Company ("TFMC"), the prior
investment adviser of the Fund, and the Adviser. The members of the Advisory
Board are distinct from the Board of Trustees, do not serve the Fund in any
other capacity and are persons who have no power to determine what securities
are purchased or sold on behalf of the Fund. Each member of the Advisory Board
may be contacted at 101 Huntington Avenue, Boston, Massachusetts 02199.
Members of the Advisory Board and their respective principal
occupations during the past five years are as follows:
R. Trent Campbell, President, FMS, Inc. (financial and management
services); former Chairman of the Board, Mosher Steel Company.
Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman
from Texas; co-founder, Houston Parents' League; former board member of
various civic and cultural organizations in Houston, including the
Houston Symphony, Museum of Fine Arts and YWCA. Mrs. Bentsen is
presently active in various civic and cultural activities in the
Washington, D.C. area, including membership on the Area Board for The
March of Dimes and is a National Trustee for the Botanic Gardens of
Washington, D.C.
Thomas R. Powers, Formerly Chairman of the Board, President and
Chief Executive Officer, TFMC; Director, West Central Advisory Board,
Texas Commerce Bank; Trustee, Memorial Hospital System; Chairman of the
Board of Regents of Baylor University; Member, Board of Governors,
National Association of Securities Dealers, Inc.; Formerly, Chairman,
Investment Company Institute; formerly, President, Houston Chapter of
Financial Executive Institute.
Thomas B. McDade, Chairman and Director, TransTexas Gas Company;
Director, Houston Industries and Houston Lighting and Power Company;
Director, TransAmerican Companies (natural gas producer and
transportation); Member, Board of Managers, Harris County Hospital
District; Advisory Director, Commercial State Bank, El Campo; Advisory
Director, First National Bank of Bryan; Advisory Director, Sterling
Bancshares; Former Director and Vice Chairman, Texas Commerce
Bancshares; and Vice Chairman, Texas Commerce Bank.
-24-
<PAGE> 54
COMPENSATION OF THE BOARD OF TRUSTEES AND ADVISORY BOARD. The following
table provides information regarding the compensation paid by the Fund and the
other investment companies in the John Hancock Fund Complex to the Independent
Trustees and the Advisory Board members for their services. Mr. Boudreau, a
non-Independent Trustee, and each of the officers of the Fund who are interested
persons of the Adviser, are compensated by the Adviser and received no
compensation from the Fund for their services.
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Trustees from the Fund Fund's Expenses Trustees**
- -------- ------------- ---------------- -----------------
<S> <C> <C> <C>
James F. Carlin $ 207 $ 0 $ 60,450
William H. Cunningham 1,429* 411 0
Charles F. Fretz 0 0 60,350
Harold R. Hiser, Jr 0 0 56,000
Charles L. Ladner 224 0 60,450
Leo E. Linbeck, Jr 2,940* 0 0
Patricia P. McCarter 224 0 60,200
Steven R. Pruchansky 234 0 62,450
Norman H. Smith 234 0 62,450
John P. Toolan 0 224 60,450
-------- -------- --------
TOTAL $ 5,492 $ 635 $366,450
======== ======== ========
</TABLE>
* Compensation partially made pursuant to different compensation
arrangements then in effect for the fiscal year ended March
31,1995.
** The total compensation paid by the John Hancock Fund Complex
to the Independent Trustees is $366,450 as of the calendar
year ended December 31, 1994. All Trustees/Directors except
Messrs. Cunningham and Linbeck are Trustees/Directors of the
funds in the John Hancock Fund Complex. Messrs. Cunningham and
Linbeck are Trustees/Directors of certain funds. The Fund was
not part of the John Hancock Fund Complex until December 22,
1994 and Messrs. Cunningham and Linbeck were not trustees or
directors of any funds in the John Hancock Fund Complex prior
to December 22, 1994.
-25-
<PAGE> 55
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Advisory Board*** from the Fund Fund's Expenses Advisory Board
- ----------------- ------------- --------------- ------------------
<S> <C> <C> <C>
R. Trent Campbell $ 244 $ 0 $ 54,000
Mrs. Lloyd Bentsen 244 0 54,000
Thomas R. Powers 244 0 54,000
Thomas B. McDade 244 0 54,000
--- ------- -------
TOTAL $ 976 $ 0 $216,000
======= ======= ========
</TABLE>
*** Estimated for the Fund's current fiscal year ending March 31, 1995.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT MANAGEMENT CONTRACT. The Fund receives investment advice
from the Adviser. Investors should refer to the Prospectus for a description of
certain information concerning the investment management contract. Each of the
Trustees and principal officers affiliated with the Fund who is also an
affiliated person of the Adviser is named above, together with the capacity in
which such person is affiliated with the Fund, the Adviser or TFMC (the Fund's
prior investment adviser).
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and has more than $13 billion in assets under
management in its capacity as investment adviser to the Fund and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over 1,060,000 shareholders. The Adviser is
an indirect wholly-owned subsidiary of the Life Company, one of the most
recognized and respected financial institutions in the nation. With total assets
under management of $80 million, the Life Company is one of the ten largest life
insurance companies in the United States and carries high ratings from Standard
& Poor's and A.M. Best. Founded in 1862, the Life Company has been serving
clients for over 130 years.
The Trust on behalf of the Fund has entered into an investment
management contract with the Adviser. Under the investment management contract,
the Adviser provides the Fund with (i) a continuous investment program,
consistent with the Fund's stated investment objective and policies, (ii)
supervision of all aspects of the Fund's operations except those that are
delegated to a custodian, transfer agent or other agent and (iii) such
executive, administrative and clerical personnel, officers and equipment as are
necessary for the conduct of the Fund's business.
-26-
<PAGE> 56
No person other than the Adviser and its directors and employees
regularly furnishes advice to the Fund with respect to the desirability of the
Fund investing in, purchasing or selling securities. The Adviser may from time
to time receive statistical or other similar factual information, and
information regarding general economic factors and trends, from the Life Company
and its affiliates.
Under the terms of the investment management contract with the Trust on
behalf of the Fund, the Adviser provides the Fund with office space, equipment
and supplies and other facilities and personnel required for the business of the
Fund. The Adviser pays the compensation of all officers and employees of the
Trust and pays the expenses of clerical services relating to the administration
of the Fund. All expenses which are not specifically paid by the Adviser and
which are incurred in the operation of the Fund including, but not limited to,
(i) the fees of the Independent Trustees of the Trust, (ii) the fees of the
members of the Fund's Advisory Board (described above) and (iii) the continuous
public offering of the shares of the Fund are borne by the Fund. Subject to the
conditions set forth in a private letter ruling that the Fund has received from
the Internal Revenue Service relating to its multiple-class structure, class
expenses properly allocable to any Class A or Class B shares will be borne
exclusively by such class of shares.
As provided by the investment management contract, the Fund pays the
Adviser an investment management fee, which is accrued daily and paid monthly in
arrears, equal on an annual basis to 0.40% of the Fund's average daily net asset
value. From time to time, the Adviser may reduce its fee or make other
arrangements to limit the Fund's expenses to a specified percentage of average
daily net assets. The Adviser retains the right to re-impose a fee and recover
any other payments to the extent that, at the end of any fiscal year, the Fund's
annual expenses fall below this limit.
If the total of all ordinary business expenses of the Fund for any
fiscal year exceeds the limitations prescribed in any state in which shares of
the Fund are qualified for sale, the fee payable to the Adviser will be reduced
to the extent required by these limitations. Currently, the most restrictive
limit imposed by a state is 2.5% of the first $30,000,000 of the Fund's average
daily net asset value, 2% of the next $70,000,000 and 1.5% of the remaining
average daily net asset value. When calculating this limit, the Fund may include
interest, brokerage commissions and extraordinary expenses.
Pursuant to the investment management contract, the Adviser is not
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the contract relates, except a
loss resulting from willful
-27-
<PAGE> 57
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its duties or from its reckless disregard of the obligations and
duties under the investment management contract.
The initial term of the investment management contract expires on
September 25, 1997 and the investment management contract will continue in
effect from year to year thereafter if approved annually by a vote of a majority
of the Independent Trustees of the Trust cast in person at a meeting called for
the purpose of voting on such approval, and by either a majority of the Trustees
or the holders of a majority of the Fund's outstanding voting securities. The
management contract may, on 60 days' written notice, be terminated at any time
without the payment of any penalty to the Fund by vote of a majority of the
outstanding voting securities of the Fund, by the Trustees or by the Adviser.
The management contract terminates automatically in the event of its assignment.
Securities held by the Fund may also be held by other funds or
investment advisory clients for which the Adviser or its affiliates provide
investment advice. Because of different investment objectives or other factors,
a particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser or for other funds or clients for which the Adviser
renders investment advice arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds or clients in a manner deemed equitable to all of them. To the
extent that transactions on behalf of more than one client of the Adviser or its
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.
