As filed with the Securities and Exchange Commission on August 14, 1997.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_X__/
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Pre-Effective Amendment No. __ /____/
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Post-Effective Amendment No. ___ /____/
(Check appropriate box or boxes)
JOHN HANCOCK BOND TRUST
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(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
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(Address of principal executive office) Zip Code
(617) 375-1700
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(Registrant's Telephone Number, including Area Code)
Susan S. Newton, Esq.
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199
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(Name and address of agent for service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effectiveness of the registration statement.
No filing fee is required because an indefinite number of shares has previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. This Registration Statement relates to shares previously registered
on Form N-1A (File Nos. 2-66906 and 811-3006).
It is proposed that this filing will become effective on September 13, 1997
pursuant to Rule 488 under the Securities Act of 1933.
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JOHN HANCOCK BOND TRUST
CROSS-REFERENCE SHEET
Items Required by Form N-14
<TABLE>
<CAPTION>
PART A
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Item No. Item Caption Prospectus Caption
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<S> <C> <C>
1. Beginning of Registration COVER PAGE OF REGISTRATION
Statement and Outside Front STATEMENT; FRONT COVER PAGE OF
Cover Page of Prospectus PROSPECTUS
2. Beginning and Outside Back TABLE OF CONTENTS
Cover Page of Prospectus
3. Synopsis and Risk Factors SUMMARY; INVESTMENT RISKS
4. Information About the INTRODUCTION; SUMMARY; INVESTMENT
Transaction RISKS; INFORMATION CONCERNING THE
MEETING; PROPOSAL TO APPROVE THE
AGREEMENT AND PLAN OF REORGANIZATION;
CAPITALIZATION
5. Information About the PROSPECTUS COVER PAGE; INTRODUCTION;
Registrant SUMMARY; ADDITIONAL INFORMATION
ABOUT THE FUNDS' BUSINESSES
6. Information About the PROSPECTUS COVER PAGE; INTRODUCTION;
Company Being Acquired SUMMARY; ADDITIONAL INFORMATION
ABOUT THE FUNDS' BUSINESSES
7. Voting Information PROSPECTUS COVER PAGE; NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS;
SUMMARY; INFORMATION CONCERNING
THE MEETING; VOTING RIGHTS AND
REQUIRED VOTE
8. Interest of Certain Persons EXPERTS
and Experts
9. Additional Information NOT APPLICABLE
Required for Reoffering by
Persons Deemed to be
Underwriters
<PAGE>
PART B
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Caption in Statement of
Item No. Item Caption Additional Information
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10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. Additional Information ADDITIONAL INFORMATION ABOUT
About the Registrant INTERMEDIATE MATURITY GOVERNMENT
FUND
13. Additional Information About ADDITIONAL INFORMATION ABOUT
the Company Being Acquired LIMITED-TERM GOVERNMENT FUND
14. Financial Statements ADDITIONAL INFORMATION ABOUT INTERMEDIATE
MATURITY GOVERNMENT FUND; ADDITIONAL
INFORMATION ABOUT LIMITED-TERM GOVERNMENT
FUND; PRO FORMA COMBINED FINANCIAL STATEMENTS
PART C
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Item No. Item Caption
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15. Indemnification INDEMNIFICATION
16. Exhibits EXHIBITS
17. Undertakings UNDERTAKINGS
</TABLE>
2
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October 1, 1997
Dear Fellow Shareholder:
I am writing to ask for your vote on an important matter that will affect your
investment in the John Hancock Limited-Term Government Fund.
You may be aware that in addition to your Fund, John Hancock Funds offers a
similar U.S. government income fund called the John Hancock Intermediate
Maturity Government Fund. The Intermediate Maturity Government Fund seeks
current income consistent with preservation of capital and maintenance of
liquidity, by investing primarily in bonds issued by the United States
government and its agencies.
After careful consideration, your Fund's Trustees have unanimously agreed that
merging your Fund into the John Hancock Intermediate Maturity Government Fund
will offer you a similar investment objective and strategy with potentially
lower operating expenses. This proposed merger is detailed in the enclosed proxy
statement and summarized in the questions and answers on the following page. I
suggest you read both thoroughly prior to voting.
Your Vote Makes a Difference!
No matter what the size of your investment may be, your vote is critical. I urge
you to review the enclosed materials and to complete, sign and return the
enclosed proxy ballot to us immediately. Your prompt response will help avoid
the need for additional mailings at your Fund's expense. For your convenience,
we have provided a postage-paid envelope.
If you have any questions or need additional information, please contact your
investment professional or call your Customer Service Representative at
1-800-225-5291, Monday through Friday, between 8:00 A.M. and 8:00 P.M. Eastern
Time. I thank you for your prompt vote on this matter.
Sincerely,
Edward J. Boudreau, Jr.
Chairman and CEO
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Q: What are the benefits of merging the Limited-Term Government Fund into the
Intermediate Maturity Government Fund?
A: Offering two similar U.S. government income funds has made it harder for both
your Fund and the Intermediate Maturity Government Fund to raise assets and
reduce expenses. Your Trustees firmly believe this merger will allow you to
continue investing for current income with preservation of capital at a lower
expense.
The Intermediate Maturity Government Fund's larger assets after the merger are
expected to allow for lower operating expenses than your Fund has now. Following
the merger, annual fees are projected to be 1.10% for Class A shareholders, down
from 1.33%, and 1.85% for Class B shareholders, down from 2.03%. These projected
lower expenses should keep more of your money invested, which often helps to
bolster an investment's total return over time.
Q: How does the Intermediate Maturity Government Fund's strategy compare with
that of the Limited-Term Government Fund?
A: The Intermediate Maturity Government Fund seeks a high level of current
income consistent with preservation of capital and maintenance of liquidity.
Your Fund seeks current income and security of principal. Both funds focus on
bonds issued by the U.S. government its agencies with maturities of up to 10
years. Your Fund is slightly more conservative, however, investing in short- to
medium-term securities, while the Intermediate Maturity Government Fund's
emphasis is on medium-term maturities ranging from three to ten years. Although
longer-term bonds can be more sensitive to interest rate changes than
shorter-term bonds, investing in medium-term bonds allows the Intermediate
Maturity Government Fund to seek higher current income than your Fund, while
still focusing on principal security.
Q: How has the Intermediate Maturity Government Fund performed?
A: Although past performance does not necessarily guarantee future results, the
Intermediate Maturity Government Fund has been a steady performer since its
inception on December 31, 1991. The Fund's Class A shares have posted average
annual total returns of 4.15% over the past year, 4.69% over the past three
years, 3.96% over the past five years and 4.50% since inception at public
offering price as of June 30, 1997. For the same time periods, the Fund's Class
B shares have posted average annual total returns of 3.64%, 4.47%, 3.91% and
4.39% respectively.* To review the Intermediate Maturity Government Fund in more
detail, please refer to the John Hancock Income Funds prospectus and the
Intermediate Maturity Government Fund's most recent annual and semiannual
reports, all of which are enclosed.
Q: How do I vote?
A: Most shareholders typically vote by completing, signing and returning the
enclosed proxy card using the postage-paid envelope provided. If you prefer to
vote in person, you are cordially invited to attend a meeting of shareholders of
your Fund, which will be held at 9:00 A.M. on November 12, 1997 at our 101
Huntington Avenue headquarters in Boston, Massachusetts. If you vote now, you
will help avoid further solicitations at your Fund's expense.
Q: How will the merger happen?
A: If the merger is approved, your Limited-Term Government Fund shares will be
converted to Intermediate Maturity Government Fund shares, using the Funds' net
asset value share prices excluding sales charges, at the close of trading on
December 5, 1997. This conversion will not affect the total dollar value of your
investment.
<PAGE>
Q: Will the merger have tax consequences?
A: Although taxable dividends and capital gains will be paid prior to the
merger, the merger itself is a non-taxable event and does not need to be
reported on your 1997 tax return.
*Performance figures assume all distributions are reinvested and reflect a
maximum sales charge on Class A shares of 3% and the applicable contingent
deferred sales charge on Class B shares. The CDSC declines annually between
years 1-4 according to the following schedule: 3, 3, 2, 1% . No sales charge
will be assessed after the sixth year. The return and principal value of any
mutual fund investment will fluctuate, so that shares, when redeemed, may be
worth more or less than their original cost.
<PAGE>
JOHN HANCOCK LIMITED-TERM GOVERNMENT FUND
101 Huntington Avenue
Boston, MA 02199
NOTICE OF MEETING OF SHAREHOLDERS
SCHEDULED FOR NOVEMBER 12, 1997
This is the formal agenda for your fund's shareholder meeting. It tells you what
matters will be voted on and the time and place of the meeting, in case you want
to attend in person.
To the shareholders of John Hancock Limited-Term Government Fund:
A meeting of shareholders of your fund will be held at 101 Huntington Avenue,
Boston, Massachusetts on Wednesday, November 12, 1997 at 9:00 a.m., Eastern
Time, to consider the following:
1. A proposal to approve an Agreement and Plan of Reorganization between
your fund and John Hancock Intermediate Maturity Government Fund.
Under this Agreement your fund would transfer all of its assets to
Intermediate Maturity Government Fund in exchange for shares of
Intermediate Maturity Government Fund. These shares would be
distributed proportionately to you and the other shareholders of your
fund. Intermediate Maturity Government Fund would also assume your
fund's liabilities. Your board of trustees recommends that you vote
FOR this proposal.
2. Any other business that may properly come before the meeting,
Shareholders of record as of the close of business on September 17, 1997 are
entitled to vote at the meeting and any related follow-up meetings.
Whether or not you expect to attend the meeting, please complete and return the
enclosed proxy card. If shareholders do not return their proxies in sufficient
numbers, your fund will incur the cost of extra solicitations, which is
indirectly borne by you and other shareholders.
By order of the board of trustees,
Susan S. Newton
Secretary
October 1, 1997
550PX 9/97
1
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PROXY STATEMENT OF
JOHN HANCOCK LIMITED-TERM GOVERNMENT FUND
PROSPECTUS FOR CLASS A AND CLASS B SHARES OF
JOHN HANCOCK INTERMEDIATE MATURITY GOVERNMENT FUND
(a series of John Hancock Bond Trust)
This proxy statement and prospectus contains the information you should know
before voting on the proposed reorganization of your fund into John Hancock
Intermediate Maturity Government Fund. Please read it carefully and retain it
for future reference.
How the Reorganization Will Work
o Your fund will transfer all of its assets to Intermediate Maturity
Government Fund. Intermediate Maturity Government Fund will assume
your fund's liabilities.
o Intermediate Maturity Government Fund will issue to your fund Class A
shares in an amount equal to the value of your fund's Class A shares.
These shares will be distributed to your fund's Class A shareholders in
proportion to their holdings on the reorganization date.
o Intermediate Maturity Government Fund will issue to your fund Class B
shares in an amount equal to the value of your fund's Class B shares.
These shares will be distributed to your fund's Class B shareholders in
proportion to their holdings on the reorganization date.
o The reorganization will be tax-free.
o Your fund will be liquidated and you will become a shareholder of
Intermediate Maturity Government Fund.
Shares of Intermediate Maturity Government Fund are not deposits or obligations
of, or guaranteed or endorsed by, any bank or other depository institution.
These shares are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.
Shares of Intermediate Maturity Government Fund have not been approved or
disapproved by the Securities and Exchange Commission. The Securities and
Exchange Commission has not passed upon the accuracy or adequacy of this
2
<PAGE>
prospectus. Any representation to the contrary is a criminal offense.
Why Your Fund's Trustees are Recommending the Reorganization
The trustees of your fund believe that reorganizing your fund into a fund with
similar investment policies would enable the shareholders of your fund to
benefit from increased diversification, and from the portfolio manager's greater
flexibility in choosing investments. Therefore, the trustees recommend that your
fund's shareholders vote FOR the reorganization.
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Investment Objectives
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Limited-Term Intermediate Maturity
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Investment Current income and security High level of current income
objective. of principal. consistent with preservation
of capital and maintenance
of liquidity.
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Where to Get More Information
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Prospectus of your fund and In the same envelope as this proxy
Intermediate Maturity Government Fund statement and prospectus.
dated 10/1/97. Incorporated by reference into this
proxy statement and prospectus.
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Intermediate Maturity Government
Fund's annual report to shareholders.
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Your fund's annual report to On file with the Securities and
shareholders. Exchange Commission ("SEC") or
available at no charge by calling us
at 1-800-225-5291. Incorporated by
reference into this proxy statement
and prospectus.
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A statement of additional
information dated 10/1/97. It
contains additional information about
your fund and Intermediate Maturity
Government Fund.
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To ask questions about this proxy Call our toll-free telephone
statement and prospectus. number: 1-800-225-5291
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The date of this proxy statement and prospectus is October 1, 1997.
3
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TABLE OF CONTENTS
Page
INTRODUCTION 5
SUMMARY 5
INVESTMENT RISKS 17
PROPOSAL TO APPROVE AGREEMENT
AND PLAN OF REORGANIZATION 18
CAPITALIZATION 25
ADDITIONAL INFORMATION ABOUT
THE FUNDS' BUSINESSES 26
BOARDS' EVALUATION AND RECOMMENDATION 27
VOTING RIGHTS AND REQUIRED VOTE 27
INFORMATION CONCERNING THE MEETING 28
OWNERSHIP OF SHARES OF THE FUNDS 30
EXPERTS 31
AVAILABLE INFORMATION 31
EXHIBITS
A - Agreement and Plan of Reorganization between John Hancock
Limited-Term Government Fund and John Hancock Intermediate Maturity
Government Fund (attached to this document).
4
<PAGE>
INTRODUCTION
This proxy statement and prospectus is being used by the board of trustees of
your fund to solicit proxies to be voted at a special meeting of shareholders of
your fund. This meeting will be held at 101 Huntington Avenue, Boston,
Massachusetts on Wednesday, November 12, 1997 at 9:00 a.m., Boston time. The
purpose of the meeting is to consider a proposal to approve an Agreement and
Plan of Reorganization providing for the reorganization of your fund into John
Hancock Intermediate Maturity Government Fund. This proxy statement and
prospectus is being mailed to your fund's shareholders on or about October 1,
1997.
Who is Eligible to Vote?
Shareholders of record on September 17, 1997 are entitled to attend and vote at
the meeting or any adjourned meeting. Each share is entitled to one vote. Shares
represented by properly executed proxies, unless revoked before or at the
meeting, will be voted according to shareholders' instructions. If you sign a
proxy, but do not fill in a vote, your shares will be voted to approve the
Agreement and Plan of Reorganization. If any other business comes before the
meeting, your shares will be voted at the discretion of the persons named as
proxies.
SUMMARY
The following is a summary of more complete information appearing later in this
proxy statement. You should read the entire proxy statement, Exhibit A and the
enclosed documents carefully because they contain details that are not in the
summary.
5
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Comparison of Limited-Term Government Fund to Intermediate Maturity Government
Fund
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Limited-Term Intermediate Maturity
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Business: Your fund is a diversified Intermediate Maturity Fund
open- end investment company is a diversified series of
organized as a John Hancock Bond Trust. The
Massachusetts business trust is an open-end
trust. investment company organized
as a Massachusetts business
trust.
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Net assets as of $168.7 million. $29.2 million.
May 31, 1997:
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Investment The Fund's investment The Fund's investment
adviser and adviser is John Hancock adviser is John Hancock
portfolio Advisers, Inc. Barry H. Advisers, Inc. Roger C.
managers: Evans, CFA, has been leader Hamilton has been leader of
of the fund's portfolio the fund's portfolio
management team since management team since
January 1995. He is a January 1992 (with the
senior vice president of the fund's previous adviser).
adviser. Mr. Evans has been He is a vice president of
in the investment business the adviser. Mr. Hamilton
since joining the adviser in joined the adviser in
1986. December 1994 and has been
in the investment business
since 1980.
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6
<PAGE>
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INVESTMENT OBJECTIVES AND POLICIES
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Limited-Term Intermediate Maturity
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Investment Current income and security High level of current
objective: of principal. The objective income, consistent with
cannot be changed without preservation of capital and
shareholder approval. maintenance of liquidity.
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Primary At least 80% of assets in At least 80% of assets in
investments: securities that are issued, securities that are issued,
or guaranteed as to or guaranteed as to
principal and interest, by principal and interest, by
the U.S. Government, its the U.S. Government, its
agencies or agencies or
instrumentalities, Treasury instrumentalities. Treasury
securities and mortgage - securities and mortgage -
backed securities such as backed securities such as
Ginnie Maes and Fannie Maes Ginnie Maes and Fannie Maes
are included. Your fund's are included. The fund's
securities may be of any weighted average maturity
maturity, although a will typically be between
substantial portion three and ten years.
typically will have
maturities of ten years or
less.
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Investments in For liquidity and For liquidity and
short-term debt flexibility, your fund may flexibility, Intermediate
securities: place up to 20% of total Maturity Fund may place up
assets in investment-grade to 35% of assets in
short-term securities. In investment-grade
abnormal market conditions, short-term securities. In
it may invest more than 20% abnormal market conditions,
of assets in these it may invest more than 35%
securities as a defensive of assets in these
tactic. securities as a defensive
tactic.
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7
<PAGE>
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Limited-Term Intermediate Maturity
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Pay-in-kind, Your fund may not invest in Intermediate Maturity Fund
delayed and zero pay-in-kind, delayed or zero may invest without
coupon debt coupon debt securities. limitation in pay-in-kind,
securities: delayed and zero coupon debt
securities.
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Illiquid Both funds may invest up to 15% of net assets in illiquid
securities: securities. This limitation does not apply to liquid Rule
144A securities, but does apply to other restricted
securities.
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Asset-backed Your fund may not invest in Intermediate Maturity Fund
securities: asset-backed securities. may invest up to 35% of
assets in asset-backed
securities.
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Mortgage-backed Both funds may purchase mortgage-backed securities. There
securities: are no limits on the amount of fund assets that may be
invested in these securities.
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Rights and Both funds may invest up to 5% of assets in rights and
Warrants: warrants.
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Structured Your fund may not invest in Intermediate Maturity Fund
Securities: structured securities. may invest in structured
securities which include
indexed and/or leveraged
mortgage-backed and other
debt securities. There is no
limit on the amount of fund
assets that may be invested
in these securities.
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Swaps, Caps, Your fund may not invest in Intermediate Maturity Fund
Floors and swaps, caps, floors or may invest in swaps, caps,
Collars: collars. floors and collars which are
over-the-counter contracts
that involve the right or
obligation to receive or make
payments based on two
different income streams.
There is no limit on the
amount of fund assets that
may be invested in these
securities.
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8
<PAGE>
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Limited-Term Intermediate Maturity
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Borrowing and Both funds may temporarily borrow from banks or through
reverse reverse repurchase agreements for extraordinary or
repurchase emergency purposes. These borrowings may not exceed 33.3%
agreements: of assets.
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Covered Mortgage Your fund may not engage in Intermediate Maturity Fund
dollar roll covered mortgage dollar roll may engage in covered
transactions: transactions. mortgage dollar roll
transaction. There is no
limit on the amount of fund
assets that may engage in
these transactions.
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Repurchase Both funds may invest without limitation in repurchase
agreements: agreements.
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Securities Your fund may not lend Intermediate Maturity Fund
lending: securities may lend portfolio
securities representing up
to 33.3% of total assets.
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Short-term Neither fund is subject to any limitations on short- term
trading: trading.
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When-issued and Your fund may purchase Intermediate Maturity Fund
forward when-issued securities but may purchase when-issued
commitment not forward contracts. securities and purchase or
transactions: sell securities in forward
commitment transactions.
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9
<PAGE>
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CLASSES OF SHARES
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Limited-Term Intermediate Maturity
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Class A shares: The Class A shares of both funds have the same
characteristics and fee structure except for Class A 12b-1
fees.
o Class A shares are offered with front-end sales charges
ranging from 2% to 3% of each fund's offering price,
depending on the amount invested.
o There is no front-end sales charge for investments of
$1 million or more, but there is a contingent deferred
sales charge ranging from 0.25% to 1.00% on shares sold
within one year of purchase.
o Investors can combine multiple purchases of Class A
shares to take advantage of breakpoints in the sales
charge schedule.
o Sales charges are waived for the categories of
investors listed in the funds' prospectus.
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o Class A shares are o Class A shares are
subject to a 12b-1 subject to a 12b-1
distribution fee equal distribution fee equal
to 0.30% annually of to 0.25% annually of
average net assets. average net assets.
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Class B shares: The Class B shares of both funds have the same
characteristics and fee structure.
o Class B shares are offered without a front-end sales
charge, but are subject to a contingent deferred sales
charge (CDSC) if sold within four years after purchase.
The CDSC ranges from 1.00% to 3.00% depending on how
long they are held. No CDSC is imposed on shares held
more than four years.
o CDSCs are in certain circumstances as stated in the
funds' prospectus.
o Class B shares are subject to 12b-1 distribution and
service fees equal to 1.00% annually of average net
assets.
o Class B shares automatically convert to Class A shares
after five years.
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10
<PAGE>
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BUYING, SELLING AND EXCHANGING SHARES
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Both Limited-Term and Intermediate Maturity
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Buying shares: The procedures for buying shares of both funds are
identical. Investors may buy shares at their public
offering price through a financial representative or the
funds' transfer agent, John Hancock Signature Services,
Inc. After September 17, 1997, investors will not be
allowed to open new accounts in your fund but can add to
existing accounts.
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Minimum initial The funds have the same initial investment minimums, which
investments: are $1,000 for non-retirement accounts and $250 for
retirement accounts and group investments.
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Exchanging shares: Shareholders of both funds may exchange their shares
at net asset value with no sales charge for shares of the
same class of any other John Hancock fund.
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Selling shares: Shareholders of both funds may sell their shares by
submitting a proper written or telephone request to John
Hancock Signature Services, Inc.
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Net asset value: All purchases, exchanges and sales of each fund's shares are
made at a price based on the next determined net asset value
per share (NAV) of the fund. Both funds' NAVs are determined
at the close of regular trading on the New York Stock
Exchange, which is normally 4:00 p.m. Eastern Time.
- ------------------- ------------------------------------------------------------
The Funds' Expenses
Shareholders of both funds pay various expenses, either directly or indirectly.
The first two expense tables appearing below show the expenses for the twelve
month period ended May 31, 1997, adjusted to reflect any changes. (The expenses
for Limited-Term Government Fund were annualized using the actual expenses for
the eleven months ended May 31, 1997.) Future expenses may be greater or less.
The examples contained in each expense table show what you would pay if you
invested $1,000 over the various time periods indicated. Each example assumes
that you reinvested all dividends and that the average annual return was 5%. The
examples are for comparison purposes only and are not a representation of either
fund's actual expenses or returns, either past or future.
11
<PAGE>
LIMITED-TERM GOVERNMENT FUND
Shareholder transaction expenses Class A Class B
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(1) 3.00%
Redemption fee(2) none none
Exchange fee none none
Annual fund operating expenses
(as a % of average net assets) Class A Class B
Management fee 0.60% 0.60%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.43% 0.43%
Total fund operating expenses 1.33% 2.03%
Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares 43 71 101 185
Class B shares
Assuming redemption 51 84 109 192
at end of period
Assuming no redemption 21 64 109 192
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may pay more than
the equivalent of the maximum permitted front-end sales charge.
12
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INTERMEDIATE MATURITY GOVERNMENT FUND
Shareholder transaction expenses Class A Class B
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(1) 3.00%
Redemption fee(2) none none
Exchange fee none none
Annual fund operating expenses
(as a % of average net assets) Class A Class B
Management fee 0.40% 0.40%
12b-1 fee(3) 0.25% 1.00%
Other expenses 0.70% 0.70%
Total fund operating expenses 1.35% 2.10%
Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares 43 71 102 188
Class B shares
Assuming redemption 51 86 113 197
at end of period
Assuming no redemption 21 66 113 197
Pro Forma Expense Table
The next expense table shows the hypothetical ("pro forma") expenses of
Intermediate Maturity Government Fund assuming that a reorganization with your
fund occurred on May 31, 1997. The expenses shown in the table for Intermediate
Maturity Government Fund are based on fees and expenses incurred during the
twelve months ended May 31, 1997. The expenses shown in the table for
Limited-Term Government Fund are based on annualized fees and expenses incurred
during the eleven months ended May 31, 1997. Intermediate Maturity Government
Fund's actual expenses after the reorganization may be greater or less than
those shown. The examples contained in each pro forma expense table show what
you would pay on a $1,000 investment if the reorganization had occurred on May
31, 1997. Each example assumes that you reinvested all dividends and that the
average annual return was 5%. The pro forma examples are for comparison purposes
only and are not a representation of Intermediate Maturity Government Fund's
actual expenses or returns, either past or future.
13
<PAGE>
INTERMEDIATE MATURITY GOVERNMENT FUND (PRO FORMA)
Shareholder transaction expenses Class A Class B
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(1) 3.00%
Redemption fee(2) none none
Exchange fee none none
Annual fund operating expenses
(as a % of average net assets) Class A Class B
Management fee 0.40% 0.40%
12b-1 fee(3) 0.25% 1.00%
Other expenses 0.45% 0.45%
Total fund operating expenses 1.10% 1.85%
Pro Forma Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares 41 64 89 160
Class B shares
Assuming redemption 49 78 100 170
at end of period
Assuming no redemption 19 58 100 170
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may pay more than
the equivalent of the maximum permitted front-end sales charge.
The Reorganization
o The reorganization is scheduled to occur at 5:00 p.m., Eastern time, on
December 5, 1997, but may occur on any later date before June 1, 1998.
Your fund will transfer all of its assets to Intermediate Maturity
Government Fund. Intermediate Maturity Government Fund will assume your
fund's liabilities. The net asset value of both funds will be computed
as of 5:00 p.m., Eastern time, on the reorganization date.
o Intermediate Maturity Government Fund will issue Class A shares in an
amount equal to the aggregate net asset value of your fund's Class A
shares. These shares will immediately be distributed to your fund's
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<PAGE>
Class A shareholders in proportion to their holdings on the
reorganization date. As a result, Class A shareholders of your fund
will end up as Class A shareholders of Intermediate Maturity Government
Fund.
o Intermediate Maturity Government Fund will issue Class B shares in an
amount equal to the aggregate net asset value of your fund's Class B
shares. These shares will immediately be distributed to your fund's
Class B shareholders in proportion to their holdings on the
reorganization date. As a result, Class B shareholders of your fund
will end up as Class B shareholders of Intermediate Maturity Government
Fund.
o After the reorganization is over, your fund will be terminated.
o The reorganization will be tax-free and will not take place unless both
funds receive a satisfactory opinion concerning the tax consequences of
the reorganization from Hale and Dorr LLP, counsel to the funds.
Other Consequences of the Reorganization. Each fund pays monthly advisory fees
equal to the following annual percentage of average daily net assets:
- --------------------------- --------------------------- ------------------------
Fund Asset Limited-Term Intermediate
Breakpoints Government Maturity
- --------------------------- --------------------------- ------------------------
First $250 million 0.60% 0.40%
- --------------------------- --------------------------- ------------------------
Next $250 million 0.55% 0.40%
- --------------------------- --------------------------- ------------------------
Over $500 million 0.50% 0.40%
- --------------------------- --------------------------- ------------------------
Thus, at all asset levels, the advisory fee rates paid by Intermediate Maturity
Government Fund are lower than the rates paid by your fund.
In addition, Intermediate Maturity Government Fund's current annual Class A and
Class B expense ratios (equal to 1.35% and 2.10%, respectively, of average net
assets) are only slightly higher than your fund's current expense ratios (equal
to 1.33% 2.03%, respectively, of average net assets). If the reorganization had
occurred on May 31, 1997, Intermediate Maturity Government Fund's pro forma
Class A and Class B expense ratios (equal to 1.10% and 1.85%, respectively, of
average net assets) would have been lower than your fund's current expense
ratios.
15
<PAGE>
The following diagram shows how the reorganization would be carried out.
Limited-Term Limited-Term Intermediate Maturity
Government Fund Government Government Fund
transfers assets & Fund's receives assets &
liabilities to assets and liabilities of Limited-
Intermediate Maturity liabilities Term Government
Government Fund Fund
Class A Class B Class B Class A
shareholders shareholders shareholders shareholders
Your fund receives Intermediate Maturity
Government Fund Class B shares and
distributes them to your fund's Class B shareholders
Your fund receives Intermediate Maturity
Government Fund Class A shares and
distributes them to your fund's Class A shareholders
[This diagram represents a graphical illustration of the transaction]
16
<PAGE>
INVESTMENT RISKS
The funds are exposed to various risks that could cause shareholders to lose
money on their investments in the funds. The following table indicates that the
risks affecting each fund are similar:
- ------------------- ------------------------------ -----------------------------
Limited-Term Intermediate Maturity
- ------------------- ------------------------------------------------------------
Risks of debt The value of the funds' portfolios will change in response
securities to movements of the bond market. As with any fund that
invests primarily in debt securities a rise in interest
rates typically causes the value of debt securities and
hence the value of the fund to fall. A fall in interest
rates typically causes the value of debt securities to rise.
The debt securities held by the funds are subject to the
risk that the issuer of a security will default or otherwise
fail to meet its obligations.
- ------------------- ------------------------------------------------------------
Risks of The funds' investments in restricted and illiquid
restricted and securities may be difficult or impossible to sell at a
illiquid desirable time or a fair price. Restricted and illiquid
securities securities also present a greater risk of inaccurate
valuation.
- ------------------- ------------------------------------------------------------
Risks of Unleveraged derivative instruments involve the risk that a
unleveraged rise in interest rates will cause the value of the
derivative instrument to fall. A fall in interest rates will
instruments typically cause the value of these instruments to rise.
including These instrument are also subject to the risk that the
asset-back and issuer will default or otherwise fail to meet its
mortgage-back obligations. In addition, mortgage-backed securities are
securities and subject to the risk that the life of the security will be
rights and extended beyond its expected prepayment time. This
warrants typically occurs during periods of rising interest rates
and often reduces the security's value. During periods of
falling interest rates unanticipated prepayments may occur
which also reduces the security's value. With respect to
rights and warrants, their value will change in response to
market movements.
- ------------------- ------------------------------------------------------------
17
<PAGE>
- ------------------- ------------------------------ -----------------------------
Limited-Term Intermediate Maturity
- ------------------- ------------------------------ -----------------------------
Risks of Limited-Term Government Fund Most derivative instruments
derivative may not utilize swaps, caps, involve leverage, which
instruments, floors and collars or invest increases market risks.
including swaps, in structured securities and Leverage magnifies gains and
caps, floors and is not subject to the risks losses on derivatives
collars and associated with those relative to changes in the
structured transactions. value of underlying assets.
securities If a derivative is used for
hedging purposes, changes in
the value of the derivative
may not match those of the
hedged asset. Over the
counter derivatives may be
illiquid or hard to value
accurately. In addition, the
other party may default on
its obligations. If markets
for underlying assets do not
move in the right direction,
a fund's performance may be
worse than if it had not used
derivatives.
- ------------------- ------------------------------ -----------------------------
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
Description of Reorganization
The shareholders of your fund are being asked to approve an Agreement and Plan
of Reorganization, a copy of which is attached as Exhibit A. The Agreement
provides for a reorganization on the following terms:
o The reorganization is scheduled to occur at 5:00 p.m., Eastern time,
on December 5, 1997, but may occur on any later date before June 1,
1998. Your fund will transfer all of its assets to Intermediate
18
<PAGE>
Maturity Government Fund and Intermediate Maturity Government Fund
will assume all of your fund's liabilities. This will result in the
addition of your fund's assets to Intermediate Maturity Government
Fund's portfolio. The net asset value of both funds will be computed
as of 5:00 p.m., Eastern time, on the reorganization date.
o Intermediate Maturity Government Fund will issue to your fund Class A
shares in an amount equal to the aggregate net asset value of your
fund's Class A shares. As part of the liquidation of your fund,
these shares will immediately be distributed to Class A shareholders
of record of your fund in proportion to their holdings on the
reorganization date. As a result, Class A shareholders of your fund
will end up as Class A shareholders of Intermediate Maturity
Government Fund.
o Intermediate Maturity Government Fund will issue to your fund Class B
shares in an amount equal to the aggregate net asset value of your
fund's Class B shares. As part of the liquidation of your fund,
these shares will immediately be distributed to Class B shareholders
of record of your fund in proportion to their holdings on the
reorganization date. As a result, Class B shareholders of your fund
will end up as Class B shareholders of Intermediate Maturity
Government Fund.
o After the reorganization is over, the existence of your fund will be
terminated.
Reasons for the Proposed Reorganization
The board of trustees of your fund believes that the proposed reorganization
will be advantageous to the shareholders of your fund for several reasons. The
board of trustees considered the following matters, among others, in approving
the proposal.
First, that it is not advantageous to operate and market your fund separately
from Intermediate Maturity Government Fund because their investment objectives
and policies are substantially similar. By being offered simultaneously, each
fund hinders the other fund's potential for asset growth.
Second, that shareholders may be better served by a fund offering greater
diversification. To the extent that combining the funds' assets into a single
portfolio creates a larger asset base, Intermediate Maturity Government Fund's
investment portfolio can achieve greater diversification after the
19
<PAGE>
reorganization than is currently possible for either fund. Greater
diversification is expected to benefit the shareholders of both funds because it
may reduce the negative effect that the adverse performance of any one security
may have on the performance of the entire portfolio.
Third, that the Intermediate Maturity Government Fund shares received in the
reorganization will provide your fund's shareholders with substantially the same
investment advantages as they currently have at a comparable level of risk. The
board of trustees also considered the performance history of each fund.
Fourth, that a combined fund offers economies of scale that are expected to lead
to better control over expenses than is possible for your fund. Both funds incur
substantial costs for accounting, legal, transfer agency services, insurance,
and custodial and administrative services. The trustees expect that the
reorganization will result in a decrease in the expenses currently borne by
Limited-Term Government Fund shareholders.
Fifth, that Intermediate Maturity Government Fund affords its portfolio managers
greater flexibility to pursue a broader range of investment opportunities than
does your fund. While past performances cannot predict future results,
Intermediate Maturity Government Fund has performed better than your fund since
Intermediate Maturity Government Fund adopted more flexible investment policies
on September 22, 1995.
The board of trustees of Intermediate Maturity Government Fund considered that
the reorganization presents an excellent opportunity for Intermediate Maturity
Government Fund to acquire investment assets without the obligation to pay
commissions or other transaction costs that are normally associated with the
purchase of securities. This opportunity provides an economic benefit to
Intermediate Maturity Government Fund and its shareholders.
The boards of trustees of both funds also considered that the adviser and the
funds' distributor, John Hancock Funds, Inc., will also benefit from the
reorganization. For example, the adviser might realize time savings from a
consolidated portfolio management effort and from the need to prepare fewer
reports and regulatory filings as well as prospectus disclosure for one fund
instead of two. The trustees believe, however, that these savings will not
amount to a significant economic benefit.
Comparative Fees and Expense Ratios. As discussed above in the Summary, at all
asset levels the advisory fee rates paid by Intermediate Maturity Government
Fund are lower than the advisory rates paid by your fund.
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<PAGE>
Intermediate Maturity Government Fund's current annual Class A and Class B
expense ratios (equal to 1.35% and 2.10%, respectively, of average net assets)
are only slightly higher than your fund's current expense ratios (equal to 1.33%
and 2.03%, respectively, of average net assets). If the reorganization had
occurred on May 31, 1997, Intermediate Maturity Government Fund's pro forma
Class A and Class B expense ratios (equal to 1.10% and 1.85%, respectively, of
average net assets) would have been lower than your fund's current expense
ratios.
Comparative Performance. The trustees also took into consideration the relative
performance of your fund and Intermediate Maturity Government Fund. As shown in
the table below, your fund has had better performance for some periods while
Intermediate Maturity Government Fund has had better performance for the most
recent periods.