Under the investment management contract, the Fund may use the name
"John Hancock" or any name derived from or similar to it only for so long as the
applicable investment management contract or any extension, renewal or amendment
thereof remains in effect. If the Fund's investment management contract is no
longer in effect, the Fund (to the extent that it lawfully can) will cease to
use such name or any other name indicating that it is advised by or otherwise
connected with the Adviser. In addition, the Adviser or the Life Company may
grant the non-exclusive right to use the name "John Hancock" or any similar name
to any other corporation or entity, including but not limited to any investment
company of which the Life Company or any subsidiary or affiliate thereof or any
successor to the business of any subsidiary or affiliate thereof shall be the
investment adviser.
Under the Fund's master/feeder structure existing for the fiscal years
ended March 31, 1993, 1994, and 1995, the Fund
-28-
<PAGE> 58
invested all of its assets in Adjustable U.S. Government Fund (the "Portfolio").
During these years, advisory fees payable by the Portfolio to TFMC, the
Portfolio's former investment adviser, and borne indirectly by the Fund,
amounted to $123,662, $184,072 and $86,085, respectively. During the fiscal year
ended March 31, 1995, advisory fees paid by the Portfolio to the Adviser and
borne indirectly by the Fund, amounted to $28,694. A portion of these fees paid
to TFMC and the Adviser during these periods was not imposed pursuant to the
expense limitation arrangements in effect. (See "The Fund's Expenses" in the
Fund's Prospectus.)
ADMINISTRATION AGREEMENT. Pursuant to an administration agreement,
dated December 22, 1994, John Hancock Advisers provided the Fund with general
office facilities and supervised the overall administration of the Fund
including, among other responsibilities, the negotiation of contracts and fees
with, and the monitoring of performance and billings of the independent
contractors and agents of the Fund, the preparation and filing of all documents
required for compliance by the Fund with applicable laws and regulations and
arranging for the maintenance of books and records (other than accounting books
and records) of the Fund. John Hancock Advisers paid all compensation of the
Trustees, officers and employees of the Fund who were affiliated persons of John
Hancock Advisers. The administration agreement terminated in September 1995.
Under the administration agreement, John Hancock Advisers received from
the Fund, a fee at an annual rate of 0.10% of the Fund's average daily net
assets, subject to the expense limitation provisions descried below. For the
fiscal years ended March 31, 1993, 1994, and 1995, respectively, administration
fees paid by the Fund to TFMC, the Fund's former administrator, amounted to
$30,977, $46,091, and $21,511, respectively; and John Hancock Advisers received
$7,171 for the year ended March 31, 1995, however, all such fees were not
imposed pursuant to the fee and expense limitation arrangements then in effect
(see "The Portfolio's and the Fund's Expenses" in the Fund's Prospectus).
Under the administration agreement, neither John Hancock Advisers nor
its personnel was liable for any error of judgment or mistake of law or for any
act or omission in the administration of the Fund except for willful
misfeasance, bad faith or gross negligence in the performance of its duties or
from reckless disregard of its obligations and duties under the administration
agreement.
ADMINISTRATIVE SERVICES AGREEMENT. During the fiscal years ended March
31, 1993, 1994 and 1995, the Fund was a party to an administrative services
agreement with TFMC (the "Services Agreement"), pursuant to which TFMC performed
bookkeeping and accounting services and functions, including preparing and
maintaining various accounting books, records and other documents
-29-
<PAGE> 59
and keeping such general ledgers and portfolio accounts as are reasonably
necessary for the operation of the Fund. Other administrative services included
communications in response to shareholder inquiries and certain printing
expenses of various financial reports. In addition, such staff and office space,
facilities and equipment was provided as necessary to provide the required
administrative services. The Services Agreement was amended in connection with
the appointment of the Adviser as administrator to the Fund to permit services
under the Agreement to be provided by the Adviser and its affiliates. The
Services Agreement was terminated during the fiscal year ended March 31, 1995.
For the fiscal years ended March 31, 1993, 1994 and 1995, the Fund paid
to TFMC (pursuant to the Services Agreement), $42,650, $18,021 and $9,604,
respectively, of which $40,524, $14,730 and $8,164, respectively, was paid to
TFMC and $2,126, $3,291 and $1,440, respectively, was paid for certain data
processing and pricing information services.
For the fiscal years ended March 31, 1993, 1994 and 1995, the Portfolio
paid TFMC (pursuant to the Services Agreement), $37,033, $38,012 and $24,461,
respectively, of which $26,189, $26,722 and $17,704, respectively, was paid to
TFMC and $10,844, $11,290 and $6,757, respectively, were paid for certain data
processing and pricing information services.
DISTRIBUTION CONTRACTS
DISTRIBUTION CONTRACTS. The Fund has a distribution contract with John
Hancock Funds pertaining to each class of shares. This contract was initially
adopted on behalf of the Fund by the Trustees on December 22, 1994. Under the
contract, John Hancock Funds is obligated to use its best efforts to sell shares
on behalf of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined, plus any applicable sales charge. In connection with the
sale of Class A or Class B shares of the Fund, John Hancock Funds and Selling
Brokers receive compensation in the form of a sales charge imposed, in the case
of Class A shares, at the time of sale or, in the case of Class B shares, on a
deferred basis. The sales charges are listed in the Fund's Prospectus.
Total underwriting commissions for sales of the Fund's Class A
shares for the fiscal years ended March 31, 1993, 1994 and 1995 were $303,663,
$59,793 and $24,555, respectively. Of such amounts, $37,148, $7,455 and $4,090,
respectively, were retained by the Fund's former distributor, Transamerica Fund
Distributors,
-30-
<PAGE> 60
Inc. or the current distributor in 1995, as the case may be, and the remainder
was reallowed to dealers.
DISTRIBUTION PLANS. The Board of Trustees, including the Independent
Trustees of the Fund, approved new distribution plans pursuant to Rule 12b-1
under the 1940 Act for Class A shares ("Class A Plan") and Class B shares
("Class B Plan"). Such Plans were approved by a majority of the outstanding
shares of each respective class on December 16, 1994 and became effective on
December 22, 1994.
Under the Class A Plan, the distribution or service fee will not exceed
an annual rate of 0.25% of the average daily net asset value of the Class A
shares of the Fund. Any expenses under the Fund's Class A Plan not reimbursed
within 12 months of being presented to the Fund for repayment are forfeited and
not carried over to future years. Under the Fund's Class B Plan, the
distribution or service fee to be paid by the Fund will not exceed an annual
rate of 1.00% of the average daily net assets of the Class B shares of the Fund;
provided that the portion of such fee used to cover Service Expenses (described
below) shall not exceed an annual rate of 0.25% of the average daily net asset
value of the Class B shares of the Fund. The Fund has determined that it will
pay up to 0.90% to John Hancock Funds but may in the future determine to pay up
to 1.00% under the Class B Plan. Under the Fund's Class B Plan, the fee covers
the Distribution and Service Expenses (described below) and interest expenses on
unreimbursed distribution expenses. In accordance with generally accepted
accounting principles, the Fund does not treat unreimbursed distribution
expenses attributable to Class B shares as a liability of the Fund and does not
reduce the current net assets of Class B by such amount although the amount may
be payable in the future.
The fee may be spent by John Hancock Funds on Distribution Expenses or
Service Expenses. "Distribution Expenses" include any activities or expenses
primarily intended to result in the sale of shares of the relevant class of the
Fund, including, but not limited to: (i) initial and ongoing sales compensation
payable out of such fee as such compensation is received by John Hancock Funds
or by Selling Brokers, (ii) direct out-of-pocket expenses incurred in connection
with the distribution of shares, including expenses related to printing of
prospectuses and reports; (iii) preparation, printing and distribution of sales
literature and advertising material; (iv) an allocation of overhead and other
branch office expenses of John Hancock Funds related to the distribution of Fund
shares (v) distribution expenses that were incurred by the Fund's former
distributor and not recovered through payments under the Class A or Class B
former plans or through receipt of contingent deferred sales charges; and (vi)
in the event that any other investment company (the "Acquired Fund") sells all
or substantially all of its assets to, merges with or
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otherwise engages in a combination with the Fund, distribution expenses
originally incurred in connection with the distribution of the Acquired Fund's
shares. Service Expenses under the Plans include payments made to, or on account
of, account executives of selected broker-dealers (including affiliates of John
Hancock Funds) and others who furnish personal and shareholder account
maintenance services to shareholders of the relevant class of the Fund.
During the fiscal year ended March 31, 1995, total payments made under
the prior Class A Plan (which was in effect until December 22, 1994) by the Fund
to TFMC amounted to $35,201. Total payments made under the current Class A rule
12b-1 plan to the current distributor during the fiscal year ended March 31,
1995 amounted to $9,013 and, of such amount, (1) $1,884 represented payments for
advertising and promotion expenses, (2) $64 represented payments for the cost of
printing and mailing of prospectuses to other than current shareholders, (3)
$126 represented payments for compensation to selling brokers, (4) $6,939
represented expenses of Distributors, and (5) $0 represented interest, carrying,
or other finance charges.
During the fiscal year ended March 31, 1995, total payments made under
the prior Class B Plan (which was in effect until December 22, 1994) by the Fund
to TFMC amounted to $77,264. Total payments made under the current Class B Rule
12b-1 plan to the current distributor during the fiscal year ended March 31,
1995 amounted to $21,694 and, of such amount, (1) $1,255 represented payments
for advertising and promotion expenses, (2) $46 represented payments for the
cost of printing and mailing of prospectuses to other than current shareholders,
(3) $5,027 represented payments for compensation to selling brokers, (4) $4,892
represented expenses of distributors, and (5) $10,474 represented interest,
carrying, or other finance charges.
For the fiscal year ended March 31, 1995, the former distributor
received an aggregate of $39,407 and the current distributor received an
aggregate of $14,665 in contingent deferred sales charges from redemption of the
Fund's Class B shares.
Each Plan provides that it will continue in effect only so long as its
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. Each Plan provides that it may be terminated (a) at
any time by vote of a majority of the Trustees, a majority of the Independent
Trustees, or a majority of the respective Class' outstanding voting securities
or (b) by John Hancock Funds on 60 days' notice in writing to the Fund. Each
Plan further provides that it may not be amended to increase the maximum amount
of the fees for the services described therein without the approval of a
majority of the outstanding shares of the class of the Fund which has voting
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rights with respect to the Plan. Each Plan provides that no material amendment
to the Plan will, in any event, be effective unless it is approved by a majority
vote of the Trustees and the Independent Trustees of the Trust. The holders of
Class A shares and Class B shares have exclusive voting rights with respect to
the Plan applicable to their respective class of shares. By adopting the Plans,
the Board of Trustees has determined that, in its judgment, there is a
reasonable likelihood that each Plan will benefit the holders of the applicable
class of shares of the Fund.
Information regarding the services rendered under the Plans and the
amounts paid by each Class of the Fund are reviewed by the Trustees on a
quarterly basis.
When the Trust seeks an Independent Trustee to fill a vacancy or as a
nominee for election by shareholders, the selection or nomination of the
Independent Trustee is, under resolutions adopted by the Trustees
contemporaneously with their adoption of the Plan, committed to the discretion
of the Committee on Administration of the Trustees. The members of the Committee
on Administration are all Independent Trustees and identified in this Statement
of Additional Information under the heading "Those Responsible for Management."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's
shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations
furnished by a principal market maker or a pricing service, both of which
generally utilize electronic data processing techniques to determine valuations
for normal institutional size trading units of debt securities without exclusive
reliance upon quoted prices.
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 Fund will not price its securities on the following national
holidays: New Year's Day; Presidents' Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day. Consequently,
the NAV of the Fund's redeemable securities may be significantly affected on
days when a shareholder has no access to the Fund.
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INITIAL SALES CHARGE ON CLASS A SHARES
INITIAL SALES CHARGE ON CLASS A SHARES. The sales charges applicable to
purchases of Class A shares of the Fund are described in the Fund's Class A and
Class B Prospectus. Methods of obtaining reduced sales charges referred to
generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares, the investor is
entitled to cumulate current purchases with the greater of the current value (at
offering price) of the Class A shares of the Fund, or if Investor Services is
notified by the investor's dealer or the investor at the time of the purchase,
the cost of the Class A shares owned.
COMBINED PURCHASES. In calculating the sales charge applicable to
purchases of Class A shares made at one time, the purchases will be combined if
made by (a) an individual, his or her spouse and their children under the age of
21 purchasing securities for his or her own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
WITHOUT SALES CHARGE. As described in the Fund's Prospectus, Class A
shares of the Fund may be sold without a sales charge to certain persons
described in the Prospectus.
ACCUMULATION PRIVILEGE. Investors (including investors combining
purchases) who are already Class A shareholders may also obtain the benefit of
the reduced sales charge by taking into account not only the amount then being
invested but also the purchase price or value of the Class A shares already held
by such person.
COMBINATION PRIVILEGE. Reduced sales charges (according to the schedule
set forth in each Class A and Class B Prospectus) also are available to an
investor based on the aggregate amount of his concurrent and prior investments
in Class A shares of the Fund and shares of all other John Hancock funds which
carry a sales charge.
LETTER OF INTENTION. The reduced sales loads are also applicable to
investments made over a specified period pursuant to a Letter of Intention
(LOI), which should be read carefully prior to its execution by an investor. The
Fund offers two options regarding the specified period for making investments
under the LOI. All investors have the option of making their investments over a
period of thirteen (13) months. Investors who are using
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the Fund as a funding medium for a qualified retirement plan, however, may opt
to make the necessary investments called for by the LOI over a forty-eight (48)
month period. These qualified retirement plans include IRA's, SEP, SARSEP, TSA,
401(k) plans, TSA plans and 457 plans. Such an investment (including
accumulations and combinations) must aggregate $50,000 or more invested during
the specified period from the date of the LOI or from a date within ninety (90)
days prior thereto, upon written request to Investor Services. The sales charge
applicable to all amounts invested under the LOI is computed as if the aggregate
amount intended to be invested had been invested immediately. If such aggregate
amount is not actually invested, the difference in the sales charge actually
paid and the sales charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made within the specified period
(either 13 or 48 months), the sales charge applicable will not be higher than
that which would have been applied (including accumulations and combinations)
had the LOI been for the amount actually invested.
The LOI authorizes Investor Services to hold in escrow sufficient Class
A shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrow shares will be released. If the total investment specified in the LOI
is not completed, the Class A shares held in escrow may be redeemed and the
proceeds used as required to pay such sales charge as may be due. By signing the
LOI, the investor authorizes Investor Services to act as his attorney-in-fact to
redeem any escrow shares and adjust the sales charge, if necessary. A LOI does
not constitute a binding commitment by an investor to purchase, or by the Fund
to sell, any additional shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per
share without the imposition of a sales charge so that the Fund will receive the
full amount of the purchase payment.
CONTINGENT DEFERRED SALES CHARGE. Class B shares which are redeemed
within four years of date of purchase will be subject to a contingent deferred
sales charge ("CDSC") at the rates set forth in the Class A and Class B
Prospectus as a percentage of the dollar amount subject to the CDSC. The charge
will be assessed on an amount equal to the lesser of the current market value or
the original purchase cost of the Class B shares being redeemed. Accordingly, no
CDSC will be imposed on increases in account value above the initial purchase
prices, including Class B shares derived from reinvestment of dividends or
capital gains distributions.
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The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
Proceeds from the CDSC are paid to John Hancock Funds and are used in
whole or in part by John Hancock Funds to defray its expenses related to
providing distribution-related services to the Fund in connection with the sale
of the Class B shares, such as the payment of compensation to select Selling
Brokers for selling Class B shares. The combination of the CDSC and the
distribution and service fees facilitates the ability of the Fund to sell the
Class B shares without a sales charge being deducted at the time of the
purchase. See the Class A and Class B Prospectus for additional information
regarding the CDSC.
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, he would incur a brokerage charge. Any such
securities would be valued for the purposes of making such payment at the same
value as used in determining net asset value. The Fund has elected to be
governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund during any 90 day period for any one account.
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE. As described more fully in the Prospectus, the Fund
permits exchanges of shares of any class of the Fund for shares of the same
class in any other John Hancock fund offering that class.
SYSTEMATIC WITHDRAWAL PLAN. As described briefly in the Class A and
Class B Prospectus, the Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares. Since the redemption price of Fund shares may be more
or less than the shareholder's cost, depending upon the market value of the
securities owned by the Fund at the time of redemption, the distribution of cash
pursuant to this plan may result in realization of gain or loss for purposes of
Federal, state and local income taxes. The maintenance of a Systematic
Withdrawal Plan concurrently with purchases of additional Class A or Class B
shares of the Fund could be disadvantageous to a shareholder
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because of the initial sales charge payable on such purchases of Class A shares
and the CDSC imposed on redemptions of Class B shares and because redemptions
are taxable events. Therefore, a shareholder should not purchase Fund shares at
the same time as a Systematic Withdrawal Plan is in effect. The Fund reserves
the right to modify or discontinue the Systematic Withdrawal Plan of any
shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Investor Services.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM ("MAAP"). This program is
explained fully in the Fund's Class A and Class B Prospectus and the Account
Privileges Application. The program, as it relates to automatic investment
checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month
indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice if
any investment is not honored by the shareholder's bank. The bank shall be under
no obligation to notify the shareholder as to the non-payment of any check.
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the due date of any investment.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Fund shares may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in shares of the same class of
the Fund or another John Hancock mutual fund, subject to the minimum investment
limit in that fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A shares of
the Fund or in Class A shares of another John Hancock mutual fund. If a CDSC was
paid upon a redemption, a shareholder may reinvest the proceeds from that
redemption at net asset value in additional shares of the class from which the
redemption was made. The shareholder's account will be credited with the amount
of any CDSC charged upon the prior redemption and the new shares will continue
to be subject to the CDSC. The holding period of the shares acquired through
reinvestment will, for purposes of computing the CDSC payable upon a subsequent
redemption, include the holding period of the redeemed shares. The Fund may
modify or terminate the reinvestment privilege at any time.
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A redemption or exchange of Fund shares is a taxable transaction for
Federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated for tax purposes as described under
the caption "Tax Status."
DESCRIPTION OF THE FUND'S SHARES
The Declaration of Trust permits the Trustees to create an unlimited
number of series and classes of shares of the Trust and to issue an unlimited
number of full or fractional shares and to divide or combine the shares into a
greater or lesser number of shares without changing the proportionate beneficial
interests of the series.