- -------------------------------- ------------------------ ----------------------
Average Annual
Total Return Intermediate Maturity Limited-Term
(without including sales
charges)
----------- ------------ ----------- ----------
Class A Class B Class A Class B
- -------------------------------- ----------- ------------ ----------- ----------
1 year ended 5/31/97 7.50 6.76 5.74 5.13
- -------------------------------- ----------- ------------ ----------- ----------
3 years ended 5/31/97 5.49 4.80 5.27 4.57
- -------------------------------- ----------- ------------ ----------- ----------
5 years ended 5/31/97 4.58 3.89 5.05 3.66(a)
- -------------------------------- ----------- ------------ ----------- ----------
10 years ended 5/31/97 4.96(b) 4.28(b) 6.51
- -------------------------------- ----------- ------------ ----------- ----------
(a) Since commencement of operations on January 3, 1994
(b) Since commencement of operations on December 31, 1991
Although the Intermediate Maturity Government Fund's 5 and 10 year total returns
trail those of your fund, these figures reflect Intermediate Maturity Government
Fund operating under more restrictive investment policies. Since adopting more
flexible investment policies on September 22, 1995, Intermediate Maturity has
outperformed your fund. In fact, the gap between Intermediate Maturity
Government Fund's performance and your fund's performance has widened over the
last three years. For the three year period, the difference between Intermediate
Maturity Government Fund's total return and your fund's total return is 0.22%
for Class A shares. For the one year period, that difference has risen to 1.76%
for Class A shares.
21
<PAGE>
Unreimbursed Distribution and Shareholder Service Expenses
The boards of trustees of your fund and Intermediate Maturity Government Fund
have determined that, if the reorganization occurs, unreimbursed distribution
and shareholder service expenses incurred under your fund's Rule 12b-1 Plans
will be reimbursable expenses under Intermediate Maturity Government Fund's Rule
12b-1 Plans. The maximum amount payable annually under Intermediate Maturity
Government Fund's Rule 12b-1 Plans (0.25% and 1.00% of average daily net assets
attributable to Class A shares and Class B shares, respectively) will not
increase.
The following table shows the actual and pro forma unreimbursed distribution and
shareholder service expenses of both classes of your fund and Intermediate
Maturity Government Fund. The table shows both the dollar amount of these
expenses and the percentage of each class' average net assets that they
represent.
- ------------------------------- ------------------------- ----------------------
Unreimbursed
Distribution and Shareholder Intermediate Maturity
Service Expenses Limited-Term
------------ ------------ ------------ ---------
Class A Class B Class A Class B
- ------------------------------- ------------ ------------ ------------ ---------
Actual expenses as of May 31, $255,361 $185,390 $58,172 $403,120
1997 0.16% 1.77% 0.26% 6.25%
- ------------------------------- ------------------------- ------------ ---------
Pro forma combined expenses as $313,533 $588,510
of May 31, 1997 0.17% 3.47%
- ------------------------------- ------------------------- ------------ ---------
Thus, if the reorganization had taken place on May 31, 1997, the pro forma
combined unreimbursed expenses of Intermediate Maturity Government Fund's Class
A and Class B shares would have been higher than if no reorganization had
occurred. Intermediate Maturity Government Fund's assumption of your fund's
unreimbursed Rule 12b-1 expenses will have no immediate effect upon the payments
made under Intermediate Maturity Government Fund's Rule 12b-1 Plans. These
payments will continue to be 0.25% and 1.00% of average daily net assets
attributable to Class A and Class B shares, respectively.
John Hancock Funds, Inc. hopes to recover unreimbursed distribution and
shareholder service expenses for Class B shares over an extended period of time.
However, if Intermediate Maturity Government Fund's board terminates either
class' Rule 12b-1 Plan, that class will not be obligated to reimburse these
distribution and shareholder service expenses Accordingly, until they are paid
or accrued, unreimbursed distribution and shareholder service expenses do not
22
<PAGE>
and will not appear as an expense or liability in the financial statements of
either fund. In addition, unreimbursed expenses are not reflected in a fund's
net asset value or the formula for calculating Rule 12b-1 payments. The staff of
the SEC has not approved or disapproved the treatment of the unreimbursed
distribution and shareholder service expenses described in this proxy statement
Tax Status of the Reorganization
The reorganization will be tax-free for federal income tax purposes and will not
take place unless both funds receive a satisfactory opinion from Hale and Dorr
LLP, counsel to the funds, substantially to the effect that:
o The reorganization described above will be a "reorganization" within
the meaning of Section 368(a)(1)(D) of the Internal Revenue Code of
1986 (the "Code"), and each fund will be "a party to a reorganization"
within the meaning of Section 368 of the Code;
o No gain or loss will be recognized by your fund upon (1) the transfer
of all of its assets to Intermediate Maturity Government Fund as
described above or (2) the distribution by your fund of Intermediate
Maturity Government Fund shares to your fund's shareholders;
o No gain or loss will be recognized by Intermediate Maturity Government
Fund upon the receipt of your fund's assets solely in exchange for the
issuance of Intermediate Maturity Government Fund shares and the
assumption of all of your fund's liabilities by Intermediate Maturity
Government Fund;
o The basis of the assets of your fund acquired by Intermediate Maturity
Government Fund will be the same as the basis of those assets in the
hands of your fund immediately before the transfer;
o The tax holding period of the assets of your fund in the hands of
Intermediate Maturity Government Fund will include your fund's tax
holding period for those assets;
o The shareholders of your fund will not recognize gain or loss upon the
exchange of all their shares of your fund solely for Intermediate
Maturity Government Fund shares as part of the reorganization;
o The basis of Intermediate Maturity Government Fund shares received by
your fund's shareholders in the reorganization will be the same as the
basis of the shares of your fund surrendered in exchange; and
23
<PAGE>
o The tax holding period of the Intermediate Maturity Government Fund
shares received by you will include the tax holding period of the
shares of your fund surrendered in the exchange, provided that the
shares of your fund were held as capital assets on the reorganization
date.
Additional Terms of Agreement and Plan of Reorganization
Surrender of Share Certificates. Shareholders of your fund whose shares are
represented by one or more share certificates should, before the reorganization
date, either surrender their certificates to your fund or deliver to your fund a
lost certificate affidavit, in the form and accompanied by the surety bonds that
your fund may require (collectively, an "Affidavit"). On the reorganization
date, all certificates that have not been surrendered will be canceled, will no
longer evidence ownership of your fund's shares and will evidence ownership of
Intermediate Maturity Government Fund shares. Shareholders may not redeem or
transfer Intermediate Maturity Government Fund shares received in the
reorganization until they have surrendered their Limited-Term Government Fund
share certificates or delivered an Affidavit. Intermediate Maturity Government
Fund will not issue share certificates in the reorganization.
Conditions to Closing the Reorganization. The obligation of your fund to
consummate the reorganization is subject to the satisfaction of certain
conditions, including the performance by Intermediate Maturity Government Fund
of all its obligations under the Agreement and the receipt of all consents,
orders and permits necessary to consummate the reorganization (see Agreement,
paragraph 6).
The obligation of Intermediate Maturity Government Fund to consummate the
reorganization is subject to the satisfaction of certain conditions, including
your fund's performance of all of its obligations under the Agreement, the
receipt of certain documents and financial statements from your fund and the
receipt of all consents, orders and permits necessary to consummate the
reorganization (see Agreement, paragraph 7).
The obligations of both funds are subject to the approval of the Agreement by
the necessary vote of the outstanding shares of your fund, in accordance with
the provisions of your fund's declaration of trust and by-laws. The funds'
obligations are also subject to the receipt of a favorable opinion of Hale and
Dorr LLP as to the federal income tax consequences of the reorganization. (see
Agreement, paragraph 8).
24
<PAGE>
Termination of Agreement. The board of trustees of either your fund or
Intermediate Maturity Government Fund may terminate the Agreement (even if the
shareholders of your fund have already approved it) at any time before the
reorganization date, if that board believes that proceeding with the
reorganization would no longer be advisable.
Expenses of the Reorganization. Intermediate Maturity Government Fund and your
fund will each be responsible for its own expenses incurred in connection with
entering into and carrying out the provisions of the Agreement, whether or not
the reorganization occurs. These expenses are estimated to be approximately
$180,024 in total.
CAPITALIZATION
The following table sets forth the capitalization of each fund as of May 31,
1997, and the pro forma combined capitalization of both funds as if the
reorganization had occurred on such date. The table reflects pro forma exchange
ratios of approximately 0.892160 Class A Intermediate Maturity Government Fund
shares being issued for each Class A share of your fund and approximately
0.892160 Class B Intermediate Maturity Government Fund shares being issued for
each Class B share of your fund. If the reorganization is consummated, the
actual exchange ratios on the reorganization date may vary from the exchange
ratios indicated due to changes in the market value of the portfolio securities
of both Intermediate Maturity Government Fund and your fund between May 31, 1997
and the reorganization date, changes in the amount of undistributed net
investment income and net realized capital gains of Intermediate Maturity
Government Fund and your fund during that period resulting from income and
distributions, and changes in the accrued liabilities of Intermediate Maturity
Government Fund and your fund during the same period.
MAY 31, 1997
Limited-Term Intermediate Pro Forma1
Maturity
Net Assets $168,710,394 $29,205,883 $197,916,277
Net Asset Value Per Share
Class A $ 8.44 $ 9.46 $ 9.46
Class B $ 8.44 $ 9.46 $ 9.46
Shares Outstanding
Class A 18,745,924 2,405,279 19,129,646
Class B 1,243,215 681,925 1,791,072
25
<PAGE>
It is impossible to predict how many Class A shares and Class B shares of
Intermediate Maturity Government Fund will actually be received and distributed
by your fund on the reorganization date. The table should not be relied upon to
determine the amount of Intermediate Maturity Government Fund shares that will
actually be received and distributed.
ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES
The following table shows where in the funds' combined prospectus you can find
additional information about the business of each fund.
- ---------------------------- ---------------------------------------------------
Type of Information Headings in Combined Prospectus
-------------------------- ------------------------
Limited-Term Government Intermediate
Maturity
- ---------------------------- ---------------------------------------------------
Organization Fund Details: Business Structure: How the Funds
and operation are Organized
- ---------------------------- ---------------------------------------------------
Investment objective and Goal and Strategy, Portfolio Securities, Risk
policies Factors; Fund Details: Business Structure:
Portfolio Trades, Investment Goals,
Diversification; More About Risk
- ---------------------------- ---------------------------------------------------
Portfolio Portfolio Management
management
- ---------------------------- ---------------------------------------------------
Investment adviser and Overview: The Management Firm; Fund Details:
distributor Business Structure: How the Funds are Organized,
Sales Compensation
- ---------------------------- ---------------------------------------------------
Expenses Investor Expenses
- ---------------------------- ---------------------------------------------------
Custodian and transfer Fund Details: Business Structure: How the Funds
agent are Organized
- ---------------------------- ---------------------------------------------------
Shares of beneficial Your Account: Choosing a Share Class
interest
- ---------------------------- ---------------------------------------------------
Purchase of shares Your Account: Choosing a Share Class, Sales Charge
Reductions and Waivers, Opening an Account, Buying
Shares; Transaction
Policies; Additional Investor Services
- ---------------------------- ---------------------------------------------------
Redemption Your Account: Selling Shares; Transaction
or sale of shares Policies; Additional Investor Services,
Systematic Withdrawal Plan
- ---------------------------- ---------------------------------------------------
Dividends, Dividends and Account Policies
distributions and taxes
- ---------------------------- ---------------------------------------------------
26
<PAGE>
BOARDS' EVALUATION AND RECOMMENDATION
For the reasons described above, the board of trustees of your fund, including
the trustees who are not "interested persons" of either fund or the adviser
("independent trustees"), approved the reorganization. In particular, the
trustees determined that the reorganization was in the best interests of your
fund and that the interests of your fund's shareholders would not be diluted as
a result of the reorganization. Similarly, the board of trustees of Intermediate
Maturity Government Fund, including the independent trustees, approved the
reorganization. They also determined that the reorganization was in the best
interests of Intermediate Maturity Government Fund and that the interests of
Intermediate Maturity Government Fund's shareholders would not be diluted as a
result of the reorganization.
- --------------------------------------------------------------------------------
The trustees of your fund recommend that the shareholders of your fund vote for
the proposal to approve the agreement and plan of reorganization.
- --------------------------------------------------------------------------------
VOTING RIGHTS AND REQUIRED VOTE
Each share of your fund is entitled to one vote. Approval of the above proposal
requires the affirmative vote of a majority of the shares of your fund
outstanding and entitled to vote. For this purpose, a majority of the
outstanding shares of your fund means the vote of the lesser of
(1) 67% or more of the shares present at the meeting, if the holders of more
than 50% of the shares of the fund are present or represented by proxy, or
(2) more than 50% of the outstanding shares of the fund.
Shares of your fund represented in person or by proxy, including shares which
abstain or do not vote with respect to the proposal, will be counted for
purposes of determining whether there is a quorum at the meeting. Accordingly,
an abstention from voting has the same effect as a vote against the proposal.
However, if a broker or nominee holding shares in "street name" indicates on the
proxy card that it does not have discretionary authority to vote on the
proposal, those shares will not be considered present and entitled to vote on
the proposal. Thus, a "broker non-vote" has no effect on the voting in
determining whether the proposal has been adopted in accordance with clause (1)
above, if more than 50% of the outstanding shares (excluding the "broker
27
<PAGE>
non-votes") are present or represented. However, for purposes of determining
whether the proposal has been adopted in accordance with clause (2) above, a
"broker non-vote" has the same effect as a vote against the proposal because
shares represented by a "broker non-vote" are considered to be outstanding
shares.
If the required approval of shareholders is not obtained, your fund will
continue to engage in business as a separate mutual fund and the board of
trustees will consider what further action may be appropriate.
INFORMATION CONCERNING THE MEETING
Solicitation of Proxies
In addition to the mailing of these proxy materials, proxies may be solicited by
telephone, by fax or in person by the trustees, officers and employees of your
fund; by personnel of your fund's investment adviser, John Hancock Advisers,
Inc. and its transfer agent, John Hancock Signature Services, Inc.; or by
broker-dealer firms. Signature Services, together with a third party
solicitation firm, has agreed to provide proxy solicitation services to your
fund at a cost of approximately $3,000.
Revoking Proxies
A Limited-Term Government Fund shareholder signing and returning a proxy has the
power to revoke it at any time before it is exercised:
o By filing a written notice of revocation with your fund's transfer
agent, John Hancock Signature Services, Inc., 1 John Hancock Way, Suite
1000, Boston, Massachusetts 02217-1000, or
o By returning a duly executed proxy with a later date before the time
of the meeting, or
o If a shareholder has executed a proxy but is present at the meeting and
wishes to vote in person, by notifying the secretary of your fund
(without complying with any formalities) at any time before it is
voted.
Being present at the meeting alone does not revoke a previously executed and
returned proxy.
28
<PAGE>
Outstanding Shares and Quorum
As of September 17, 1997, _______ and _______ Class A and Class B shares of
beneficial interest of your fund were outstanding. Only shareholders of record
on September 17, 1997 (the "record date") are entitled to notice of and to vote
at the meeting. A majority of the outstanding shares of your fund that are
entitled to vote will be considered a quorum for the transaction of business.
Other Business
Your fund's board of trustees knows of no business to be presented for
consideration at the meeting other than the proposal. If other business is
properly brought before the meeting, proxies will be voted according to the best
judgment of the persons named as proxies.
Adjournments
If a quorum is not present in person or by proxy at the time any session of the
meeting is called to order, the persons named as proxies may vote those proxies
that have been received to adjourn the meeting to a later date. If a quorum is
present but there are not sufficient votes in favor of the proposal, the persons
named as proxies may propose one or more adjournments of the meeting to permit
further solicitation of proxies concerning the proposal. Any adjournment will
require the affirmative vote of a majority of your fund's shares at the session
of the Meeting to be adjourned. If an adjournment of the meeting is proposed
because there are not sufficient votes in favor of the proposal, the persons
named as proxies will vote those proxies favoring the proposal in favor of
adjournment, and will vote those proxies against the reorganization against
adjournment.
Telephone Voting
In addition to soliciting proxies by mail, by fax or in person, your fund may
also arrange to have votes recorded by telephone by officers and employees of
your fund or by personnel of the adviser or transfer agent. The telephone voting
procedure is designed to verify a shareholder's identity, to allow a shareholder
to authorize the voting of shares in accordance with the shareholder's
instructions and to confirm that the voting instructions have been properly
recorded. If these procedures were subject to a successful legal challenge,
these telephone votes would not be counted at the meeting. Your fund has not
obtained an opinion of counsel about telephone voting, but is currently not
aware of any challenge.
29
<PAGE>
o A shareholder will be called on a recorded line at the telephone number
in the fund's account records and will be asked to provide the
shareholder's social security number or other identifying information.
o The shareholder will then be given an opportunity to authorize proxies
to vote his or her shares at the meeting in accordance with the
shareholder's instructions.
o To ensure that the shareholder's instructions have been recorded
correctly, the shareholder will also receive a confirmation of the
voting instructions by mail.
o A toll-free number will be available in case the voting information
contained in the confirmation is incorrect.
o If the shareholder decides after voting by telephone to attend the
meeting, the shareholder can revoke the proxy at that time and vote the
shares at the meeting.
OWNERSHIP OF SHARES OF THE FUNDS
To the knowledge of the fund, as of August 31, 1997, the following persons owned
of record or beneficially 5% or more of the outstanding Class A and Class B
shares of your fund and Intermediate Maturity Government Fund:
- -------------------------------- ---------------------- ------------------------
Names and Addresses of Owners Limited-Term Fund Pro forma ownership of
of More Than 5% of Shares Intermediate Maturity
Fund as of August 31,
1997
---------- ----------- ------------ -----------
Class A Class B Class A Class B
- -------------------------------- ---------- ----------- ------------ -----------
- -------------------------------- ---------- ----------- ------------ -----------
- -------------------------------- ---------------------- ------------------------
Intermediate Pro forma ownership of
Maturity Fund Intermediate Maturity
Fund as of August 31,
1997
- -------------------------------- ---------- ----------- ------------ -----------
- -------------------------------- ---------- ----------- ------------ -----------
- -------------------------------- ---------- ----------- ------------ -----------
30
<PAGE>
As of August 31, 1997, the trustees and officers of your fund and Intermediate
Maturity Government Fund, each as a group, owned in the aggregate less than 1%
of the outstanding shares of their respective funds.