Each share represents an equal proportionate interest in the aggregate
net assets attributable to each class or series. The interest of investors in
the various series or classes of the Trust is separate and distinct. All
consideration received for the sales of shares of a particular series or class
of the Trust, all assets in which such consideration is invested and all income,
earnings and profits derived from such investments will be allocated to and
belong to that series or class. As such, each such share is entitled to
dividends and distributions out of the net income belonging to that series or
class as declared by the Board of Trustees. Shares of the Trust have a par value
of $0.01 per share. The assets of each series are segregated on the Trust's
books and are charged with the liabilities of that series and with a share of
the Trust's general liabilities. The Board of Trustees determines those assets
and liabilities deemed to be general assets or liabilities of the Trust, and
these items are allocated among each series in proportion to the relative total
net assets of each series. In the unlikely event that the liabilities allocable
to a series exceed the assets of that series, all or a portion of such
liabilities may have to be borne by the other series.
Pursuant to the Declaration of Trust, the Trustees have established,
the Fund, and may authorize the creation of additional series of shares (the
proceeds of which would be invested in separate, independently managed
portfolios) and additional classes within any series (which would be used to
distinguish among the rights of different categories of shareholders, as might
be required by future regulations or other unforeseen circumstances). As of the
date of this Statement of Additional Information, the Trustees have authorized
the issuance of two classes of shares of the Fund, designated as Class A and
Class B. Class A and Class B shares of the Fund represent an equal proportionate
interest in the aggregate net asset values attributable to that class of the
Fund. Holders of Class A shares and Class B shares each have certain exclusive
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voting rights on matters relating to the Class A Plan and the Class B Plan,
respectively, of the Fund. The different classes of the Fund may bear different
expenses relating to the cost of holding shareholder meetings necessitated by
the exclusive voting rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of
shares will be calculated in the same manner, at the same time and on the same
day and will be in the same amount, except that (i) the distribution and service
fees relating to Class A and Class B shares will be borne exclusively by that
Class, (ii) Class B shares will pay higher distribution and service fees than
Class A shares and (iii) each of Class A shares and Class B shares will bear any
class expenses properly allocable to such class of shares, subject to the
conditions set forth in a private letter ruling that the Fund has received from
the Internal Revenue Service relating to its multiple-class structure.
Accordingly, the net asset value per share may vary depending whether Class A
shares or Class B shares are purchased.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the trust. However, the Trust's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations and affairs of
the Trust. The Declaration of Trust also provides for indemnification out of the
Trust's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. Liability is therefore
limited to circumstances in which the Trust itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
TAX STATUS
The Fund has qualified and has elected to be treated as a "regulated
investment company" under Subchapter M of the Code and intends to continue to so
qualify in the future. As such and by complying with the applicable provisions
of the Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, each Fund will not be
subject to Federal income tax on its net income (including net short-term and
long-term capital gains) which is distributed to shareholders at least annually
in accordance with the timing requirements of the Code.
The Fund will be subject to a 4% non-deductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
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Distributions from the Fund's current or accumulated earnings and
profits ("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Fund's Prospectus whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to capital gains.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for Federal income tax purposes in each share so received
equal to the amount of cash they would have received had they elected to receive
the distributions in cash, divided by the number of shares received.
For the Fund, the amount of net short-term and long-term capital gains,
if any, in any given year will vary depending upon the Adviser's current
investment strategy and whether the Adviser believes it to be in the best
interest of the Fund to dispose of portfolio securities or enter into options or
futures transactions that will generate capital gains. At the time of an
investor's purchase of Fund shares, a portion of the purchase price is often
attributable to realized or unrealized appreciation in the Fund's portfolio.
Consequently, subsequent distributions from such appreciation may be taxable to
such investor even if the net asset value of the investor's shares is, as a
result of the distributions, reduced below the investor's cost for such shares,
and the distributions in reality represent a return of a portion of the purchase
price.
Upon a redemption of shares of the Fund (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon his basis in his shares. Such gain or loss will be treated as capital gain
or loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, depending upon the shareholder's tax holding period for
the shares. A sales charge paid in purchasing Class A shares of the Fund cannot
be taken into account for purposes of determining gain or loss on the redemption
or exchange of such shares within 90 days after their purchase to the extent
shares of the Fund or another John Hancock Fund are subsequently acquired
without payment of a sales charge pursuant to the reinvestment or exchange
privilege. Such disregarded load will result in an increase in the shareholder's
tax basis in the shares subsequently acquired. Also, any loss realized on a
redemption or exchange may be disallowed to the extent the shares disposed of
are replaced with other shares of the Fund within a period of 61 days beginning
30 days before and ending 30 days after the shares are disposed of, such as
pursuant to the Dividend Reinvestment Plan. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized upon the redemption of shares with a tax holding period of six months
or less will be treated as a long-term capital loss to the extent of any amounts
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treated as distributions of long-term capital gain with respect to such shares.
Although its present intention is to distribute all net short-term and
long-term capital gains, if any, the Fund reserves the right to retain and
reinvest all or any portion of its "net capital gain," which is the excess, as
computed for Federal income tax purposes, of net long-term capital gain over net
short-term capital loss in any year. The Fund will not in any event distribute
net long-term capital 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. Each shareholder would be treated for Federal income tax purposes as if
the Fund had distributed to him on the last day of its taxable year his pro rata
share of such excess, and he had paid his pro rata share of the taxes paid by
the Fund and reinvested the remainder in the Fund. Accordingly, each shareholder
would (a) include his pro rata share of such excess as long-term capital gain
income in his return for his taxable year in which the last day of the Fund's
taxable year falls, (b) be entitled either to a tax credit on his return for, or
to a refund of, his pro rata share of the taxes paid by the Fund, and (c) be
entitled to increase the adjusted tax basis for his shares in the Fund by the
difference between his pro rata share of such excess and his pro rata share of
such taxes.
For Federal income tax purposes, the Fund is permitted to carryforward
a net capital loss in any year to offset its own 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 $905,314 of capital loss carryforwards as
of the tax year ended December 31, 1994, of which $55,496 expires in 2000,
$23,234 expires in 2001 and $826,584 in 2002, available to offset future net
capital gains.
The Fund's dividends and capital gain distributions will generally not
qualify for the corporate dividends received deduction.
If the Fund invests in certain PIKs, zero coupon securities or certain
increasing rate securities (and, in general, any other securities with original
issue discount or with market discount if the Fund elects to include market
discount in income currently) it must accrue income on such investments prior to
the receipt of the corresponding cash payments. However, the Fund must
distribute, at least annually, all or substantially all of its net income,
including such accrued income, to shareholders to qualify as a
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regulated investment company under the Code and avoid Federal income and excise
taxes. Therefore, the Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or may have to leverage itself
by borrowing the cash, to satisfy distribution requirements.
The Fund may be required to account for its transactions in forward
rolls in a manner that, under certain circumstances, may limit the extent of its
participation in such transactions.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Limitations imposed by the Code on regulated investment companies like
the Fund may restrict the Fund's ability to enter into futures and options.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions. Dividends, capital gain distributions, and ownership
of or gains realized on the redemption (including an exchange) of Fund shares
may also be subject to state and local taxes. Shareholders should consult their
own tax advisers as to the Federal, state or local tax consequences of ownership
of shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in the Fund is effectively connected will be subject to U.S.
Federal income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from a Fund and, unless an effective IRS Form W-8 or authorized
substitute is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company under
the Code, it will also not be required to pay any Massachusetts income tax.
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CALCULATION OF PERFORMANCE
For the 30-day period ended March 31, 1995, the annualized yield for
the Fund's Class A shares and Class B shares were 6.20% and 5.78%, respectively.
Average annual return for the Fund's Class A and Class B shares for the period
from December 31, 1991 (inception of the Fund) through March 31, 1995 was 3.35%
and 3.24%, respectively. For the one year period ended March 31, 1995 annual
returns were 0.33% and 0.33%, respectively, for Class A and Class B shares of
the Fund.
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:
Yield = 2 [ (a-b + 1 )(6) -1]
--
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the
period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period
(NAV where applicable).
The Fund's total return is computed by finding the average annual
compounded rate of return over the 1-year, 5-year, and 10-year periods that
would equate the initial amount invested to the ending redeemable value
according to the following formula:
P(1+T)(n) = ERV
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 investment made
at designated periods or fraction thereof.
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In the case of Class A shares or Class B shares, this calculation
assumes the maximum sales charge is included in the initial investment or the
CDSC is applied at the end of the period. This calculation also assumes that all
dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period. The "distribution rate" is determined by
annualizing the result of dividing the declared dividends of the Fund during the
period stated by the maximum offering price or net asset value at the end of the
period.
In addition to average annual total returns, the Fund may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments, and/or a series of redemptions, over any time period.
Total returns may be quoted with or without taking the Fund's maximum sales
charge on Class A shares or the CDSC on Class B shares into account. Excluding
the Fund's sales charge on Class A shares and the CDSC on Class B shares from a
total return calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's
yield and total return will be compared to indices of mutual funds and bank
deposit vehicles such as Lipper Analytical Services, Inc.'s "Lipper -- Fixed
Income Fund Performance Analysis," a monthly publication which tracks net
assets, total return, and yield on approximately 1,700 fixed income mutual funds
in the United States. Ibbotson and Associates, CDA Weisenberger and F.C. Towers
are also used for comparison purposes, as well a the Russell and Wilshire
Indices.
Performance rankings and ratings reported periodically in national
financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL
STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S, etc. will
also be utilized. The Fund's promotional and sales literature may make reference
to the Fund's "beta." Beta is a reflection of the market-related risk of the
Fund by showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
Fund for any period in the future. The performance of the Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
-44-
<PAGE> 74
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities for
the Fund are made by the Adviser pursuant to recommendations made by its
investment committee, which consists of officers and directors of the Adviser
and affiliates and officers and Trustees who are interested persons of the Fund.
Orders for purchases and sales of securities are placed in a manner which, in
the opinion of the Adviser will offer the best price and market for the
execution of each such transaction. Purchases from underwriters of portfolio
securities may include a commission or commissions paid by the issuer and
transactions with dealers serving as market makers reflect a "spread."
Investments in debt securities are generally traded on a net basis through
dealers acting for their own account as principals and not as brokers; no
brokerage commissions are payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing primary
policy, the Rules of Fair Practice of the NASD and other policies that the
Trustees may determine, the Adviser may consider sales of shares of the Fund as
a factor in the selection of broker-dealers to execute 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
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 any commitments to allocate portfolio transactions upon any
prescribed basis. While the Fund's officers will be primarily responsible for
the allocation of the Fund's brokerage business, their policies and practices in
this regard must be consistent with the foregoing and will at all times be
subject to review by the Trustees.
-45-
<PAGE> 75
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
the Fund may pay to a broker which provides brokerage and research services to
the Fund an amount of disclosed commission in excess of the commission which
another broker would have charged for effecting that transaction. This practice
is subject to a good faith determination by the Trustees that the price is
reasonable in light of the services provided and to policies that the Trustees
may adopt from time to time. During the fiscal year ended March 31, 1995, the
Fund did not pay commissions as compensation to any brokers for research
services such as industry, economic and company reviews and evaluations of
securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc. ("Distributors"), a
broker-dealer, and John Hancock Freedom Securities Corporation and its two
broker-dealer subsidiaries, Tucker Anthony Incorporated ("Tucker Anthony") and
Sutro & Company, Inc. ("Sutro") (all "Affiliated Brokers"). Pursuant to
procedures determined by the Trustees and consistent with the above policy of
obtaining best net results, the Fund may execute portfolio transactions with or
through Tucker Anthony, Sutro or Distributors. During the year ended March 31,
1995, the Fund did not execute any portfolio transactions with any affiliated
brokers.
Any of the Affiliated Brokers may act as broker for the Fund on
exchange transactions, subject, however, to the general policy of the Fund set
forth above and the procedures adopted by the Trustees pursuant to the 1940 Act.
Commissions paid to an Affiliated Broker must be at least as favorable as those
which the Trustees believe to be contemporaneously charged by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold. A transaction would not be placed with an Affiliated Broker
if the Fund would have to pay a commission rate less favorable than the
Affiliated Broker's contemporaneous charges for comparable transactions for its
other most favored, but unaffiliated, customers, except for accounts for which
the Affiliated Broker acts as a clearing broker for another brokerage firm, and
any customers of the Affiliated Broker not comparable to the Fund as determined
by a majority of the Trustees who are not interested persons (as defined in the
1940 Act) of the Fund, the Adviser or the Affiliated Brokers. Because the
Adviser, which is affiliated with the Affiliated Brokers, has, as an investment
adviser to the Fund, the obligation to provide investment management services,
which includes elements of research and related investment skills, such research
and related skills will not be used by the Affiliated Brokers as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria. The Fund will not effect principal transactions with
Affiliated Brokers. The Fund may, however, purchase securities from other
members of underwriting
-46-
<PAGE> 76
syndicates of which Tucker Anthony, Sutro and John Hancock Distributors are
members, but only in accordance with the policy set forth above and procedures
adopted and reviewed periodically by the Trustees.
The turnover rate for the Fund for the fiscal years ended March 31,
1993, 1994 and 1995, were 186%, 244% and 341%, respectively. Such rates reflect
the difference between the years' varying market conditions.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Investor Services
monthly a transfer agent fee equal to $22.50 per account for the Class A shares
and $20.00 per account for the Class B shares on an annual basis, plus
out-of-pocket expenses.
CUSTODY OF THE FUND
Fund securities are held pursuant to custodian agreements between the
Trust on behalf of the Fund and Investors Bank & Trust Company ("IBT") 24
Federal Street, Boston, Massachusetts. Under the custodian agreements, IBT
performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Ernst & Young LLP, 200
Clarendon Street, Boston, Massachusetts 02116. The Fund's financial statements
included in the Prospectus and this Statement of additional Information have
been audited by Ernst & Young LLP for the periods indicated in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
-47-
<PAGE> 77
APPENDIX A
The ratings of Moody's Investors Service, Inc. and Standard & Poor's Corporation
represent their opinions as to the quality of various debt instruments. Their
ratings are a generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. Such limitations
include the following: the rating of an issue is heavily weighted by past
developments and does not necessarily reflect probable future conditions; there
is frequently a lag between the time a rating is assigned and the time it is
updated; and there are varying degrees of difference in credit risk of
securities in each rating category. Therefore, it should be understood, that
ratings are not absolute standards of quality. Consequently, debt instruments
with the same maturity, coupon and rating may have different yields while debt
instruments of the same maturity and coupon with different ratings may have the
same yield.
Description of Bond Ratings Moody's Investors Service, Inc.
AAA: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment 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.
A-1
<PAGE> 78
BA: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated b generally lack the characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: 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 principle or
interest.
CA: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: 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.
Standard & Poor's Ratings Group
AAA: Bonds rated AAA have the higher rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a very strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit 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
bonds in this category than in higher rated categories.
BB, B, CCC, CC: Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are
A-2
<PAGE> 79
outweighed by large uncertainties or major risk exposures to adverse conditions.
C: The rating C is reserved for income bonds on which no interest is being paid.
A-3
<PAGE> 80
FINANCIAL STATEMENTS
F-1
<PAGE> 81
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust (Fund)
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON MARCH 31, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF THAT
DATE.
<TABLE>
Statement of Assets and Liabilities
March 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investment in corresponding Portfolio, at value
2,296,605 shares (cost - $22,807,641) - Note A ............ $ 22,460,793
Dividends receivable from Portfolio ....................... 138,216
Receivable from John Hancock Advisers, Inc. -
Note B .................................................. 40,491
Deferred organization expenses - Note A ................... 16,956
Miscellaneous assets ...................................... 8,829
-----------
Total Assets ............................. 22,665,285
-----------------------------------------------------------
LIABILITIES:
Dividend payable ............................................ 48,360
Payable for Trust shares repurchased ........................ 142,111
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................... 365
Accounts payable and accrued expenses ....................... 19,033
-----------
Total Liabilities ........................ 209,869
-----------------------------------------------------------
NET ASSETS:
Capital paid-in ............................................. 23,573,736
Accumulated net realized loss on investments ................ (787,809)
Net unrealized depreciation of investments .................. (346,848)
Undistributed net investment income ......................... 16,337
-----------
Net Assets ............................... $ 22,455,416
===========================================================
NET ASSET VALUE PER SHARE:
(Based on net assets and shares of beneficial interest
outstanding - unlimited number of shares authorized
with $0.01 per share par value, respectively)
Class A - $12,949,755/1,323,395 ............................. $ 9.79
==============================================================================
Class B - $9,505,661/971,446 ................................ $ 9.79
==============================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($9.79 x 103.63%) ................................. $ 10.15
==============================================================================
<FN>
* 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.