EXPERTS
The financial statements and the financial highlights of Limited-Term Government
Fund and Intermediate Maturity Government Fund, each as of May 31, 1997 and for
the periods then ended, are incorporated by reference into this proxy statement
and prospectus. These financial statements and financial highlights have been
independently audited by Ernst & Young LLP, as stated in their reports appearing
in the statement of additional information. These financial statements and
financial highlights have been included in reliance on their reports given on
their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
Each fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 and files reports,
proxy statements and other information with the SEC. These reports, proxy
statements and other information filed by the funds can be inspected and copied
(at prescribed rates) at the public reference facilities of the SEC at 450 Fifth
Street, N.W., Washington, D.C., and at the following regional offices: Chicago
(500 West Madison Street, Suite 1400, Chicago, Illinois); and New York (7 World
Trade Center, Suite 1300, New York, New York). Copies of such material can also
be obtained by mail from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, copies
of these documents may be viewed on-screen or downloaded from the SEC's Internet
site at http://www.sec.gov.
31
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 1st day
of October, 1997, by and between John Hancock Intermediate Maturity Government
Fund (the "Acquiring Fund"), a series of John Hancock Bond Trust, a
Massachusetts business trust (the "Trust"), and John Hancock Limited Term
Government Fund (the "Acquired Fund"), a Massachusetts business trust, each with
their principal place of business at 101 Huntington Avenue, Boston,
Massachusetts 02199. The Acquiring Fund and the Acquired Fund are sometimes
referred to collectively herein as the "Funds" and individually as a "Fund."
This Agreement is intended to be and is adopted as a plan of "reorganization,"
as such term is used in Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization will consist of the transfer of all of
the assets of the Acquired Fund to the Acquiring Fund in exchange solely for the
issuance of Class A and Class B shares of beneficial interest of the Acquiring
Fund (the "Acquiring Fund Shares") to the Acquired Fund and the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund, followed by
the distribution by the Acquired Fund, on or promptly after the Closing Date
hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the
Acquired Fund in liquidation and termination of the Acquired Fund as provided
herein, all upon the terms and conditions set forth in this Agreement.
In consideration of the premises of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF
LIABILITIES AND ISSUANCE OF ACQUIRING FUND SHARES; LIQUIDATION OF THE
ACQUIRED FUND
1.1 The Acquired Fund will transfer all of its assets (consisting, without
limitation, of portfolio securities and instruments, dividends and interest
receivables, cash and other assets), as set forth in the statement of
assets and liabilities referred to in Paragraph 7.2 hereof (the "Statement
of Assets and Liabilities"), to the Acquiring Fund free and clear of all
liens and encumbrances, except as otherwise provided herein, in exchange
for (i) the assumption by the Acquiring Fund of the known and unknown
liabilities of the Acquired Fund, including the liabilities set forth in
the Statement of Assets and Liabilities (the "Acquired Fund Liabilities"),
which shall be assigned and transferred to the Acquiring Fund by the
Acquired Fund and assumed by the Acquiring Fund, and (ii) delivery by the
Acquiring Fund to the Acquired Fund, for distribution pro rata by the
Acquired Fund to its shareholders in proportion to their respective
ownership of Class A and/or Class B shares of beneficial interest of the
Acquired Fund, as of the close of business on December 5, 1997 (the
"Closing Date"), of a number of the Acquiring Fund Shares having an
aggregate net asset value equal, in the case of each class of Acquiring
Fund Shares, to the value of the assets, less such liabilities (herein
referred to as the "net value of the assets") attributable to the
<PAGE>
applicable class, assumed, assigned and delivered, all determined as
provided in Paragraph 2.1 hereof and as of a date and time as specified
therein. Such transactions shall take place at the closing provided for in
Paragraph 3.1 hereof (the "Closing"). All computations shall be provided by
Investors Bank & Trust Company (the "Custodian"), as custodian and pricing
agent for the Acquiring Fund and the Acquired Fund.
1.2 The Acquired Fund has provided the Acquiring Fund with a list of the
current securities holdings of the Acquired Fund as of the date of
execution of this Agreement. The Acquired Fund reserves the right to sell
any of these securities (except to the extent sales may be limited by
representations made in connection with issuance of the tax opinion
provided for in paragraph 8.6 hereof) but will not, without the prior
approval of the Acquiring Fund, acquire any additional securities other
than securities of the type in which the Acquiring Fund is permitted to
invest.
1.3 The Acquiring Fund and the Acquired Fund shall each bear its own expenses
in connection with the transactions contemplated by this Agreement.
1.4 On or as soon after the Closing Date as is conveniently practicable (the
"Liquidation Date"), the Acquired Fund will liquidate and distribute pro
rata to shareholders of record (the "Acquired Fund shareholders"),
determined as of the close of regular trading on the New York Stock
Exchange on the Closing Date, the Acquiring Fund Shares received by the
Acquired Fund pursuant to Paragraph 1.1 hereof. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund
Shares then credited to the account of the Acquired Fund on the books of
the Acquiring Fund, to open accounts on the share records of the Acquiring
Fund in the names of the Acquired Fund shareholders and representing the
respective pro rata number and class of Acquiring Fund Shares due such
shareholders. Acquired Fund shareholders who own Class A shares of the
Acquired Fund will receive Class A Acquiring Fund Shares and Acquired Fund
shareholders who own Class B shares of the Acquired Fund will receive Class
B Acquiring Fund Shares. The Acquiring Fund shall not issue certificates
representing Acquiring Fund Shares in connection with such exchange.
1.5 The Acquired Fund shareholders holding certificates representing their
ownership of shares of beneficial interest of the Acquired Fund shall
surrender such certificates or deliver an affidavit with respect to lost
certificates in such form and accompanied by such surety bonds as the
Acquired Fund may require (collectively, an "Affidavit"), to John Hancock
Signature Services, Inc. prior to the Closing Date. Any Acquired Fund share
certificate which remains outstanding on the Closing Date shall be deemed
to be canceled, shall no longer evidence ownership of shares of beneficial
interest of the Acquired Fund and shall evidence ownership of Acquiring
Fund Shares. Unless and until any such certificate shall be so surrendered
or an Affidavit relating thereto shall be delivered, dividends and other
distributions payable by the Acquiring Fund subsequent to the Liquidation
Date with respect to Acquiring Fund Shares shall be paid to the holder of
such certificate(s), but such shareholders may not redeem or transfer
Acquiring Fund Shares received in the Reorganization. The Acquiring Fund
will not issue share certificates in the Reorganization.
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<PAGE>
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a name
other than the registered holder of the Acquired Fund Shares on the books
of the Acquired Fund as of that time shall, as a condition of such issuance
and transfer, be paid by the person to whom such Acquiring Fund Shares are
to be issued and transferred.
1.7 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Acquired Fund, including, but not
limited to, the responsibility for filing of regulatory reports, tax
returns, or other documents with the Securities and Exchange Commission
(the "Commission"), any state securities commissions, and any federal,
state or local tax authorities or any other relevant regulatory authority,
is and shall remain the responsibility of the Acquired Fund.
2. VALUATION
2.1 The net asset values of the Class A and Class B Acquiring Fund Shares and
the net values of the assets and liabilities of the Acquired Fund
attributable to its Class A and Class B shares to be transferred shall, in
each case, be determined as of the close of business (4:00 p.m. Boston
time) on the Closing Date. The net asset values of the Class A and Class B
Acquiring Fund Shares shall be computed by the Custodian in the manner set
forth in the Acquiring Fund's Declaration of Trust as amended and restated
(the "Declaration"), or By-Laws and the Acquiring Fund's then-current
prospectus and statement of additional information and shall be computed in
each case to not fewer than four decimal places. The net values of the
assets of the Acquired Fund attributable to its Class A and Class B shares
to be transferred shall be computed by the Custodian by calculating the
value of the assets of each class transferred by the Acquired Fund and by
subtracting therefrom the amount of the liabilities of each class assigned
and transferred to and assumed by the Acquiring Fund on the Closing Date,
said assets and liabilities to be valued in the manner set forth in the
Acquired Fund's then current prospectus and statement of additional
information and shall be computed in each case to not fewer than four
decimal places.
2.2 The number of shares of each class of Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Acquired Fund's
assets shall be determined by dividing the value of the Acquired Fund's
assets attributable to a class, less the liabilities attributable to that
class assumed by the Acquiring Fund, by the Acquiring Fund's net asset
value per share of the same class, all as determined in accordance with
Paragraph 2.1 hereof.
2.3 All computations of value shall be made by the Custodian in accordance with
its regular practice as pricing agent for the Funds.
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<PAGE>
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be December 5, 1997 or such other date on or before
June 30, 1998 as the parties may agree. The Closing shall be held as of
5:00 p.m. at the offices of the Trust and the Acquired Fund, 101 Huntington
Avenue, Boston, Massachusetts 02199, or at such other time and/or place as
the parties may agree.
3.2 Portfolio securities that are not held in book-entry form in the name of
the Custodian as record holder for the Acquired Fund shall be presented by
the Acquired Fund to the Custodian for examination no later than three
business days preceding the Closing Date. Portfolio securities which are
not held in book-entry form shall be delivered by the Acquired Fund to the
Custodian for the account of the Acquiring Fund on the Closing Date, duly
endorsed in proper form for transfer, in such condition as to constitute
good delivery thereof in accordance with the custom of brokers, and shall
be accompanied by all necessary federal and state stock transfer stamps or
a check for the appropriate purchase price thereof. Portfolio securities
held of record by the Custodian in book-entry form on behalf of the
Acquired Fund shall be delivered to the Acquiring Fund by the Custodian by
recording the transfer of beneficial ownership thereof on its records. The
cash delivered shall be in the form of currency or by the Custodian
crediting the Acquiring Fund's account maintained with the Custodian with
immediately available funds.
3.3 In the event that on the Closing Date (a) the New York Stock Exchange shall
be closed to trading or trading thereon shall be restricted or (b) trading
or the reporting of trading on said Exchange or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date
shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored;
provided that if trading shall not be fully resumed and reporting restored
on or before June 30, 1998, this Agreement may be terminated by the
Acquiring Fund or by the Acquired Fund upon the giving of written notice to
the other party.
3.4 The Acquired Fund shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup withholding
and nonresident alien withholding status of the Acquired Fund shareholders
and the number of outstanding shares of each class of beneficial interest
of the Acquired Fund owned by each such shareholder, all as of the close of
business on the Closing Date, certified by its Treasurer, Secretary or
other authorized officer (the "Shareholder List"). The Acquiring Fund shall
issue and deliver to the Acquired Fund a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares
have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such
bills of sale, checks, assignments, stock certificates, receipts or other
documents as such other party or its counsel may reasonably request.
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<PAGE>
4. REPRESENTATIONS AND WARRANTIES
4.1 The Acquired Fund represents, warrants and covenants to the Acquiring Fund
as follows:
(a) The Acquired Fund is a business trust, duly organized, validly
existing and in good standing under the laws of The Commonwealth of
Massachusetts and has the power to own all of its properties and
assets and, subject to approval by the shareholders of the Acquired
Fund, to carry out the transactions contemplated by this Agreement.
The Acquired Fund is not required to qualify to do business in any
jurisdiction in which it is not so qualified or where failure to
qualify would subject it to any material liability or disability. The
Acquired Fund has all necessary federal, state and local
authorizations to own all of its properties and assets and to carry on
its business as now being conducted;
(b) The Acquired Fund is a registered investment company classified as a
management company and its registration with the Commission as an
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), is in full force and effect. The Acquired
Fund is a diversified investment company under the 1940 Act;
(c) The Acquired Fund is not, and the execution, delivery and performance
of its obligations under this Agreement will not result, in violation
of any provision of the Acquired Fund's Declaration of Trust, as
amended and restated (the "Acquired Fund's Declaration") or By-Laws or
of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquired Fund is a party or by which it is
bound;
(d) Except as otherwise disclosed in writing and accepted by the Acquiring
Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Acquired Fund or any of the Acquired
Fund's properties or assets. The Acquired Fund knows of no facts which
might form the basis for the institution of such proceedings, and the
Acquired Fund is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects the Acquired Fund's business or its
ability to consummate the transactions herein contemplated;
(e) The Acquired Fund has no material contracts or other commitments
(other than this Agreement or agreements for the purchase of
securities entered into in the ordinary course of business and
consistent with its obligations under this Agreement) which will not
be terminated without liability to the Acquired Fund at or prior to
the Closing Date;
(f) The statement of assets and liabilities, including the schedule of
investments, of the Acquired Fund as of May 31, 1997 and the related
statement of operations for the year ended December 31, 1996 and the
period from January 1, 1997 to May 31, 1997 and the statement of
changes in net assets for the years ended December 31, 1995 and 1996
and the period from January 1, 1997 to May 31, 1997 (audited by Ernst
& Young LLP) (copies of which have been furnished to the Acquiring
Fund) present fairly in all material respects the financial condition
of the Acquired Fund as of May 31, 1997 and the results of its
-5-
<PAGE>
operations for the period then ended in accordance with generally
accepted accounting principles consistently applied, and there were no
known actual or contingent liabilities of the Acquired Fund as of the
respective dates thereof not disclosed therein;
(g) Since May 31, 1997, there has not been any material adverse change in
the Acquired Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquired Fund of indebtedness
maturing more than one year from the date such indebtedness was
incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund;
(h) At the date hereof and by the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the Acquired Fund required by law to have been filed or
furnished by such dates shall have been filed or furnished, and all
federal, state and other taxes, interest and penalties shall have been
paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge no such
return is currently under audit and no assessment has been asserted
with respect to such returns or reports;
(i) Each of the Acquired Fund and its predecessors has qualified as a
regulated investment company for each taxable year of its operation
and the Acquired Fund will qualify as such as of the Closing Date with
respect to its taxable year ending on the Closing Date;
(j) The authorized capital of the Acquired Fund consists of an unlimited
number of shares of beneficial interest, no par value. All issued and
outstanding shares of beneficial interest of the Acquired Fund are,
and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Acquired Fund. All of
the issued and outstanding shares of beneficial interest of the
Acquired Fund will, at the time of Closing, be held by the persons and
in the amounts and classes set forth in the Shareholder List submitted
to the Acquiring Fund pursuant to Paragraph 3.4 hereof. The Acquired
Fund does not have outstanding any options, warrants or other rights
to subscribe for or purchase any of its shares of beneficial interest,
nor is there outstanding any security convertible into any of its
shares of beneficial interest;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the assets to be transferred to the Acquiring Fund pursuant
to Paragraph 1.1 hereof, and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder, and upon delivery
and payment for such assets, the Acquiring Fund will acquire good and
marketable title thereto subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the
Securities Act of 1933, as amended (the "1933 Act");
(l) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Acquired
Fund, and this Agreement constitutes a valid and binding obligation of
the Acquired Fund enforceable in accordance with its terms, subject to
the approval of the Acquired Fund's shareholders;
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<PAGE>
(m) The information to be furnished by the Acquired Fund to the Acquiring
Fund for use in applications for orders, registration statements,
proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate
and complete and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable
thereto;
(n) The proxy statement of the Acquired Fund (the "Proxy Statement") to be
included in the Registration Statement referred to in Paragraph 5.7
hereof (other than written information furnished by the Acquiring Fund
for inclusion therein, as covered by the Acquiring Fund's warranty in
Paragraph 4.2(m) hereof), on the effective date of the Registration
Statement, on the date of the meeting of the Acquired Fund
shareholders and on the Closing Date, shall not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this Agreement;
(p) All of the issued and outstanding shares of beneficial interest of the
Acquired Fund have been offered for sale and sold in conformity with
all applicable federal and state securities laws;
(q) The prospectus of the Acquired Fund, dated October 1, 1997 (the
"Acquired Fund Prospectus"), furnished to the Acquiring Fund, does not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were
made, not misleading.
4.2 The Trust on behalf of the Acquiring Fund represents, warrants and
covenants to the Acquired Fund as follows:
(a) The Trust is a business trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and has the
power to own all of its properties and assets and to carry out the
Agreement. Neither the Trust nor the Acquiring Fund is required to qualify
to do business in any jurisdiction in which it is not so qualified or where
failure to qualify would subject it to any material liability or
disability. The Trust has all necessary federal, state and local
authorizations to own all of its properties and assets and to carry on its
business as now being conducted;
(b) The Trust is a registered investment company classified as a management
company and its registration with the Commission as an investment company
under the 1940 Act is in full force and effect. The Acquiring Fund is a
diversified series of the Trust;
-7-
<PAGE>
(c) The prospectus (the "Acquiring Fund Prospectus") and statement of
additional information for Class A and Class B shares of the Acquiring
Fund, each dated March 1, 1997, as supplemented on July 15, 1997, and
any amendments or supplements thereto on or prior to the Closing Date,
and the Registration Statement on Form N-14 filed in connection with
this Agreement (the "Registration Statement") (other than written
information furnished by the Acquired Fund for inclusion therein, as
covered by the Acquired Fund's warranty in Paragraph 4.1(m) hereof)
will conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the
Commission thereunder, the Acquiring Fund Prospectus does not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and the Registration Statement will not include any untrue
statement of material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(d) At the Closing Date, the Trust on behalf of the Acquiring Fund will
have good and marketable title to the assets of the Acquiring Fund;
(e) The Trust and the Acquiring Fund are not, and the execution, delivery
and performance of their obligations under this Agreement will not
result in a violation of any provisions of the Trust's Declaration, or
By-Laws or of any agreement, indenture, instrument, contract, lease or
other undertaking to which the Trust or the Acquiring Fund is a party
or by which the Trust or the Acquiring Fund is bound;
(f) Except as otherwise disclosed in writing and accepted by the Acquired
Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Trust or the Acquiring Fund or any
of the Acquiring Fund's properties or assets. The Trust knows of no
facts which might form the basis for the institution of such
proceedings, and neither the Trust nor the Acquiring Fund is a party
to or subject to the provisions of any order, decree or judgment of
any court or governmental body which materially and adversely affects
the Acquiring Fund's business or its ability to consummate the
transactions herein contemplated;
(g) The statement of assets and liabilities, including the schedule of
investments, of the Acquiring Fund as of May 31, 1997 and the related
statement of operations for the year ended March 31, 1997 and the
period from April 1, 1997 to May 31, 1997, and the statement of
changes in net assets for the years ended March 31, 1996 and 1997 and
the period from April 1, 1997 to May 31, 1997 (audited by Ernst &
Young LLP) (copies of which have been furnished to the Acquired Fund),
present fairly in all material respects the financial condition of the
Acquiring Fund as of May 31, 1997 and the results of its operations
for the period then ended in accordance with generally accepted
accounting principles consistently applied, and there were no known
actual or contingent liabilities of the Acquiring Fund as of the
respective dates thereof not disclosed therein;
-8-
<PAGE>
(h) Since May 31, 1997, there has not been any material adverse change in
the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of
business, or any incurrence by the Trust on behalf of the Acquiring
Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as disclosed to and accepted by the
Acquired Fund;
(i) Each of the Acquiring Fund and its predecessors has qualified as a
regulated investment company for each taxable year of its operation
and the Acquiring Fund will qualify as such as of the Closing Date;
(j) The authorized capital of the Trust consists of an unlimited number of
shares of beneficial interest, no par value per share. All issued and
outstanding shares of beneficial interest of the Acquiring Fund are,
and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Trust. The Acquiring
Fund does not have outstanding any options, warrants or other rights
to subscribe for or purchase any of its shares of beneficial interest,
nor is there outstanding any security convertible into any of its
shares of beneficial interest;
(k) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action on the part of the Trust on
behalf of the Acquiring Fund, and this Agreement constitutes a valid
and binding obligation of the Acquiring Fund enforceable in accordance
with its terms;
(l) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund pursuant to the terms of this Agreement, when so issued and
delivered, will be duly and validly issued shares of beneficial
interest of the Acquiring Fund and will be fully paid and
nonassessable by the Trust;
(m) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and
shall comply in all material respects with federal securities and
other laws and regulations applicable thereto; and
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by the Agreement,
except for the registration of the Acquiring Fund Shares under the
1933 Act and the 1940 Act.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary, the Acquired Fund
and the Trust on behalf of the Acquiring Fund, will operate their
respective businesses in the ordinary course between the date hereof and
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<PAGE>
the Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions and any other
distributions necessary or desirable to avoid federal income or excise
taxes.