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
STATEMENT OF OPERATIONS
Year ended March 31, 1995
<S> <C>
INVESTMENT INCOME:
Net Investment income from corresponding Portfolio -
Note A ................................................... $1,481,341
----------
Expenses:
Distribution/service fee - Note B
Class A .............................................. 44,214
Class B .............................................. 98,958
Transfer agent fee ....................................... 41,914
Investment management fee - Note B ....................... 28,682
Registration and filing fees ............................. 24,999
Custodian fee ............................................ 18,512
Printing ................................................. 11,488
Organization expense - Note A ............................ 9,704
Auditing fee ............................................. 8,000
Trustees' fees ........................................... 7,837
Miscellaneous ............................................ 3,004
Legal fees ............................................... 2,500
Advisory board fee ....................................... 257
----------
Total Expenses ........................... 300,069
Less expenses reimbursable
by John Hancock Advisers,
Inc. - Note B ............................ (156,818)
-----------------------------------------------------------
Net Expenses ............................. 143,251
-----------------------------------------------------------
Net Investment Income .................... 1,338,090
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FROM CORRESPONDING PORTFOLIO NOTE A
Net realized loss on investments sold ...................... (520,533)
Change in net unrealized appreciation/depreciation
of investments ........................................... 111,364
-----------
Net Realized and Unrealized
Loss on Investments from
Corresponding Portfolio .................. (409,169)
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................ $ 928,921
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 82
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust (Fund)
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1995 1994
------------ -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................................................................ $ 1,338,090 $ 1,792,759
Net realized loss on investments sold from corresponding Portfolio ........................... (520,533) (210,326)
Change in net unrealized appreciation/depreciation of investments
from corresponding Portfolio ............................................................... 111,364 (453,740)
------------ ------------
Net Increase in Net Assets Resulting from Operations ....................................... 928,921 1,128,693
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.4823 and $0.4103 per share, respectively) .................................... (858,632) (1,297,489)
Class B - ($0.4220 and $0.3446 per share, respectively) .................................... (466,720) (495,495)
------------ ------------
Total Distributions to Shareholders ....................................................... (1,325,352) (1,792,984)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET* .......................................................... (13,084,232) (10,425,306)
------------ ------------
NET ASSETS:
Beginning of period .......................................................................... 35,936,079 47,025,676
------------ ------------
End of period (including undistributed net investment income of $16,337 and $3,599,
respectively) .............................................................................. $ 22,455,416 $ 35,936,079
============ ============
<FN>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------
1995 1994
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ................................................... 402,099 $ 3,948,024 2,545,099 $ 25,521,547
Shares issued to shareholders in reinvestment
of distributions ............................................ 53,589 522,853 91,861 920,605
---------- ------------ ------------ ------------
455,688 4,470,877 2,636,960 26,442,152
Less shares repurchased ....................................... (1,590,669) (15,565,847) (3,489,129) (34,952,816)
---------- ------------ ------------ ------------
Net decrease .................................................. (1,134,981) $(11,094,970) (852,169) $ (8,510,664)
========== ============ ============ ============
CLASS B
Shares sold ................................................... 244,622 $ 2,378,527 604,333 $ 6,069,244
Shares issued to shareholders in reinvestment
of distributions ............................................ 30,065 293,677 32,414 324,874
---------- ------------ ------------ ------------
274,687 2,672,204 636,747 6,394,118
Less shares repurchased ....................................... (478,404) (4,661,466) (829,920) (8,308,760)
---------- ------------ ------------ ------------
Net decrease .................................................. (203,717) $ (1,989,262) (193,173) $ (1,914,642)
========== ============ ============ ============
</TABLE>
THE 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 PAID TO
SHAREHOLDERS, AND ANY INCREASE OR DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE
FUND. THE FOOTNOTE ILLUSTRATES THE NUMBER OF FUND SHARES SOLD, REINVESTED AND
REDEEMED DURING THE LAST TWO PERIODS, ALONG WITH THE CORRESPONDING DOLLAR
VALUES.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 83
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust (Fund)
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows. The per share amounts and ratios which are shown reflect income and
expenses including the Fund's proportionate share of its corresponding
Portfolio's income and expenses. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
- --------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
DECEMBER 31, 1991
YEAR ENDED MARCH 31, (COMMENCEMENT
----------------------------- OF OPERATIONS)
1995(d) 1994 1993 TO MARCH 31, 1992
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ............................. $ 9.89 $ 10.05 $ 10.03 $ 10.00 (b)
Net Investment Income ............................................ 0.49 0.41 0.58 0.17
Net Realized and Unrealized Gain (Loss) on Investments ........... (0.11) (0.16) 0.02 0.03
------- ------- ------- -------
Total from Investment Operations .............................. 0.38 0.25 0.60 0.20
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ............................. (0.48) (0.41) (0.58) (0.17)
------- ------- ------- -------
Net Asset Value, End of Period ................................... $ 9.79 $ 9.89 $ 10.05 $ 10.03
======= ======= ======= =======
Total Investment Return at Net Asset Value ....................... 3.98% 2.51% 6.08% 1.96%(c)
Total Adjusted Investment Return at Net Asset Value (a) .......... 3.43% 2.27% 5.53% 0.84%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ........................ $12,950 $24,310 $33,273 $13,775
Ratio of Expenses to Average Net Assets** ........................ 0.80% 0.75% 0.50% 0.50%*
Ratio of Adjusted Expenses to Average Net Assets(a) .............. 1.35% 0.99% 1.05% 1.62%*
Ratio of Net Investment Income to Average Net Assets** ........... 4.91% 4.09% 5.47% 6.47%*
Ratio of Adjusted Net Investment Income to Average Net Assets(a).. 4.36% 3.85% 4.92% 5.35%*
**Expense Reimbursement per share ................................ $ 0.05 $ 0.002 $ 0.06 $ 0.11
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIODS INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DIVIDENDS, AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE
FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 84
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust (Fund)
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
DECEMBER 31, 1991
YEAR ENDED MARCH 31, (COMMENCEMENT
----------------------------- OF OPERATIONS)
1995(d) 1994 1993 TO MARCH 31, 1992
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ............................ $ 9.89 $ 10.05 $ 10.03 $ 10.00 (b)
Net Investment Income ........................................... 0.43 0.34 0.51 0.15
Net Realized and Unrealized Gain (Loss) on Investments .......... (0.11) (0.16) 0.02 0.03
------ -------- ------- -------
Total from Investment Operations ............................. 0.32 0.18 0.53 0.18
Less Distributions:
Dividends from Net Investment Income ............................ (0.42) (0.34) (0.51) (0.15)
------ -------- ------- -------
Net Asset Value, End of Period .................................. $ 9.79 $ 9.89 $ 10.05 $ 10.03
====== ======== ======= =======
Total Investment Return at Net Asset Value ...................... 3.33% 1.85% 5.40% 1.80%(c)
Total Adjusted Investment Return at Net Asset Value ............. 2.78% 1.61% 4.85% 0.68%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ....................... $9,506 $ 11,626 $13,753 $ 1,630
Ratio of Expenses to Average Net Assets** ....................... 1.45% 1.40% 1.15% 1.15%*
Ratio of Adjusted Expenses to Average Net Assets(a) ............. 2.00% 1.64% 1.70% 2.27%*
Ratio of Net Investment Income to Average Net Assets** .......... 4.26% 3.44% 4.82% 5.85%*
Ratio of Adjusted Net Investment Income to Average Net Assets(a) 3.71% 3.20% 4.27% 4.73%*
** Expense Reimbursement per share ............................... $ 0.05 $ 0.002 $ 0.06 $ 0.11
<FN>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 85
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Fund (Portfolio)
THE STATEMENT OF ASSETS AND LIABILITIES IS THE PORTFOLIO'S BALANCE SHEET AND
SHOWS THE VALUE OF WHAT THE PORTFOLIO OWNS, IS DUE AND OWES ON MARCH 31, 1995.
YOU'LL ALSO FIND THE NET ASSET VALUE AS OF THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
United States government and agencies obligations
(cost - $22,027,578) ........................... $ 21,864,201
Joint repurchase agreement (cost - $457,000) ..... 457,000
Corporate savings account ........................ 139
------------
22,321,340
Receivable for investments sold .................... 84,585
Interest receivable ................................ 186,357
Receivable from John Hancock Advisers, Inc. -
Note B............................................ 15,733
------------
Total Assets .................... 22,608,015
------------------------------------------------
LIABILITIES:
Dividend payable ................................... 138,216
Payable to John Hancock Advisers, Inc. - Note B .... 17,191
Accounts payable and accrued expenses .............. 3,138
------------
Total Liabilities ............... 158,545
------------------------------------------------
NET ASSETS:
Capital paid-in .................................... 23,587,934
Accumulated net realized loss on investments ....... (991,632)
Net unrealized depreciation of investments ......... (163,377)
Undistributed net investment income ................ 16,545
------------
Net Assets ...................... $ 22,449,470
================================================
NET ASSET VALUE PER SHARE:
(Based on 2,296,605 shares of beneficial interest
outstanding - unlimited number of shares authorized
with $0.01 per share par value) ................... $ 9.78
==================================================================
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE PORTFOLIO'S INVESTMENT INCOME EARNED
AND EXPENSES INCURRED IN OPERATING THE PORTFOLIO. IT ALSO SHOWS NET GAINS
(LOSSES) FOR THE PERIOD STATED.
<TABLE>
STATEMENT OF OPERATIONS
Year ended March 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest .................................................................... $ 1,645,274
-----------
Expenses:
Investment management fee - Note B ........................................ 114,779
Custodian fee ............................................................. 55,332
Organization expense - Note A ............................................. 9,208
Auditing fee .............................................................. 7,999
Printing .................................................................. 4,266
Trustees' fees ............................................................ 4,087
Legal fees ................................................................ 2,500
Miscellaneous ............................................................. 1,695
Transfer agent fee ........................................................ 518
Advisory board fee ........................................................ 257
-----------
Total Expenses ........................................... 200,641
Less expenses reimbursable
by John Hancock Advisers,
Inc. - Note B ............................................ (57,170)
------------------------------------------------------------------------
Net Expenses ............................................. 143,471
------------------------------------------------------------------------
Net Investment Income .................................... 1,501,803
------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments sold ....................................... (720,821)
Change in net unrealized appreciation/depreciation
of investments ............................................................ 286,551
-----------
Net Realized and Unrealized
Loss on Investments ...................................... (434,270)
------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................................ $ 1,067,533
========================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 86
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Fund (Portfolio)
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1995 1994
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ................................................................... $ 1,501,803 $ 1,973,460
Net realized loss on investments sold ................................................... (720,821) (143,030)
Change in net unrealized appreciation/depreciation of investments ....................... 286,551 (492,360)
------------ ------------
Net Increase in Net Assets Resulting from Operations .................................. 1,067,533 1,338,070
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ($0.4250 and $0.4357 per share, respectively) ...... (1,481,230) (1,997,044)
Distributions in excess of net investment income ........................................ -- (4,028)
------------ ------------
Total Distributions to Shareholders ................................................. (1,481,230) (2,001,072)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET* ..................................................... (12,957,678) (10,389,677)
------------ ------------
NET ASSETS:
Beginning of period ..................................................................... 35,820,845 46,873,524
------------ ------------
End of Period (including undistributed net investment income of $16,545 and distributions
in excess of net investment income of ($4,028), respectively) ......................... $ 22,449,470 $ 35,820,845
============ ============
<FN>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------
1995 1994
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold .............................................. 633,453 $ 6,228,642 3,000,982 $ 30,100,940
Less shares repurchased................................... (1,959,462) (19,186,320) (4,043,184) (40,490,617)
---------- ------------ ---------- ------------
Net decrease ............................................. (1,326,009) $(12,957,678) (1,042,202) $(10,389,677)
========== ============ ========== ============
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE PORTFOLIO'S
NET ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE
REFLECTS EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, DISTRIBUTIONS
PAID TO SHAREHOLDERS, AND ANY INCREASE OR DECREASE IN MONEY SHAREHOLDERS
INVESTED IN THE PORTFOLIO. THE FOOTNOTE ILLUSTRATES THE NUMBER OF PORTFOLIO
SHARES SOLD AND REDEEMED DURING THE LAST TWO PERIODS, ALONG WITH THE
CORRESPONDING DOLLAR VALUES.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 87
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Fund (Portfolio)
<TABLE>
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
DECEMBER 31, 1991
(COMMENCEMENT
YEAR ENDED MARCH 31, OF OPERATIONS)
---------------------------------
1995(b) 1994 1993 TO MARCH 31, 1992
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ....................... $22,449 $35,821 $46,874 $15,348
Ratio of Expenses to Average Net Assets ** ...................... 0.50% 0.50% 0.50% 0.50%*
Ratio of Adjusted Expenses to Average Net Assets (a) ............ 0.70% 0.59% 0.62% 0.85%*
Ratio of Net Investment Income to Average Net Assets ............ 5.19% 4.29% 5.53% 6.85%*
Ratio of Adjusted Net Investment Income to Average Net Assets (a) 4.99% 4.20% 5.41% 6.50%*
Portfolio Turnover Rate ......................................... 341% 244% 186% 1%
<FN>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Portfolio.
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS
PRESENTED IN THE FINANCIAL STATEMENTS BY EXPRESSING THEM IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 88
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Fund (Portfolio)
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
THE ADJUSTABLE U.S. GOVERNMENT FUND ON MARCH 31, 1995. IT'S DIVIDED INTO TWO
MAIN CATEGORIES: U.S. GOVERNMENT AND AGENCIES OBLIGATIONS AND SHORT-TERM
INVESTMENTS. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S "CASH" POSITION,
ARE LISTED LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
March 31, 1995
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- -------- -----
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES OBLIGATIONS
FEDERAL HOME LOAN MORTGAGE CORP,
Adjustable Rate Mortgage
Due 10-01-18 ...................... 5.375% $ 155 $ 153,973
Due 05-01-17 ...................... 5.627 12 11,687
Due 02-01-19 ...................... 5.839 32 31,692
Due 10-01-18 ...................... 5.856 283 280,708
Due 05-01-17 ...................... 6.375 54 53,674
Due 08-01-17 ...................... 6.750 22 21,769
Due 01-01-04 ...................... 7.240 505 508,195
Due 10-01-19 ...................... 7.334 2,389 2,419,886
Due 03-01-19 ...................... 7.457 2,057 2,088,314
Due 10-01-18 ...................... 7.750 60 59,435
Due 12-01-01 ...................... 9.500 32 32,958
Due 01-01-01 ...................... 11.000 16 16,982
Due 01-01-11 ...................... 13.000 47 52,582
FEDERAL NATIONAL MORTGAGE ASSOCIATION,
ADJUSTABLE RATE MORTGAGE
Due 12-01-17 ...................... 5.250 243 243,350
Due 05-01-16 ...................... 5.625 7 6,432
Due 07-01-18 ...................... 5.875 228 228,454
Due 04-01-19 ...................... 5.958 80 80,424
Due 05-01-17 ...................... 6.000 54 54,153
Due 04-01-16 ...................... 6.110 554* 552,650
Due 03-01-14 ...................... 6.439 35* 35,463
Due 06-01-14 ...................... 6.439 25 24,466
Due 06-01-19 ...................... 6.887 1,004 1,014,704
Due 06-01-18 ...................... 6.892 1,856* 1,917,288
Due 12-01-21 ...................... 6.912 1,523* 1,539,172
Due 04-01-18 ...................... 6.946 2,722* 2,762,962
Due 07-01-16 ...................... 7.000 47* 47,360
Due 01-01-28 ...................... 7.100 889* 898,134
Due 11-01-13 ...................... 7.120 106 107,109
Due 10-01-19 ...................... 7.160 1,659* 1,676,729
Due 09-01-18 ...................... 7.196 2,199 2,229,739
Due 03-01-27 ...................... 7.350 41 40,154
Due 09-01-18 ...................... 7.623 1,535 1,566,354
Due 05-01-17 ...................... 8.451 259 273,047
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 89
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- -------- --------- ------
<S> <C> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
Government National Mortgage Association,
30 Yr SF Pass thru Ctf 07-15-01................................................... 9.000% $ 17 $ 17,314
30 Yr SF Pass thru Ctf 07-20-04................................................... 10.000 167* 173,340
30 Yr SF Pass thru Ctf 06-15-16................................................... 10.500 47 50,828
30 Yr SF Pass thru Ctf 05-15-15................................................... 11.500 8* 9,363
30 Yr SF Pass thru Ctf 07-15-05 to 05-15-14....................................... 12.000 312 350,375
30 Yr SF Pass thru Ctf 07-15-15................................................... 12.500 67 75,335
GNMA II Due 03-20-18.............................................................. 11.500 144 157,647
-----------
TOTAL U.S. GOVERNMENT AND
AGENCIES OBLIGATIONS
(Cost $22,027,578) (97.39%) 21,864,201
------ -----------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (2.04%)
Investment in a joint repurchase
agreement transaction with
U.B.S. Securities Inc. -
Dated 03-31-95, Due 04-03-95
(secured by U.S. Treasury Bonds,
6.25% Due 08-15-23 and by
U.S. Treasury Notes, 5.250%
thru 9.125% due 07-31-98
thru 05-15-01) - Note A........................................................... 6.125 457 457,000
-----------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%................................................................ 139
-----------
TOTAL SHORT-TERM INVESTMENTS (2.04%) 457,139
------ -----------
TOTAL INVESTMENTS (99.43%) $22,321,340
====== ===========
<FN>
* Securities, other than short-term investment, newly added to the portfolio
during the year ended March 31, 1995.
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Portfolio.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 90
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust and Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Bond Fund, (the "Trust") is a diversified, open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of five series portfolios: John Hancock Adjustable U.S.
Government Trust (the "Fund"), John Hancock Investment Quality Bond Trust, John
Hancock Government Securities Trust, John Hancock U.S. Government Trust, and
John Hancock Intermediate Government Trust. The Trustees may authorize the
creation of additional Funds from time to time to satisfy various investment
objectives. Effective December 22, 1994, (see Note B), the Trust and Funds
changed names by replacing the word Transamerica with John Hancock.
The Trustees have authorized the issuance of two classes of the Fund,
designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemption, dividends, and liquidation, except that certain expenses,
subject to the approval of the Trustees, may be applied differently to each
class of shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution/service expenses under the terms of a distribution
plan, have exclusive voting rights regarding such distribution plan. Class A
Shares are subject to an initial sales charge of up to 3.50% and a 12b-1
distribution plan. Class B Shares are subject to a contingent deferred sales
charge and a separate 12b-1 distribution plan. The Portfolio has only one class
of shares.
The Fund invests substantially all of its assets in John Hancock Adjustable
U.S. Government Fund (the "Portfolio"), which has the same investment objective
as the Fund. Because the Fund invests substantially all of its assets in shares
of the Portfolio, certain Portfolio information, including the Fund's share of
Portfolio expenses, is included in these notes and elsewhere in the financial
statements. At March 31, 1995, the Fund owned 100% of the shares of the
Portfolio. The following is a summary of significant accounting policies of the
Fund and the Portfolio.
VALUATION OF INVESTMENTS As of March 31, 1995, the Fund's only investment is
shares of the Portfolio which are valued daily at the net asset value of the
Portfolio at the close of trading on the New York Stock Exchange. Securities
held by the 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 by the Portfolio at
amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Portfolio, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc., a wholly-owned subsidiary of The Berkeley Financial Group, may participate
in a joint repurchase agreement transaction. Aggregate cash balances are
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Portfolio's
custodian bank receives delivery of the underlying securities for the joint
account on the Portfolio'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.