5.2 The Acquired Fund will call a meeting of the Acquired Fund shareholders to
consider and act upon this Agreement and to take all other action necessary
to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired by the Acquired Fund for the purpose of
making any distribution thereof other than in accordance with the terms of
this Agreement.
5.4 The Acquired Fund will provide such information within its possession or
reasonably obtainable as the Trust on behalf of the Acquiring Fund requests
concerning the beneficial ownership of the Acquired Fund's shares of
beneficial interest.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund each shall take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate the transactions contemplated by this Agreement.
5.6 The Acquired Fund shall furnish to the Trust on behalf of the Acquiring
Fund on the Closing Date the Statement of Assets and Liabilities of the
Acquired Fund as of the Closing Date, which statement shall be prepared in
accordance with generally accepted accounting principles consistently
applied and shall be certified by the Acquired Fund's Treasurer or
Assistant Treasurer. As promptly as practicable but in any case within 60
days after the Closing Date, the Acquired Fund shall furnish to the
Acquiring Fund, in such form as is reasonably satisfactory to the Trust, a
statement of the earnings and profits of the Acquired Fund for federal
income tax purposes and of any capital loss carryovers and other items that
will be carried over to the Acquiring Fund as a result of Section 381 of
the Code, and which statement will be certified by the President of the
Acquired Fund.
5.7 The Trust on behalf of the Acquiring Fund will prepare and file with the
Commission the Registration Statement in compliance with the 1933 Act and
the 1940 Act in connection with the issuance of the Acquiring Fund Shares
as contemplated herein.
5.8 The Acquired Fund will prepare a Proxy Statement, to be included in the
Registration Statement in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act and the
rules and regulations thereunder (collectively, the "Acts") in connection
with the special meeting of shareholders of the Acquired Fund to consider
approval of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to complete the transactions provided for
herein shall be, at its election, subject to the performance by the Trust on
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<PAGE>
behalf of the Acquiring Fund of all the obligations to be performed by it
hereunder on or before the Closing Date, and, in addition thereto, the following
further conditions:
6.1 All representations and warranties of the Trust on behalf of the Acquiring
Fund contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date with
the same force and effect as if made on and as of the Closing Date; and
6.2 The Trust on behalf of the Acquiring Fund shall have delivered to the
Acquired Fund a certificate executed in its name by the Trust's President
or Vice President and its Treasurer or Assistant Treasurer, in form and
substance satisfactory to the Acquired Fund and dated as of the Closing
Date, to the effect that the representations and warranties of the Trust on
behalf of the Acquiring Fund made in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters
as the Acquired Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE ACQUIRING
FUND
The obligations of the Trust on behalf of the Acquiring Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Acquired Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the Acquired Fund contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as
if made on and as of the Closing Date;
7.2 The Acquired Fund shall have delivered to the Trust on behalf of the
Acquiring Fund the Statement of Assets and Liabilities of the Acquired
Fund, together with a list of its portfolio securities showing the federal
income tax bases and holding periods of such securities, as of the Closing
Date, certified by the Treasurer or Assistant Treasurer of the Acquired
Fund;
7.3 The Acquired Fund shall have delivered to the Trust on behalf of the
Acquiring Fund on the Closing Date a certificate executed in the name of
the Acquired Fund by a President or Vice President and a Treasurer or
Assistant Treasurer of the Acquired Fund, in form and substance
satisfactory to the Acquiring Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the Acquired Fund in this
Agreement are true and correct at and as of the Closing Date, except as
they may be affected by the transactions contemplated by this Agreement,
and as to such other matters as the Trust on behalf of the Acquiring Fund
shall reasonably request; and
-11-
<PAGE>
7.4 At or prior to the Closing Date, the Acquired Fund's investment adviser, or
an affiliate thereof, shall have made all payments, or applied all credits,
to the Acquired Fund required by any applicable contractual expense
limitation.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND AND THE
TRUST ON BEHALF OF THE ACQUIRING FUND
The obligations hereunder of the Trust on behalf of the Acquiring Fund and the
Acquired Fund are each subject to the further conditions that on or before the
Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
beneficial interest of the Acquired Fund in accordance with the provisions
of the Acquired Fund's Declaration and By-Laws, and certified copies of the
resolutions evidencing such approval by the Acquired Fund's shareholders
shall have been delivered by the Acquired Fund to the Trust on behalf of
the Acquiring Fund;
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain
or prohibit, or obtain changes or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and permits of
federal, state and local regulatory authorities (including those of the
Commission and their "no-action" positions) deemed necessary by the
Acquired Fund or the Trust to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of
the Acquiring Fund or the Acquired Fund, provided that either party hereto
may waive any such conditions for itself;
8.4 The Registration Statement shall have become effective under the 1933 Act
and the 1940 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or
be pending, threatened or contemplated under the 1933 Act or the 1940 Act;
8.5 The Acquired Fund shall have distributed to its shareholders, in a
distribution or distributions qualifying for the deduction for dividends
paid under Section 561 of the Code, all of its investment company taxable
income (as defined in Section 852(b)(2) of the Code determined without
regard to Section 852(b)(2)(D) of the Code) for its taxable year ending on
the Closing Date, all of the excess of (i) its interest income excludable
from gross income under Section 103(a) of the Code over (ii) its deductions
disallowed under Sections 265 and 171(a)(2) of the Code for its taxable
year ending on the Closing Date, and all of its net capital gain (as such
term is used in Sections 852(b)(3)(A) and (C) of the Code), after reduction
by any available capital loss carryforward, for its taxable year ending on
the Closing Date; and
-12-
<PAGE>
8.6 The parties shall have received an opinion of Hale and Dorr LLP,
satisfactory to the Acquired Fund and the Trust on behalf of the Acquiring
Fund, substantially to the effect that for federal income tax purposes:
(a) The acquisition by the Acquiring Fund of all of the assets of the
Acquired Fund solely in exchange for the issuance of Acquiring Fund
Shares to the Acquired Fund and the assumption of all of the Acquired
Fund Liabilities by the Acquiring Fund, followed by the distribution
by the Acquired Fund, in liquidation of the Acquired Fund, of
Acquiring Fund Shares to the shareholders of the Acquired Fund in
exchange for their shares of beneficial interest of the Acquired Fund
and the termination of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and
the Acquired Fund and the Acquiring Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund upon (i) the
transfer of all of its assets to the Acquiring Fund solely in exchange
for the issuance of Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring
Fund; and (ii) the distribution by the Acquired Fund of such Acquiring
Fund Shares to the shareholders of the Acquired Fund;
(c) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
issuance of the Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring
Fund;
(d) The basis of the assets of the Acquired Fund acquired by the Acquiring
Fund will be, in each instance, the same as the basis of those assets
in the hands of the Acquired Fund immediately prior to the transfer;
(e) The tax holding period of the assets of the Acquired Fund in the hands
of the Acquiring Fund will, in each instance, include the Acquired
Fund's tax holding period for those assets;
(f) The shareholders of the Acquired Fund will not recognize gain or loss
upon the exchange of all of their shares of beneficial interest of the
Acquired Fund solely for Acquiring Fund Shares as part of the
transaction;
(g) The basis of the Acquiring Fund Shares received by the Acquired Fund
shareholders in the transaction will be the same as the basis of the
shares of beneficial interest of the Acquired Fund surrendered in
exchange therefor; and
(h) The tax holding period of the Acquiring Fund Shares received by the
Acquired Fund shareholders will include, for each shareholder, the tax
-13-
<PAGE>
holding period for the shares of the Acquired Fund surrendered in
exchange therefor, provided that the Acquired Fund shares were held as
capital assets on the date of the exchange.
The Trust on behalf of the Acquiring Fund and the Acquired Fund agree to make
and provide representations which are reasonably necessary to enable Hale and
Dorr LLP to deliver an opinion substantially as set forth in this Paragraph 8.6.
Notwithstanding anything herein to the contrary, neither the Acquired Fund nor
the Trust may waive the conditions set forth in this Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust on behalf of the Acquiring Fund and the Acquired Fund each
represent and warrant to the other that there are no brokers or finders
entitled to receive any payments in connection with the transactions
provided for herein.
9.2 The Acquiring Fund and the Acquired Fund shall each be liable solely for
its own expenses incurred in connection with entering into and carrying out
the provisions of this Agreement whether or not the transactions
contemplated hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust on behalf of the Acquiring Fund and the Acquired Fund agree that
neither party has made any representation, warranty or covenant not set
forth herein or referred to in Paragraph 4 hereof and that this Agreement
constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Trust on
behalf of the Acquiring Fund and the Acquired Fund. In addition, either
party may at its option terminate this Agreement at or prior to the Closing
Date:
(a) because of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be performed at or
prior to the Closing Date;
(b) because of a condition herein expressed to be precedent to the
obligations of the terminating party which has not been met and which
reasonably appears will not or cannot be met;
-14-
<PAGE>
(c) by resolution of the Trust's Board of Trustees if circumstances should
develop that, in the good faith opinion of such Board, make proceeding
with the Agreement not in the best interests of the Acquiring Fund's
shareholders; or
(d) by resolution of the Acquired Fund's Board of Trustees if
circumstances should develop that, in the good faith opinion of such
Board, make proceeding with the Agreement not in the best interests of
the Acquired Fund's shareholders.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Trust, the Acquiring Fund, or the Acquired Fund,
or the Trustees or officers of the Trust or the Acquired Fund, but each
party shall bear the expenses incurred by it incidental to the preparation
and carrying out of this Agreement.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon by the authorized officers of the Trust and the Acquired
Fund. However, following the meeting of shareholders of the Acquired Fund held
pursuant to Paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions regarding the method for determining the
number of Acquiring Fund Shares to be received by the Acquired Fund shareholders
under this Agreement to the detriment of such shareholders without their further
approval; provided that nothing contained in this Article 12 shall be construed
to prohibit the parties from amending this Agreement to change the Closing Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to the Acquiring Fund or to the Acquired
Fund, each at 101 Huntington Avenue, Boston, Massachusetts 02199, Attention:
President, and, in either case, with copies to Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts 02109, Attention: Pamela J. Wilson, Esq.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
-15-
<PAGE>
hereof or of any rights or obligations hereunder shall be made by any party
without the prior written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
14.5 All persons dealing with the Trust or the Acquired Fund must look solely to
the property of the Trust or the Acquired Fund, respectively, for the
enforcement of any claims against the Trust or the Acquired Fund as the
Trustees, officers, agents and shareholders of the Trust or the Acquired
Fund assume no personal liability for obligations entered into on behalf of
the Trust or the Acquired Fund, respectively. None of the other series of
the Trust shall be responsible for any obligations assumed by on or behalf
of the Acquiring Fund under this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first set forth above by its President or Vice President
and has caused its corporate seal to be affixed hereto.
JOHN HANCOCK BOND TRUST on behalf of
JOHN HANCOCK INTERMEDIATE MATURITY GOVERNMENT FUND
By:
----------------------------------------
Anne C. Hodsdon
President
JOHN HANCOCK LIMITED TERM GOVERNMENT FUND
By:
----------------------------------------
Susan S. Newton
Vice President and Secretary
-16-
<PAGE>
JOHN HANCOCK
Income Funds
[GRAPHIC]
- --------------------------------------------------------------------------------
Prospectus Government Income Fund
October 1, 1997
High Yield Bond Fund
This prospectus gives vital Intermediate Maturity
information about these funds. For Government Fund
your own benefit and protection,
please read it before you invest, Limited-Term Government Fund
and keep it on hand for future
reference. Sovereign Bond Fund
Please note that these funds: Sovereign U.S. Government Income Fund
o are not bank deposits
o are not federally insured Strategic Income Fund
o are not endorsed by any bank or
government agency
o are not guaranteed to achieve
their goal(s)
Some of these funds may invest up
to 100% in junk bonds; read risk
information carefully.
Like all mutual fund shares, these
securities have not been approved
or disapproved by the Securities
and Exchange Commission or any
state securities commission, nor
has the Securities and Exchange
Commission or any state securities
commission passed upon the accuracy
or adequacy of this prospectus. Any
representation to the contrary is a
criminal offense.
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Fund
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
Contents
- --------------------------------------------------------------------------------
A fund-by-fund look at Government Income Fund 4
goals, strategies, risks,
expenses and financial High Yield Bond Fund 6
history.
Intermediate Maturity Government Fund 8
Limited-Term Government Fund 10
Sovereign Bond Fund 12
Sovereign U.S. Government Income Fund 14
Strategic Income Fund 16
Policies and instructions Your account
for opening, maintaining
and closing an account in Choosing a share class 18
any income fund.
How sales charges are calculated 18
Sales charge reductions and waivers 19
Opening an account 20
Buying shares 21
Selling shares 22
Transaction policies 24
Dividends and account policies 24
Additional investor services 25
Details that apply to the Fund details
income funds as a group.
Business structure 26
Sales compensation 27
More about risk 29
For more information back cover
<PAGE>
Overview
- --------------------------------------------------------------------------------
GOAL OF THE INCOME FUNDS
John Hancock income funds seek current income without sacrificing total return.
Some of the funds also invest for stability of principal. Each fund has its own
strategy and its own risk/reward profile. Because you could lose money by
investing in these funds, be sure to read all risk disclosure carefully before
investing.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
o are seeking a regular stream of income
o are seeking higher potential returns than money market funds and are willing
to accept moderate risk of volatility
o want to diversify their portfolios
o are seeking a mutual fund for the income portion of an asset allocation
portfolio
o are retired or nearing retirement
Income funds may NOT be appropriate if you:
o are investing for maximum return over a long time horizon
o require absolute stability of your principal
THE MANAGEMENT FIRM
All John Hancock income funds are managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Mutual Life Insurance Company and manages more than $22 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Clip art] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clip art] Portfolio securities The primary types of securities in which the
fund invests. Secondary investments are described in "More about risk" at the
end of the prospectus.
[Clip art] Risk factors The major risk factors associated with the fund.
[Clip art] Portfolio management The individual or group designated by the
investment adviser to handle the fund's day-to-day management.
[Clip art] Expenses The overall costs borne by an investor in the fund,
including sales charges and annual expenses.
[Clip art] Financial highlights A table showing the fund's financial performance
for up to ten years, by share class. A bar chart showing total return allows you
to compare the fund's historical risk level to those of other funds.
<PAGE>
Government Income Fund
REGISTRANT NAME: JOHN HANCOCK BOND TRUST
TICKER SYMBOL CLASS A: JHGIX CLASS B: TSGIX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks to earn a high level of current income consistent with
preservation of capital. To pursue this goal, the fund invests primarily in U.S.
Government and agency securities of any maturity, as described below. Stability
of share price is a secondary goal.
PORTFOLIO SECURITIES
[Clip art] Under normal circumstances, the fund invests at least 80% of assets
in securities that are issued, or guaranteed as to principal and interest, by
the U.S. Government, its agencies or instrumentalities. These may include
Treasuries, mortgage-backed securities such as Ginnie Maes, Freddie Macs and
Fannie Maes, and repurchase agreements and forward commitments involving these
securities.
For liquidity and flexibility, the fund may place up to 20% of assets in
high-quality short-term securities. In abnormal market conditions, it may invest
more assets in these securities as a defensive tactic. The fund also may invest
in certain higher-risk investments, including asset-backed securities, U.S.
dollar-denominated foreign government securities and derivative and leveraged
investments, and may engage in other investment practices. Investments in
asset-backed and foreign government securities must be in the two highest and
four highest rating categories, respectively, or if unrated, be of comparable
quality. Up to 10% of assets may be invested in foreign government bonds rated
BB/Ba or B (junk bonds).
RISK FACTORS
[Clip art] As with most income funds, the value of your investment will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of debt securities (including U.S.
Government and mortgage-backed securities). To the extent that the fund invests
in mortgage-backed securities, it may also be subject to extension and
prepayment risks. These risks are defined in "More about risk" starting on page
29. Other factors may affect the market price and yield of the fund's
securities, including investor demand and domestic and worldwide economic
conditions.
The U.S. Government does not guarantee the market value or the current yield of
government securities, nor does the government's guarantee in any way extend to
the fund itself. Please read "More about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[Clip art] Barry H. Evans, CFA, leader of the fund's portfolio management team
since January 1995, is a senior vice president of the adviser. He has been in
the investment business since joining John Hancock Funds in 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.63% 0.63%
12b-1 fee(3) 0.25% 1.00%
Other expenses 0.25% 0.25%
Total fund operating expenses 1.13% 1.88%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $56 $79 $104 $176
Class B shares
Assuming redemption
at end of period $69 $89 $122 $200
Assuming no redemption $19 $59 $102 $200
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
4 GOVERNMENT INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
2.40(6) 10.22 3.71 14.38 8.51 9.86 (6.42) 14.49 3.64 2.02(6)
seven
months
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A -- year ended: 10/94(1) 10/95(2) 10/96 5/97(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 8.85 $ 8.75 $ 9.32 $ 9.07
Net investment income (loss) 0.06 0.72 0.65(4) 0.37(4)
Net realized and unrealized gain
(loss) on investments (0.10) 0.57 (0.25) (0.14)
Total from investment operations (0.04) 1.29 0.40 0.23
Less distributions:
Dividends from net investment
income (0.06) (0.72) (0.65) (0.37)
Net asset value, end of period $ 8.75 $ 9.32 $ 9.07 $ 8.93
Total investment return at net
asset value(5)(%) (0.45)(6) 15.32(7) 4.49 2.57(6)
Total adjusted investment return
at net asset value(5)(%) (0.46)(6) 15.28
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 223 470,569 396,323 359,758
Ratio of expenses to average net assets(7)(%) 0.12(6) 1.19 1.17 1.13(8)
Ratio of net investment income (loss) to
average net assets(7)(%) 0.71(6) 7.38 7.10 7.06(8)
Portfolio turnover rate (%) 92 102(9) 106 129
Debt outstanding at end of period
(000s omitted)(10)($) 0.0 -- -- --
Average daily amount of debt outstanding
during the period (000s omitted)(10)($) 349 N/A N/A N/A
Average monthly number of shares outstanding
during the period (000s omitted) 28,696 N/A N/A N/A
Average daily amount of debt outstanding per
share during the period(10)($) 0.01 N/A N/A N/A
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B -- year ended: 10/88(1) 10/89 10/90 10/91 10/92 10/93 10/94
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.58 $10.01 $ 9.98 $ 9.37 $ 9.79 $ 9.83 $ 10.05
Net investment income (loss) 0.69(4) 0.98 0.88 0.89 0.80 0.70 0.65
Net realized and unrealized gain (loss)
on investments (0.45) (0.01) (0.54) 0.40 0.03 0.24 (1.28)
Total from investment operations 0.24 0.97 0.34 1.29 0.83 0.94 (0.63)
Less distributions
Dividends from net investment income (0.64) (1.00) (0.95) (0.87) (0.79) (0.72) (0.65)
Distributions from net realized gain on
investments sold (0.17) -- -- -- -- -- (0.02)
Total distributions (0.81) (1.00) (0.95) (0.87) (0.79) (0.72) (0.67)
Net asset value, end of period $10.01 $ 9.98 $ 9.37 $ 9.79 $ 9.83 $ 10.05 $ 8.75
Total investment return at net asset
value(5)(%) 2.40(6) 10.22 3.71 14.38 8.81(7) 9.86(7) (6.42)(7)
Total adjusted investment return at net
asset value(5,11)(%) 1.02(6) 9.40 3.67 -- 8.66 9.85 (6.43)
Ratios and supplemental data
Net assets end of period (000s
omitted)($) 6,966 26,568 64,707 129,014 225,540 293,413 241,061
Ratio of expenses to average net assets(%) 1.38(6) 2.00 2.00 2.00 2.00(7) 2.00(7) 1.93(7)
Ratio of adjusted expenses to average net
assets(12)(%) 2.76(6) 2.82 2.04 -- -- -- --
Ratio of net investment income (loss)
to average net assets(%) 6.34(6) 9.64 9.22 9.09 8.03(7) 7.06(7) 6.98(7)
Ratio of adjusted net investment income
(loss) to average net assets(12)(%) 4.96(6) 8.82 9.18 -- -- -- --
Portfolio turnover rate (%) 174 151 83 162 112 138 92
Fee reduction per share ($) 0.15 0.08 0.004 -- -- -- --
Debt outstanding at end of period
(000s omitted)(10)($) -- -- -- -- 0 0 0
Average daily amount of debt outstanding
during the period (000s omitted)(10)($) -- -- -- -- 6,484 503 349
Average monthly number of shares
outstanding during the period
(000s omitted) -- -- -- -- 18,572 26,378 28,696
Average daily amount of debt outstanding
per share during the period(10)($) -- -- -- -- 0.35 0.02 0.01
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Class B -- year ended: 10/95(2) 10/96 5/97(3)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 8.75 $ 9.32 $ 9.08
Net investment income (loss) 0.65 0.58(4) 0.33(4)
Net realized and unrealized gain (loss)
on investments 0.57 (0.24) (0.15)
Total from investment operations 1.22 0.34 0.18
Less distributions
Dividends from net investment income (0.65) (0.58) (0.33)
Distributions from net realized gain on
investments sold -- -- --
Total distributions (0.65) (0.58) (0.33)
Net asset value, end of period $ 9.32 $ 9.08 $ 8.93
Total investment return at net asset
value(5)(%) 14.49(7) 3.84 2.02(6)
Total adjusted investment return at net
asset value(5,11)(%) 14.47 -- --
Ratios and supplemental data
Net assets end of period (000s
omitted)($) 226,954 178,124 153,390
Ratio of expenses to average net assets(%) 1.89(7) 1.90 1.87(8)
Ratio of adjusted expenses to average net
assets(12)(%) -- -- --
Ratio of net investment income (loss)
to average net assets(%) 7.26(7) 6.37 6.32(8)
Ratio of adjusted net investment income
(loss) to average net assets(12)(%) -- -- --
Portfolio turnover rate (%) 102(9) 106 129
Fee reduction per share ($) -- -- --
Debt outstanding at end of period
(000s omitted)(10)($) -- -- --
Average daily amount of debt outstanding
during the period (000s omitted)(10)($) N/A N/A N/A
Average monthly number of shares
outstanding during the period
(000s omitted) N/A N/A N/A
Average daily amount of debt outstanding
per share during the period(10)($) N/A N/A N/A
</TABLE>
(1) Class A and Class B shares commenced operations on September 30, 1994 and
February 23, 1988, respectively.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Effective May 31, 1997, the fiscal year end changed from October 31 to May
31.
(4) Based on the average of the shares outstanding at the end of each month.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) Excludes interest expense, which equals 0.04% for Class A for the year
ended October 31, 1995 and 0.15%, 0.01%, 0.01% and 0.02% for Class B for
the years ended October 31, 1992, 1993, 1994 and 1995, respectively.
(8) Annualized.
(9) Portfolio turnover rate excludes merger activity.
(10) Debt outstanding consists of reverse repurchase agreements entered into
during the year.
(11) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(12) Unreimbursed, without fee reduction.
GOVERNMENT INCOME FUND 5
<PAGE>
High Yield Bond Fund
REGISTRANT NAME: JOHN HANCOCK BOND TRUST
TICKER SYMBOL CLASS A: JHHBX CLASS B: TSHYX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks to maximize current income without assuming undue
risk. To pursue this goal, the fund invests primarily in junk bonds, i.e.
lower-rated, higher-yielding debt securities.
Because the performance of junk bonds has historically been influenced by
economic conditions, the fund may rotate securities selection by business sector
according to the economic outlook.
The fund also seeks capital appreciation, but only when consistent with its
primary goal.
PORTFOLIO SECURITIES
[Clip art] Under normal circumstances, the fund invests at least 65% of assets
in bonds rated lower than BBB/Baa and their unrated equivalents. Up to 30% of
assets may be invested in bonds rated CC/Ca. Up to 40% of assets may be invested
in the securities of issuers in the electric utility and telephone industries.
For all other industries, the limitation is 25% of assets.
Types of bonds include, but are not limited to, domestic and foreign corporate
bonds, debentures, notes, convertible securities, preferred stocks, municipal
obligations and government obligations.
The fund may also invest up to 20% of net assets in U.S. or foreign equities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain higher-risk investments, including restricted securities, and
may engage in other investment practices.
RISK FACTORS
[Clip art] Investors should expect greater fluctuations in share price, yield
and total return compared with less aggressive bond funds. These fluctuations,
whether positive or negative, may be sharp and unanticipated.
Issuers of junk bonds are typically in weak financial health and their ability
to pay interest and principal is uncertain. Compared with issuers of
investment-grade bonds, they are more likely to encounter financial difficulties
and to be materially affected by these difficulties when they do encounter them.
Junk bond markets may react strongly to adverse news about an issuer or the
economy, or to the perception or expectation of adverse news. Before you invest,
please read "More about risk" starting on page 29.
PORTFOLIO MANAGEMENT
[Clip art] Arthur N. Calavritinos, CFA, leader of the fund's portfolio
management team since July 1995, is a second vice president of the adviser. He
joined John Hancock Funds in 1988 and has been in the investment business since
1987.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.54% 0.54%
12b-1 fee(3) 0.25% 1.00%
Other expenses 0.25% 0.25%
Total fund operating expenses 1.04% 1.79%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $55 $77 $100 $166
Class B shares
Assuming redemption
at end of period $68 $86 $117 $191
Assuming no redemption $18 $56 $ 97 $191
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
6 HIGH YIELD BOND FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
<TABLE>
<CAPTION>
(0.10)(6) 9.77 (4.51) (8.04) 34.21 11.56 21.76 (1.33) 7.97 15.24 10.06(6)
seven
months
- ------------------------------------------------------------------------------------------------------------------------------------
Class A -- year ended: 10/93(1) 10/94 10/95(2) 10/96 5/97(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 8.10 $ 8.23 $ 7.33 $ 7.20 $ 7.55
Net investment income (loss) 0.33 0.80(4) 0.72 0.76(4) 0.45
Net realized and unrealized gain (loss) on investments 0.09 (0.83) (0.12) 0.35 0.32
Total from investment operations 0.42 (0.03) 0.60 1.11 0.77
Less distributions:
Dividends from net investment income (0.29) (0.82) (0.73) (0.76) (0.45)
Distributions from net realized gain on investments sold -- (0.05) -- -- --
Total distributions (0.29) (0.87) (0.73) (0.76) (0.45)
Net asset value, end of period $ 8.23 $ 7.33 $ 7.20 $ 7.55 $ 7.87
Total investment return at net asset value(5)(%) 4.96(6) (0.59) 8.83 16.06 10.54(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 2,344 11,696 26,452 52,792 97,925
Ratio of expenses to average net assets (%) 0.91(7) 1.16 1.16 1.10 1.05(7)
Ratio of net investment income (loss) to average net assets (%) 12.89(7) 10.14 10.23 10.31 10.19(7)
Portfolio turnover rate (%) 204 153 98 113 78
Average Brokerage Commission Rate(8)($) -- -- -- N/A 0.0583
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B -- year ended: 10/87(1) 10/88 10/89 10/90 10/91 10/92 10/93 10/94
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 9.95 $ 9.94 $ 9.70 $ 8.14 $ 6.45 $ 7.44 $ 7.43 $ 8.23
Net investment income (loss) 0.01 1.07(4) 1.16 1.09 0.98 0.87 0.80 0.74(4)
Net realized and unrealized gain
(loss) on investments (0.02) (0.14) (1.55) (1.68) 1.06 (0.04) 0.75 (0.83)
Total from investment operations (0.01) 0.93 (0.39) (0.59) 2.04 0.83 1.55 (0.09)
Less distributions:
Dividends from net investment income -- (1.17) (1.14) (1.09) (0.98) (0.84) (0.75) (0.76)
Distributions from net realized gain
on investments sold -- -- -- -- -- -- -- (0.05)
Distributions from capital paid-in -- -- (0.03) (0.01) (0.07) -- -- --
Total distributions -- (1.17) (1.17) (1.10) (1.05) (0.84) (0.75) (0.81)
Net asset value, end of period $ 9.94 $ 9.70 $ 8.14 $ 6.45 $ 7.44 $ 7.43 $ 8.23 $ 7.33
Total investment return at net
asset value(5)(%) (0.10)(5) 9.77 (4.51) (8.04) 34.21 11.56 21.76 (1.33)
Total adjusted investment return
at net asset value(5,9)(%) (0.41)(5) 9.01 (4.82) (8.07) -- -- -- --
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 110 20,852 33,964 37,097 72,023 98,560 154,214 160,739
Ratio of expenses to average net assets (%) 0.03(6) 2.00 2.20 2.22 2.24 2.25 2.08 1.91
Ratio of adjusted expenses to average
net assets(10)(%) 0.34(6) 2.76 2.51 2.25 -- -- -- --
Ratio of net investment income (loss)
to average net assets (%) 0.09(6) 10.97 12.23 14.59 13.73 11.09 10.07 9.39
Ratio of adjusted net investment
income (loss) to average
net assets(10)(%) (0.22)(6) 10.21 11.92 14.56 -- -- -- --
Portfolio turnover rate (%) 0 60 100 96 93 206 204 153
Fee reduction per share ($) 0.03 0.07 0.03 0.002 -- -- -- --
Average Brokerage Commission Rate(8)($) -- -- -- -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
Class B -- year ended: 10/95(2) 10/96 5/97(3)
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $ 7.33 $ 7.20 $ 7.55
Net investment income (loss) 0.67 0.70(4) 0.42
Net realized and unrealized gain
(loss) on investments (0.13) 0.35 0.32
Total from investment operations 0.54 1.05 0.74
Less distributions:
Dividends from net investment income (0.67) (0.70) (0.42)
Distributions from net realized gain
on investments sold -- -- --
Distributions from capital paid-in -- -- --
Total distributions (0.67) (0.70) (0.42)
Net asset value, end of period $ 7.20 $ 7.55 $ 7.87
Total investment return at net
asset value(5)(%) 7.97 15.24 10.06(6)
Total adjusted investment return
at net asset value(5,9)(%) -- -- --
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 180,586 242,944 379,024
Ratio of expenses to average net assets (%) 1.89 1.82 1.80(7)
Ratio of adjusted expenses to average
net assets(10)(%) -- -- --
Ratio of net investment income (loss)
to average net assets (%) 9.42 9.49 9.45(7)
Ratio of adjusted net investment
income (loss) to average
net assets(10)(%) -- -- --
Portfolio turnover rate (%) 98 113 78
Fee reduction per share ($) -- -- --
Average Brokerage Commission Rate(8)($) -- N/A 0.0583
(1) Class A and Class B shares commenced operations on June 30, 1993 and
October 26, 1987, respectively.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Effective May 31, 1997, the fiscal year changed from October 31 to May 31.
(4) Based on the average of the shares outstanding at the end of each month.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) Annualized.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(9) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(10) Unreimbursed, without fee reduction.
HIGH YIELD BOND FUND 7
<PAGE>
Intermediate Maturity Government Fund
REGISTRANT NAME: JOHN HANCOCK BOND TRUST
TICKER SYMBOL CLASS A: TAUSX CLASS B: TSUSX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks to earn a high level of current income consistent with
preservation of capital and maintenance of liquidity. To pursue this goal, the
fund invests primarily in U.S. Government securities of any maturity, as
described below. The fund's weighted average maturity will typically be between
three and ten years.
PORTFOLIO SECURITIES
[Clip art] Under normal circumstances, the fund invests at least 80% of assets
in securities that are issued, or guaranteed as to principal and interest, by
the U.S. Government, its agencies or instrumentalities. These may include
Treasuries and mortgage-backed securities such as Ginnie Maes and Fannie Maes.
The fund may invest up to 20% in asset-backed securities or corporate debt
securities rated AAA/Aaa and their unrated equivalents.
For liquidity and flexibility, the fund may place up to 20% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain higher-risk investments, including derivative and leveraged
investments, and may engage in other investment practices.
RISK FACTORS
[Clip art] As with most income funds, the value of your investment will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of debt securities (including U.S.
Government and mortgage-backed securities). To the extent that the fund invests
in mortgage-backed securities, it may also be subject to extension and
prepayment risks. These risks are defined in "More about risk" starting on page
29. Other factors may affect the market price and yield of the fund's
securities, including investor demand and domestic and worldwide economic
conditions.
The U.S. Government does not guarantee the market value or the current yield of
government securities, nor does the government's guarantee in any way extend to
the fund itself. Please read "More about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[Clip art] Roger C. Hamilton, leader of the fund's portfolio management team
since January 1992 (with the fund's previous adviser), is a vice president of
the adviser. He joined John Hancock Funds in December 1994 and has been in the
investment business since 1980.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 3.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 3.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee (after expense limitation)(3) 0.00% 0.00%
12b-1 fee 0.25% 1.00%
Other expenses (after limitation)(3) 0.50% 0.50%
Total fund operating expenses (after limitation)(3) 0.75% 1.50%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $37 $53 $70 $120
Class B shares
Assuming redemption
at end of period $45 $67 $82 $131
Assuming no redemption $15 $47 $82 $131
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's temporary agreement to limit expenses (except for
12b-1 and other class-specific expenses). Without this limitation,
management fees would be 0.40% for each class, other expenses would be
1.27% for each class and total fund operating expenses would be 1.92% for
Class A and 2.67% for Class B.