DISCOUNT ON SECURITIES The Portfolio accretes discount from par value on
securities from either the date of issue or the date of purchase over the life
of the security, as required by the Internal Revenue Code.
FEDERAL INCOME TAXES The Fund and Portfolio's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to regulated
investment companies and to distribute all of their respective taxable income,
including any net realized gain on investments, to their respective
shareholders. Therefore, no federal income tax provision is required for either
the Fund or Portfolio. For federal income tax purposes at December 31, 1994, the
Fund has approximately $562,000 of capital loss carryforwards available, to the
extent provided by regulations, to offset future net realized capital gains. If
such carryforwards are used by the Fund, no capital gain distrib-
16
<PAGE> 91
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust and Fund
utions will be made. The Fund's capital loss carryforwards expire as follows:
2001 - $107,000 and 2002 - $455,000. The Portfolio has approximately $906,000 of
capital loss carryforwards available which expire as follows: 2000 -- $56,000,
2001 -- $23,000 and 2002 - $827,000. The Fund's and the Portfolio's tax year end
are December 31.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
held by the Portfolio is recorded on the accrual basis.
The Fund and Portfolio record all distributions to shareholders from net
investment income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund, if any,
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for the effect of expenses
that may be applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund and/or Portfolio. Expenses which are not identifiable to a
specific Fund and/or Portfolio are 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 and/or Portfolio.
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 of the Fund based on the appropriate net assets of the respective
classes. Distribution/service fees if any, are calculated daily at the class
level of the Fund based on the appropriate net assets of each class of the Fund
and the specific expense rate(s) applicable to each class of the Fund.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund and Portfolio have been capitalized and are being charged to operations
ratably over a period not to exceed five years which began with the commencement
of operations of the Fund and Portfolio.
RECLASSIFICATIONS Certain reclassifications have been made to 1994 amounts to
permit comparisons to the 1995 presentations.
NOTE B --
MANAGEMENT FEE,
ADMINISTRATIVE SERVICES AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
On December 22, 1994, John Hancock Advisers, Inc. (the "Adviser"), a wholly
owned subsidiary of The Berkeley Financial Group, became the investment adviser
for the Fund and Portfolio with approval of the Trustees and shareholders of the
Fund. The former investment manager was Transamerica Fund Management Company
("TFMC").
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, to
0.50% of the Fund's average daily net asset value. Of this amount 0.40%
represents investment advisory fees paid by the Portfolio and indirectly by the
Fund through its investment in the Portfolio. The remaining 0.10% is for
administrative fees paid directly by the Fund. This fee structure is consistent
with the former agreement with TFMC. For the period ended March 31, 1995, the
Fund's fee earned by the Adviser and TFMC amounted to $7,171 and $21,511,
respectively, resulting in a total fee of $28,682. The Portfolio's advisory fee
earned by the Adviser and TFMC amounted to $28,694 and $86,085, respectively,
resulting in a total fee of $114,779.
The Adviser and TFMC, for their respective periods, provided administrative
services to the Fund and Portfolio pursuant to an administrative service
agreement through January 16, 1995 on which day the agreement was terminated.
In the event normal operating expenses of the Fund and Portfolio, exclusive
of certain expenses prescribed by state law, are in excess of the most
restrictive state limit where the Fund and Portfolio is registered to sell
shares of beneficial interest, the fee payable to the Adviser will be reduced to
the extent of such excess and the Adviser will make additional arrangements
necessary to eliminate any remaining excess expenses. The current limits are
2.5% of the first $30,000,000 of the Fund's and Portfolio's average daily net
asset value, 2.0% of the next $70,000,000 and 1.5% of the remaining average
daily net asset value.
17
<PAGE> 92
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust and Fund
The Adviser and TFMC, for their respective periods, voluntarily agreed to
limit the Fund's and Portfolio's expenses further to the extent required to
prevent the aggregate expenses of the Fund and Portfolio from exceeding on an
annual basis 0.75% and 1.40% of the average daily net asset value of Class A and
Class B shares, respectively. Accordingly, for the period ended March 31, 1995,
the reduction to the Adviser's and TFMC's fees, collectively with any amounts
not borne by the Fund by virtue of the most restrictive state expense limit,
amounted to $39,206 and $117,612, respectively. The reduction to the Adviser's
and TFMC's fees amounted to $14,294 and $42,876, respectively for the Portfolio.
The voluntary waivers may be discontinued at any time.
On December 22, 1994 John Hancock Funds, Inc. ("JH Funds"), a wholly-owned
subsidiary of the Adviser, became the principal underwriter of the Fund. Prior
to this date, Transamerica Fund Distributors, Inc. ("TFD") served as the
principal underwriter and distributor of the Fund. For the period ended March
31, 1995, JH Funds and TFD received net sales charges of $24,555 with regard to
sales of Class A shares of the Fund. Out of this amount, $4,090 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, and $20,465 was paid as sales commissions to unrelated broker-dealers.
Class B shares of the Fund which are redeemed within six years of purchase
will be subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 3.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds, formerly TFD, and are used in whole or in
part to defray its expenses related to providing distribution related services
to the Fund in connection with the sale of Class B shares. For the period ended
March 31, 1995, contingent deferred sales charges amounted to $54,072.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments for distribution
and service expenses which in total will not exceed on an annual basis 0.25% of
the Fund's average daily net assets attributable to Class A shares and 1.00% of
the Fund's average daily net assets attributable to Class B shares, to reimburse
for its distribution/service costs. Up to a maximum of 0.25% of such payments
may be service fees as defined by the amended Rules of Fair Practice of the
National Association of Securities Dealers which became effective July 7, 1993.
Under the amended Rules of Fair Practice, curtailment of a portion of the Fund's
12b-1 payments could occur under certain circumstances. This fee structure and
plan is similar to the former arrangement with TFD.
The Board of Trustees approved a shareholder servicing agreement between the
Fund and John Hancock Investor Services Corporation ("Investor Services"), a
wholly-owned subsidiary of The Berkeley Financial Group, for the period between
December 22, 1994 and May 12, 1995, inclusive under which Investor Services
processed telephone transactions on behalf of the Fund. As of May 15, 1995, the
Fund and the Portfolio entered into a full service transfer agent agreement with
Investor Services. Prior to this date, The Shareholder Services Group was the
transfer agent. The Fund and the Portfolio will pay Investor Services a fee
based on transaction volume and number of shareholder accounts.
A partner with Baker & Botts was an officer of the Trust, until December 22,
1994. During the period ended March 31, 1995, the Fund and the Portfolio paid
legal fees of $3,878 to Baker & Botts.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser and its
affiliates as well as Trustee of the Fund and Portfolio. The compensation of
unaffiliated Trustees is borne by the Fund and Portfolio. Effective with the
fees paid for 1995, the unaffiliated Trustees may elect to defer their receipt
of this compensation under the John Hancock Group of Funds Deferred Compensation
Plan. The Fund and Portfolio will make investments into other John Hancock
Funds, as applicable, to cover its liability with regard to the deferred
compensation. Investments to cover the deferred compensation
18
<PAGE> 93
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust and Fund
liability will be recorded on the books as other assets. The deferred
compensation liability will be marked to market on a periodic basis and income
earned by the investment will be recorded on the books.
The Fund and Portfolio have an independent advisory board composed of certain
members of the former Transamerica Board of Trustees who provide advice to the
current Trustees in order to facilitate a smooth management transition for which
the Fund and Portfolio pay a fee to the advisory board and its counsel.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities by the Portfolio, other than
short-term obligations, during the period ended March 31, 1995 aggregated
$93,321,962 and $103,295,732, respectively.
The cost of investments owned by the Portfolio at March 31, 1995 for Federal
income tax purposes was $22,484,578. Gross unrealized appreciation and
depreciation of investments aggregated $72,906, and $236,283, respectively,
resulting in net unrealized depreciation of $163,377.
19
<PAGE> 94
John Hancock Funds - Adjustable U.S. Government Trust and Fund
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
To the Trustees and Shareholders of
John Hancock Bond Fund --
John Hancock Adjustable U.S. Government Fund and
John Hancock Adjustable U.S. Government Trust
We have audited the accompanying statements of assets and liabilities
of John Hancock Adjustable U.S. Government Fund (the Portfolio) and John Hancock
Adjustable U.S. Government Trust (the Fund) (formerly the Transamerica
Adjustable U.S. Government Fund and Transamerica U.S. Government Trust,
respectively), two of the six portfolios constituting John Hancock Bond Fund
(formerly Transamerica Bond Fund), (the Trust), including the schedule of
investments of the Portfolio, as of March 31, 1995, and the related statements
of operations for the year then ended and the statements of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the three years in the period then ended and for the
period from December 31, 1991 (commencement of operations) to March 31, 1992.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures for the Portfolio included confirmation of securities
owned by the Portfolio as of March 31, 1995, by correspondence with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the respective financial
positions of the John Hancock Adjustable U.S. Government Fund and the John
Hancock Adjustable U.S. Government Trust, at March 31, 1995, the results of
their operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended and their financial highlights
for each of the three years in the period then ended and for the period from
December 31, 1991 to March 31, 1992, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
May 15, 1995
20