8 INTERMEDIATE MATURITY GOVERNMENT FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited
by the fund's independent auditors, Ernst & Young
LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
1.96(7) 6.08 2.51 3.98 5.60 4.56 2.13(7)
two
months
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Class A -- year ended: 3/92(1) 3/93 3/94 3/95(2) 3/96 3/97 5/97(3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 10.00 $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.37
Net investment income (loss) 0.17 0.58 0.41 0.49 0.62 0.67 0.11(4)
Net realized and unrealized gain (loss)
on investments 0.03 0.02 (0.16) (0.11) (0.08) (0.25) 0.09
Total from investment operations 0.20 0.60 0.25 0.38 0.54 0.42 0.20
Less distributions:
Dividends from net investment income (0.17) (0.58) (0.41) (0.48) (0.64) (0.66) (0.11)
Distributions from net realized gain
on investments sold -- -- -- -- -- (0.08) --
Total distributions (0.17) (0.58) (0.41) (0.48) (0.64) (0.74) (0.11)
Net asset value, end of period $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.37 $ 9.46
Total investment return at net asset
value(5)(%) 1.96(7) 6.08 2.51 3.98 5.60 4.56 2.13(7)
Total adjusted investment return at
net asset value(5,6)(%) 1.68(7) 5.53 2.27 3.43 4.83 4.19 1.93(7)
Ratios and supplemental data
Net assets, end of period (000s
omitted)($) 13,775 33,273 24,310 12,950 29,024 22,043 22,755
Ratio of expenses to average net assets(8)(%) 0.50(9) 0.50 0.75 0.80 0.75 0.75 0.75(9)
Ratio of adjusted expenses to average
net assets(8,10)(%) 1.62(9) 1.05 0.99 1.35 1.45 1.12 1.92(9)
Ratio of net investment income (loss)
to average net assets (%) 6.47(9) 5.47 4.09 4.91 6.49 6.99 7.07(9)
Ratio of adjusted net investment income
(loss) to average assets(10)(%) 5.35(9) 4.92 3.85 4.36 5.79 6.62 5.90(9)
Fee reduction per share(4)($) 0.11 0.06 0.02 0.05 0.07 0.04 0.02
Portfolio turnover rate (%) 1 186 244 341 423(11) 427 77
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Class B -- year ended: 3/92(1) 3/93 3/94 3/95(2) 3/96 3/97 5/97(3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 10.00 $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.37
Net investment income (loss) 0.15 0.51 0.34 0.43 0.57 0.60 0.10(4)
Net realized and unrealized gain (loss)
on investments 0.03 0.02 (0.16) (0.11) (0.10) (0.24) 0.09
Total from investment operations 0.18 0.53 0.18 0.32 0.47 0.36 0.19
Less distributions:
Dividends from net investment income (0.15) (0.51) (0.34) (0.42) (0.57) (0.60) (0.10)
Distribution from net realized gain on
investments sold -- -- -- -- -- (0.08) --
Total distributions (0.15) (0.51) (0.34) (0.42) (0.57) (0.68) (0.10)
Net asset value, end of period $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.37 $ 9.46
Total investment return at net asset
value(5)(%) 1.80(7) 5.40 1.85 3.33 4.92 3.84 2.01(7)
Total adjusted investment return at net
asset value(5,6) 1.52(7) 4.85 1.61 2.78 4.15 3.47 1.81(7)
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 1,630 13,753 11,626 9,506 8,532 6,779 6,451
Ratio of expenses to average net assets(8)(%) 1.15(9) 1.15 1.40 1.45 1.40 1.43 1.50(9)
Ratio of adjusted expenses to average net
assets(8,10)(%) 2.27(9) 1.70 1.64 2.00 2.10 1.80 2.67(9)
Ratio of net investment income (loss) to
average net assets (%) 5.85(9) 4.82 3.44 4.26 5.80 6.30 6.04(9)
Ratio of adjusted net investment income
(loss) to average assets(10)(%) 4.73(9) 4.27 3.20 3.71 5.10 5.93 4.87(9)
Fee reduction per share(4)($) 0.11 0.06 0.02 0.05 0.07 0.04 0.02
Portfolio turnover rate (%) 1 186 244 341 423(11) 427 77
</TABLE>
(1) Class A and Class B shares commenced operations on December 31, 1991.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Effective May 31, 1997, the fiscal year end changed from March 31 to May
31.
(4) Based on the average of the shares outstanding at the end of each month.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(7) Not annualized.
(8) Beginning on December 31, 1991 (commencement of operations) through March
31, 1995, the expenses used in the ratios represented the expenses of the
fund plus expenses incurred indirectly from the Adjustable U.S. Government
fund (the "Portfolio"), the mutual fund in which the fund invested all of
its assets. The expenses used in the ratios for the fiscal year ended
March 31, 1996 include the expenses of the Portfolio through September 22,
1995.
(9) Annualized.
(10) Unreimbursed, without fee reduction.
(11) Portfolio turnover rate excludes merger activity.
INTERMEDIATE MATURITY GOVERNMENT FUND 9
<PAGE>
Limited-Term Government Fund
REGISTRANT NAME: JOHN HANCOCK LIMITED-TERM GOVERNMENT FUND
TICKER SYMBOL CLASS A: JHNLX CLASS B: JHLBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks to provide current income and security of principal.
To pursue this goal, the fund invests primarily in U.S. Government and agency
securities, as described below. The fund's securities may be of any maturity,
although a substantial portion typically will have maturities of ten years or
less.
PORTFOLIO SECURITIES
[Clip art] Under normal circumstances, the fund invests at least 80% of assets
in securities that are issued, or guaranteed as to principal and interest, by
the U.S. Government, its agencies or instrumentalities. These may include
Treasuries and mortgage-backed securities such as Ginnie Maes and Fannie Maes.
For liquidity and flexibility, the fund may place up to 20% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain higher-risk investments, and may engage in other investment
practices.
RISK FACTORS
[Clip art] In seeking to maintain a relatively stable share price, the fund may
sacrifice opportunities for higher yields. At the same time, its share price
will fluctuate to some extent with changes in interest rates. Typically, a rise
in interest rates causes a decline in the market value of debt securities
(including U.S. Government and mortgage-backed securities). To the extent that
the fund invests in mortgage-backed securities, it may also be subject to
extension and prepayment risks. These risks are defined in "More about risk"
starting on page 29. Other factors may affect the market price and yield of the
fund's securities, including investor demand and domestic and worldwide economic
conditions. The U.S. Government does not guarantee the market value or the
current yield of government securities, nor does the government's guarantee in
any way extend to the fund itself. Please read "More about risk" carefully
before investing.
PORTFOLIO MANAGEMENT
[Clip art] Barry H. Evans, CFA, leader of the fund's portfolio management team
since January 1995, is a senior vice president of the adviser. He has been in
the investment business since joining John Hancock Funds in 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 3.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 3.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.60% 0.60%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.44% 0.44%
Total fund operating expenses 1.34% 2.04%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $43 $71 $101 $186
Class B shares
Assuming redemption
at end of period $51 $84 $110 $195
Assuming no redemption $21 $64 $110 $195
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
10 LIMITED-TERM GOVERNMENT FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
(0.49) 5.67 11.59 7.75 12.54 4.19 7.13 (1.31) 11.23 3.45 1.64(4)
five
months
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A -- year ended: 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 9.71 $ 8.83 $ 8.56 $ 8.73 $ 8.61 $ 8.97 $ 8.77 $ 8.80
Net investment income (loss) 0.78 0.77 0.79 0.74 0.67 0.54 0.48 0.38(2)
Net realized and unrealized gain
(loss) on investments (0.83) (0.28) 0.18 (0.11) 0.36 (0.18) 0.14 (0.49)
Total from investment operations (0.05) 0.49 0.97 0.63 1.03 0.36 0.62 (0.11)
Less distributions:
Dividends from net investment income (0.83) (0.76) (0.80) (0.75) (0.67) (0.54) (0.48) (0.38)
Distributions from net realized gain
on investments sold -- -- -- -- -- (0.02) (0.11) --
Total distributions (0.83) (0.76) (0.80) (0.75) (0.67) (0.56) (0.59) (0.38)
Net asset value, end of period $ 8.83 $ 8.56 $ 8.73 $ 8.61 $ 8.97 $ 8.77 $ 8.80 $ 8.31
Total investment return at net asset
value(3)(%) (0.49) 5.67 11.59 7.75 12.54 4.19 7.13 (1.31)
Ratios and supplemental data
Net assets, end of period (000s
omitted)($) 202,924 192,315 179,065 176,329 211,322 259,170 262,903 218,846
Ratio of expenses to average net assets (%) 0.97 1.02 1.01 1.53 1.44 1.55 1.51 1.41
Ratio of net investment income (loss)
to average net assets (%) 8.52 8.71 8.98 8.56 7.72 6.13 5.34 4.39
Portfolio turnover rate (%) 7 12 26 75 134 185 175 155
<CAPTION>
- -----------------------------------------------------------------------------------
Class A -- year ended: 12/95 12/96 5/97(1)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 8.31 $ 8.73 $ 8.52
Net investment income (loss) 0.50(2) 0.50(2) 0.22(2)
Net realized and unrealized gain
(loss) on investments 0.42 (0.21) (0.08)
Total from investment operations 0.92 0.29 0.14
Less distributions:
Dividends from net investment income (0.50) (0.50) (0.22)
Distributions from net realized gain
on investments sold -- -- --
Total distributions (0.50) (0.50) (0.22)
Net asset value, end of period $ 8.73 $ 8.52 $ 8.44
Total investment return at net asset
value(3)(%) 11.23 3.45 1.64(4)
Ratios and supplemental data
Net assets, end of period (000s
omitted)($) 198,681 175,995 158,218
Ratio of expenses to average net assets (%) 1.36 1.37 1.34(5)
Ratio of net investment income (loss)
to average net assets (%) 5.76 5.81 6.23(5)
Portfolio turnover rate (%) 105 166 142
<CAPTION>
- -----------------------------------------------------------------------------------------
Class B -- year ended: 12/94(6) 12/95 12/96 5/97(1)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 8.77 $ 8.31 $ 8.73 $ 8.52
Net investment income (loss) 0.30(2) 0.45(2) 0.44(2) 0.19(2)
Net realized and unrealized gain
(loss) on investment (0.46) 0.42 (0.21) (0.08)
Total from investment operations (0.16) 0.87 0.23 0.11
Less distributions:
Dividends from net investment
income (0.30) (0.45) (0.44) (0.19)
Net asset value, end of period $ 8.31 $ 8.73 $ 8.52 $ 8.44
Total investment return at net
asset value(3)(%) (1.84)(4) 10.60 2.72 1.34(4)
Ratios and supplemental data
Net assets, end of period (000s
omitted) ($) 7,111 10,765 10,472 10,493
Ratio of expenses to average net
assets (%) 2.12(5) 1.93 2.08 2.04(5)
Ratio of net investment income
(loss) to average net assets (%) 3.70(5) 5.21 5.10 5.53(5)
Portfolio turnover rate (%) 155 105 166 142
</TABLE>
(1) Effective May 31, 1997, the fiscal year end changed from December 31 to
May 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Class B shares commenced operations on January 3, 1994.
LIMITED-TERM GOVERNMENT FUND 11
<PAGE>
Sovereign Bond Fund
REGISTRANT NAME: JOHN HANCOCK SOVEREIGN BOND FUND
TICKER SYMBOL CLASS A: JHNBX CLASS B: JHBBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks to generate a high level of current income consistent
with prudent investment risk. To pursue this goal, the fund invests in a
diversified portfolio of marketable debt securities. These securities are
primarily investment grade, although up to 25% of them may be junk bonds rated
as low as CC/Ca and their unrated equivalents. The fund does not concentrate its
investments in any particular industry.
PORTFOLIO SECURITIES
[Clip art] Under normal circumstances, the fund invests at least 65% of assets
in corporate and government bonds and debentures. Typically, at least
three-quarters of these debt securities (excluding commercial paper) will be:
o securities of any type of issuer that are rated among the four highest Moody's
or S&P rating categories and their unrated equivalents
o U.S. Government and agency securities
The fund may invest up to 25% of assets in U.S. dollar-denominated foreign
securities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain higher-risk investments, including asset-backed securities and
derivatives and leveraged investments, and may engage in other investment
practices.
RISK FACTORS
[Clip art] Investors should expect fluctuations in share price, yield and total
return, particularly with changes in interest rates. Typically, a rise in
interest rates causes a decline in the market value of debt securities. To the
extent that it invests in certain securities, the fund may be affected by
additional risks:
o junk bonds: above-average credit, market and other risks
o foreign securities: currency, information, natural event and political risks
o mortgage-backed securities: extension and prepayment risks
These risks are defined in "More about risk" starting on page 29. The longer the
fund's average weighted maturity, the more it is likely to be affected by a
change in interest rates. Please read "More about risk" carefully before
investing.
PORTFOLIO MANAGEMENT
[Clip art] James K. Ho, CFA, leader of the fund's portfolio management team
since March 1988, is an executive vice president of the adviser. He joined John
Hancock Funds in 1985 and has been in the investment business since 1977.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past fiscal year, adjusted to
reflect any changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.50% 0.50%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.31% 0.31%
Total fund operating expenses 1.11% 1.81%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $56 $78 $103 $173
Class B shares
Assuming redemption
at end of period $69 $87 $118 $194
Assuming no redemption $19 $57 $98 $194
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
12 SOVEREIGN BOND FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
1.58 9.82 12.13 6.71 16.59 8.08 11.80 (2.75) 19.40 4.11 2.22(3)
five
months
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A -- year ended: 12/87 12/88 12/89 12/90 12/91 12/92 12/93
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 15.89 $ 14.53 $ 14.51 $ 14.77 $ 14.33 $ 15.31 $ 15.29
Net investment income (loss) 1.40 1.44 1.43 1.32 1.29 1.20 1.14
Net realized and unrealized gain
(loss) on investments and financial
futures contracts (1.17) (0.06) 0.27 (0.40) 0.98 (0.01) 0.62
Total from investment operations 0.23 1.38 1.70 0.92 2.27 1.19 1.76
Less distributions:
Dividends from net investment
income (1.53) (1.40) (1.44) (1.35) (1.29) (1.21) (1.14)
Distributions from net realized
gain on investments sold and
financial futures contracts (0.06) -- -- -- -- -- (0.38)
Distributions from capital paid-in -- -- -- (0.01) -- -- --
Total distributions (1.59) (1.40) (1.44) (1.36) (1.29) (1.21) (1.52)
Net asset value, end of period $ 14.53 $ 14.51 $ 14.77 $ 14.33 $ 15.31 $ 15.29 $ 15.53
Total investment return at net
asset value(2)(%) 1.58 9.82 12.13 6.71 16.59 8.08 11.80
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 1,095,208 1,103,691 1,110,394 1,103,391 1,249,980 1,386,260 1,505,754
Ratio of expenses to average net
assets (%) 0.82 0.82 0.80 1.31 1.27 1.44 1.41
Ratio of net investment income
(loss) to average net assets (%) 9.32 9.77 9.68 9.18 8.81 7.89 7.18
Portfolio turnover rate (%) 159 66 64 92 90 87 107
<CAPTION>
- -----------------------------------------------------------------------------------------------
Class A -- year ended: 12/94 12/95 12/96 5/97(1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 15.53 $ 13.90 $ 15.40 $ 14.90
Net investment income (loss) 1.12 1.12 1.09 0.44
Net realized and unrealized gain
(loss) on investments and financial
futures contracts (1.55) 1.50 (0.50) (0.12)
Total from investment operations (0.43) 2.62 0.59 0.32
Less distributions:
Dividends from net investment
income (1.12) (1.12) (1.09) (0.44)
Distributions from net realized
gain on investments sold and
financial futures contracts (0.08) -- -- --
Distributions from capital paid-in -- -- -- --
Total distributions (1.20) (1.12) (1.09) (0.44)
Net asset value, end of period $ 13.90 $ 15.40 $ 14.90 $ 14.78
Total investment return at net
asset value(2)(%) (2.75) 19.40 4.11 2.22(3)
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 1,326,058 1,535,204 1,416,116 1,361,924
Ratio of expenses to average net
assets (%) 1.26 1.13 1.14 1.11(4)
Ratio of net investment income
(loss) to average net assets (%) 7.74 7.58 7.32 7.38(4)
Portfolio turnover rate (%) 85 103(5) 123 58
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Class B -- year ended: 12/93(6) 12/94 12/95 12/96 5/97(1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $15.90 $ 15.52 $ 13.90 $ 15.40 $ 14.90
Net investment income (loss) 0.11 1.04 1.02 0.98 0.40
Net realized and unrealized gain
(loss) on investments and
financial futures contracts -- (1.54) 1.50 (0.50) (0.12)
Total from investment operations 0.11 (0.50) 2.52 0.48 0.28
Less distributions:
Dividends from net investment income (0.11) (1.04) (1.02) (0.98) (0.40)
Distributions from net realized gain
on investments sold and financial
futures contracts (0.38) (0.08) -- -- --
Total distributions (0.49) (1.12) (1.02) (0.98) (0.40)
Net asset value, end of period $15.52 $ 13.90 $ 15.40 $ 14.90 $ 14.78
Total investment return at net
asset value(2)(%) 0.90(3) (3.13) 18.66 3.38 1.93(3)
Ratios and supplemental data
Net assets, end of period (000s
omitted)($) 4,125 40,299 98,739 134,112 132,885
Ratio of expenses to average
net assets (%) 1.63(4) 1.78 1.75 1.84 1.81(4)
Ratio of net investment income (loss)
to average net assets (%) 0.57(4) 7.30 6.87 6.62 6.68(4)
Portfolio turnover rate (%) 107 85 103(5) 123 58
</TABLE>
(1) Effective May 31, 1997, the fiscal year end changed from December 31 to
May 31.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) Not annualized.
(4) Annualized.
(5) Portfolio turnover excludes merger activity.
(6) Class B shares commenced operations on November 23, 1993.
SOVEREIGN BOND FUND 13
<PAGE>
Sovereign U.S. Government Income Fund
REGISTRANT NAME: JOHN HANCOCK STRATEGIC SERIES
TICKER SYMBOL CLASS A: JHSGX CLASS B: FGOPX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks to provide as high a level of income as is consistent
with long-term total return. To pursue this goal, the fund invests in U.S.
Government and agency securities, as described below.
PORTFOLIO SECURITIES
[Clip art] Under normal circumstances, the fund invests at least 65% of assets
in securities that are issued, or guaranteed as to principal and interest, by
the U.S. Government, its agencies or instrumentalities. These may include
Treasuries and mortgage-backed securities such as Ginnie Maes and Fannie Maes.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain higher-risk investments, including derivative and leveraged
investments, and may engage in other investment practices.
RISK FACTORS
[Clip art] As with most income investments, the value of your investment will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of debt securities (including U.S.
Government and mortgage-backed securities). To the extent that the fund invests
in mortgage-backed securities, it may also be subject to extension and
prepayment risks. These risks are defined in "More about risk" starting on page
29. Other factors may affect the market price and yield of the fund's
securities, including investor demand and economic conditions.
The U.S. Government does not guarantee the market value or the current yield of
government securities, nor does the government's guarantee in any way extend to
the fund itself. Please read "More about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[Clip art] Barry H. Evans, CFA, leader of the fund's portfolio management team
since January 1995, is a senior vice president of the adviser. He has been in
the investment business since joining John Hancock Funds in 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.50% 0.50%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.37% 0.37%
Total fund operating expenses 1.17% 1.87%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $56 $80 $106 $181
Class B shares
Assuming redemption
at end of period $69 $89 $121 $201
Assuming no redemption $19 $59 $101 $201
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
14 SOVEREIGN U.S. GOVERNMENT INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
<TABLE>
<CAPTION>
2.61(5) 3.70(5) 11.53 11.52 6.24 14.46 7.58 12.66 (7.05) 15.27 3.33 1.61(5)
seven
months
- ------------------------------------------------------------------------------------------------------------------------------------
Class A -- year ended: 10/92(1) 10/93 10/94 10/95 10/96 5/97(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 10.51 $ 10.29 $ 10.89 $ 9.24 $ 10.01 $ 9.75
Net investment income (loss) 0.64 0.68(3) 0.65 0.65 0.64(3) 0.37(3)
Net realized and unrealized gain
(loss) on investments and
financial futures contracts (0.22) 0.61 (1.34) 0.77 (0.26) (0.19)
Total from investment operations 0.42 1.29 (0.69) 1.42 0.38 0.18
Less distributions:
Dividends from net investment income (0.64) (0.68) (0.65) (0.65) (0.64) (0.37)
Distributions from net realized
gain on investments sold -- (0.01) (0.31) -- -- --
Total distributions (0.64) (0.69) (0.96) (0.65) (0.64) (0.36)
Distributions from capital paid-in -- -- -- -- -- (0.01)
Net asset value, end of period $ 10.29 $ 10.89 $ 9.24 $ 10.01 $ 9.75 $ 9.56
Total investment return at net
asset value(4)(%) 5.33(5) 12.89 (6.66) 15.90 4.02 1.92(5)
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 350,907 375,416 315,372 370,966 330,162 302,589
Ratio of expenses to average net
assets (%) 1.06(6) 1.30 1.23 1.17 1.15 1.17(6)
Ratio of net investment income
(loss) to average net assets (%) 7.11(6) 6.47 6.62 6.76 6.58 6.69(6)
Portfolio turnover rate (%) 140 273 127 94 143 88
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - year ended: 10/87(7) 10/87(8) 10/88 10/89 10/90 10/91 10/92 10/93
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 10.00 $ 10.28 $ 9.45 $ 9.73 $ 10.01 $ 9.83 $ 10.29 $ 10.28
Net investment income (loss) 0.56 0.48 0.78 0.81 0.85 0.85 0.76 0.66(3)
Net realized and unrealized gain
(loss) on investments and
financial futures contracts 0.36 (0.75) 0.28 0.25 (0.25) 0.51 -- 0.61
Total from investment operations 0.92 (0.27) 1.06 1.06 0.60 1.36 0.76 1.27
Less distributions:
Dividends from net investment
income (0.57) (0.48) (0.77) (0.77) (0.78) (0.90) (0.77) (0.66)
Distributions from net realized
gain on investments sold (0.07) (0.08) (0.01) (0.01) -- -- -- (0.01)
Distributions from capital paid-in -- -- -- -- -- -- -- --
Total distributions (0.64) (0.56) (0.78) (0.78) (0.78) (0.90) (0.77) (0.67)
Net asset value, end of period $ 10.28 $ 9.45 $ 9.73 $ 10.01 $ 9.83 $ 10.29 $ 10.28 $ 10.88
Total investment return at net
asset value(4)(%) 2.61(5) 3.70(5) 11.53 11.52 6.24 14.46 7.58 12.66
Total adjusted investment return at
net asset value(4,9)(%) -- 3.65(5) 11.47 11.29 6.23 -- -- --
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 164,001 170,030 161,163 144,756 133,778 164,347 197,032 244,133
Ratio of expenses to average
net assets (%) 1.26(6) 1.24(6) 1.29 1.35 1.54 1.51 1.55 1.51
Ratio of adjusted expenses to
average net assets(10)(%) -- 1.32(6) 1.35 1.58 1.55 -- -- --
Ratio of net investment income
(loss) to average net assets (%) 7.56(6) 7.94(6) 8.09 8.34 8.54 8.53 7.35 6.23
Ratio of adjusted net investment
income (loss) to average net
assets(10)(%) -- 7.86(6) 8.03 8.11 8.53 -- -- --
Portfolio turnover rate (%) 108 83 79 45 63 62 140 273
Fee reduction per share ($) -- 0.01 0.01 0.02 0.01 -- -- --
<CAPTION>
- ---------------------------------------------------------------------------------------------
Class B - year ended: 10/94 10/95 10/96 5/97
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 10.88 $ 9.23 $ 10.00 $ 9.74
Net investment income (loss) 0.61 0.60 0.58(3) 0.33(3)
Net realized and unrealized gain
(loss) on investments and
financial futures contracts (1.34) 0.77 (0.26) (0.18)
Total from investment operations (0.73) 1.37 0.32 0.15
Less distributions:
Dividends from net investment
income (0.61) (0.60) (0.58) (0.33)
Distributions from net realized
gain on investments sold (0.31) -- -- --
Distributions from capital paid-in -- -- -- (0.01)
Total distributions (0.92) (0.60) (0.58) (0.33)
Net asset value, end of period $ 9.23 $ 10.00 $ 9.74 $ 9.56
Total investment return at net
asset value(4)(%) (7.05) 15.27 3.33 1.61(5)
Total adjusted investment return at
net asset value(4,9)(%) -- -- -- --
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 196,899 130,824 112,228 96,349
Ratio of expenses to average
net assets (%) 1.64 1.72 1.82 1.86(6)
Ratio of adjusted expenses to
average net assets(10)(%) -- -- -- --
Ratio of net investment income
(loss) to average net assets (%) 6.19 6.24 5.91 5.99(6)
Ratio of adjusted net investment
income (loss) to average net
assets(10)(%) -- -- -- --
Portfolio turnover rate (%) 127 94 143 88
Fee reduction per share ($) -- -- -- --
</TABLE>
(1) Class A shares commenced operations on January 3, 1992.
(2) Effective May 31, 1997, the fiscal year end changed from December 31 to
May 31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
(7) For the period June 5, 1986 (commencement of operations) to March 31,
1987.
(8) For the period April 1, 1987 to October 31, 1987.
(9) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(10) Unreimbursed, without fee reduction.
SOVEREIGN U.S. GOVERNMENT INCOME FUND 15
<PAGE>
Strategic Income Fund
REGISTRANT NAME: JOHN HANCOCK STRATEGIC SERIES
TICKER SYMBOL CLASS A: JHFIX CLASS B: STIBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks a high level of current income. To pursue this goal,
the fund invests primarily in three sectors:
o foreign government and
corporate debt securities
o U.S. Government and agency securities
o junk bonds rated as low as CC/Ca and their unrated equivalents.
Under normal circumstances, the fund's assets will be invested in all three
sectors. However, the weighting of assets among sectors will be adjusted to
reflect current or anticipated market behavior, and the fund may invest up to
100% of assets in any sector.
PORTFOLIO SECURITIES
[Clip art] The fund may invest in debt securities of all maturities and types,
including bonds, debentures, notes, preferred stock, mortgage-backed and
asset-backed securities and others. The fund may also invest up to 10% of net
assets in U.S. or foreign equities.
For liquidity and flexibility, the fund may invest in investment-grade
short-term securities. In abnormal market conditions, it may invest more assets
in these securities as a defensive tactic. The fund also may invest in certain
higher-risk investments, including derivative and leveraged investments, and may
engage in other investment practices.
RISK FACTORS
[Clip art] Investors should expect fluctuations in share price, yield and total
return that are above-average for bond funds. Typically, a rise in interest
rates causes a decline in the market value of debt securities. The longer the
fund's average weighted maturity, the more it is likely to be affected by a
change in interest rates. To the extent that the fund invests in mortgage-backed
securities, it may also be subject to extension and prepayment risks. These
risks are defined in "More about risk" starting on page 29. Foreign securities
carry additional risks, including currency, information, natural event and
political risks. Issuers of junk bonds are typically in weak financial health,
and their ability to pay interest and principal is uncertain, especially in an
adverse economy. Junk bond markets may react strongly to adverse news about an
issuer or the economy, or to the perception or expectation of adverse news.
Please read "More about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[Clip art] Frederick L. Cavanaugh, Jr., leader of the fund's portfolio
management team since 1986, is a senior vice president of the adviser. He joined
John Hancock Funds in 1986 and has been in the investment business since 1973.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.43% 0.43%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.27% 0.27%
Total fund operating expenses 1.00% 1.70%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $55 $75 $98 $162
Class B shares
Assuming redemption
at end of period $67 $84 $112 $182
Assuming no redemption $17 $54 $92 $182
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
16 STRATEGIC INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
6.89 9.72 (7.36) 12.31 19.92 6.81 4.54 9.33 11.37 12.99
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended: 5/88 5/89 5/90 5/91 5/92 5/93 5/94 5/95
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 9.71 $ 9.24 $ 8.98 $ 7.33 $ 7.20 $ 7.78 $ 7.55 $ 7.17
Net investment income (loss) 1.13 1.12 1.04 0.93 0.80 0.71 0.68 0.64
Net realized and unrealized gain
(loss) on investments, foreign
currency transactions and financial
futures contracts (0.47) (0.26) (1.65) (0.13) 0.52 (0.22) (0.33) (0.02)
Total from investment operations 0.66 0.86 (0.61) 0.80 1.32 0.49 0.35 0.62
Less distributions:
Dividends from net investment
income (1.13) (1.12) (1.04) (0.93) (0.74)(3) (0.72) (0.58)(3) (0.55)
Distributions in excess of net
investment income -- -- -- -- -- -- (0.05) --
Distributions from capital paid-in -- -- -- -- -- -- (0.10) (0.09)
Total distributions (1.13) (1.12) (1.04) (0.93) (0.74) (0.72) (0.73) (0.64)
Net asset value, end of period $ 9.24 $ 8.98 $ 7.33 $ 7.20 $ 7.78 $ 7.55 $ 7.17 $ 7.15
Total investment return at net
asset value(4)(%) 6.89 9.72 (7.36) 12.31 19.92 6.81 4.54 9.33
Total adjusted investment return at
net asset value(4,5)(%) 6.49 9.58 (7.45) -- -- -- -- --
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 67,140 95,430 80,890 79,272 153,568 262,137 335,261 327,876
Ratio of expenses to average net
assets (%) 1.09 1.33 1.53 1.75 1.69 1.58 1.32 1.09
Ratio of adjusted expenses to
average net assets(6)(%) 1.49 1.47 1.62 -- -- -- -- --
Ratio of net investment income
(loss) to average net assets(6)(%) 12.07 12.28 12.60 13.46 10.64 9.63 8.71 9.24
Ratio of adjusted net investment
income (loss) to average net
assets (%) 11.67 12.14 12.51 -- -- -- -- --
Portfolio turnover rate (%) 67 125 81 60 80 97 91 55
Fee reduction per share ($) 0.04 0.01 0.01 -- -- -- -- --
<CAPTION>
- --------------------------------------------------------------------------------
Class A - year ended: 5/96 5/97
- --------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 7.15 $ 7.27
Net investment income (loss) 0.66(2) 0.64(2)
Net realized and unrealized gain
(loss) on investments, foreign
currency transactions and financial
futures contracts 0.12 0.27
Total from investment operations 0.78 0.91
Less distributions:
Dividends from net investment
income (0.66) (0.64)
Distributions in excess of net
investment income -- --
Distributions from capital paid-in -- --
Total distributions (0.66) (0.64)
Net asset value, end of period $ 7.27 $ 7.54
Total investment return at net
asset value(4)(%) 11.37 12.99
Total adjusted investment return at
net asset value(4,5)(%) -- --
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 369,127 416,916
Ratio of expenses to average net
assets (%) 1.03 1.01
Ratio of adjusted expenses to
average net assets(6)(%) -- --
Ratio of net investment income
(loss) to average net assets(6)(%) 9.13 8.63
Ratio of adjusted net investment
income (loss) to average net
assets (%) -- --
Portfolio turnover rate (%) 78 132
Fee reduction per share ($) -- --
<CAPTION>
- -------------------------------------------------------------------------------------------------
Class B - year ended: 5/94(1) 5/95 5/96 5/97
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 7.58 $ 7.17 $ 7.15 $ 7.27
Net investment income (loss) 0.40 0.60(2) 0.61(2) 0.59
Net realized and unrealized gain
(loss) on investments, foreign
currency transactions and
financial futures contracts (0.41) (0.02) 0.12 0.27
Total from investment operations (0.01) 0.58 0.73 0.86
Less distributions:
Dividends from net investment
income (0.32) (0.52) (0.61) (0.59)
Distributions in excess of net
investment income (0.03) -- -- --
Distributions from capital paid-in (0.05) (0.08) -- --
Total distributions (0.40) (0.60) (0.61) (0.59)
Net asset value, end of period $ 7.17 $ 7.15 $ 7.27 $ 7.54
Total investment return at net asset
value(4)(%) (0.22)(7) 8.58 10.61 12.21
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 77,691 134,527 206,751 328,487
Ratio of expenses to average net
assets (%) 1.91(8) 1.76 1.73 1.70
Ratio of net investment income
(loss) to average net assets (%) 8.12(8) 8.55 8.42 7.90
Portfolio turnover rate (%) 91 55 78 132
</TABLE>
(1) Class A and Class B shares commenced operations on August 18, 1986 and
October 4, 1993, respectively.
(2) Based on the average of the shares outstanding at the end of each month.
(3) The dividend policy of the fund was changed, effective August 1, 1991,
from one that utilized daily dividend declarations to one that declares
dividends monthly. Additionally, the dividend policy of the fund was
changed, effective October 1, 1993, from one that declared dividends
monthly to daily dividend declarations.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(6) Unreimbursed, without fee reduction.
(7) Not annualized.
(8) Annualized.
STRATEGIC INCOME FUND 17
<PAGE>
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
All John Hancock income funds offer two classes of shares, Class A and Class B.
Each class has its own cost structure, allowing you to choose the one that best
meets your requirements. Your financial representative can help you decide.
- --------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------
o Front-end sales charges, as o No front-end sales charge;
described below. There are all your money goes to work
several ways to reduce these for you right away.
charges, also described
below. o Higher annual expenses than
Class A shares.
o Lower annual expenses than
Class B shares. o A deferred sales charge, as
described below.
o Automatic conversion to Class
A shares after either five
years (Group 1) or eight
years (Group 2) (see below),
thus reducing future annual
expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Use the table below to find out which group the fund is in, then consult the
sales charge information for that group.
- --------------------------------------------------------------------------------
Group 1 Group 2
- --------------------------------------------------------------------------------
o Intermediate Maturity o Government Income
Government
o High Yield Bond
o Limited-Term Government
o Sovereign Bond
o Sovereign U.S. Government
Income
o Strategic Income
Class A Sales charges are as follows:
- --------------------------------------------------------------------------------
Class A sales charges - Group 1
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $99,999 3.00% 3.09%
$100,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
- --------------------------------------------------------------------------------
Class A sales charges - Group 2
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $99,999 4.50% 4.71%
$100,000 - $249,999 3.75% 3.90%
$250,000 - $499,999 2.75% 2.83%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
Investments of $1 million or more Class A shares are available with no front-end
sales charge. However, there is a contingent deferred sales charge (CDSC) on any
shares sold within one year of purchase, as follows:
- --------------------------------------------------------------------------------
CDSC on $1 million+ investments (Groups 1 and 2)
- --------------------------------------------------------------------------------
Your investment CDSC on shares being sold
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the LAST day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
18 YOUR ACCOUNT
<PAGE>
Class B Shares are offered at their net asset value per share, without any
initial sales charge. However, you may be charged a contingent deferred sales
charge (CDSC) on shares you sell within a certain time after you bought them, as
described in the table below. There is no CDSC on shares acquired through
reinvestment of dividends. The CDSC is based on the original purchase cost or
the current market value of the shares being sold, whichever is less. The longer
the time between the purchase and the sale of shares, the lower the rate of the
CDSC:
- --------------------------------------------------------------------------------
Class B deferred charges
- --------------------------------------------------------------------------------
Years after CDSC on Group 1 CDSC on Group 2
purchase shares being sold shares being sold
1st year 3.00% 5.00%
2nd year 2.00% 4.00%
3rd year 2.00% 3.00%
4th year 1.00% 3.00%
5th year None 2.00%
6th year None 1.00%
After 6 years None None
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the FIRST day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
o Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
o Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had
been purchased at once.
o Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Signature Services to add these options (see
the back cover of this prospectus).
Group Investment Program A group may be treated as a single purchaser under the
accumulation and combination privileges. Each investor has an individual
account, but the group's investments are lumped together for sales charge
purposes, making the investors potentially eligible for reduced sales charges.
There is no charge, no obligation to invest (although initial aggregate
investments must be at least $250), and individual investors may terminate their
accounts at any time.
To utilize: contact your financial representative or Signature Services to find
out how to qualify, or consult the SAI (see the back cover of this prospectus).
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for either share class will generally be waived in the following cases:
o to make payments through certain systematic withdrawal plans
o to make certain distributions from a retirement plan
o because of shareholder death or disability
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI.
Reinstatement privilege If you sell shares of a John Hancock fund, you may
reinvest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge, as long as Signature Services is
notified before you reinvest. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must have
the same registration.
To utilize: contact your financial representative or Signature Services.
YOUR ACCOUNT 19
<PAGE>
Waivers for certain investors Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
o government entities that are prohibited from paying mutual fund sales
charges
o financial institutions or common trust funds investing $1 million or more
for non-discretionary accounts
o selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
o fund trustees and other individuals who are affiliated with these or other
John Hancock funds
o individuals transferring assets to a John Hancock fund from an employee
benefit plan that has John Hancock funds
o members of an approved affinity group financial services program
o certain insurance company contract holders (one-year CDSC usually applies)
o participants in certain retirement plans with at least 100 members
(one-year CDSC applies)
o in the case of Limited-Term Government Fund, anyone investing the proceeds
from any non-John Hancock mutual fund, as long as that fund had sales
charges and the investor paid them; investors must supply a copy of the
redemption check or confirmation statement, and must remain invested in
Limited-Term Government Fund for at least 15 days
To utilize: if you think you may be eligible for a sales charge waiver, contact
Signature Services or consult the SAI.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
o non-retirement account: $1,000
o retirement account: $250
o group investments: $250
o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must
invest at least $25 a month
o fee-based clients of selling brokers who placed at least $2 billion
in John Hancock Funds: $500
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Signature Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges
later.
5 Make your initial investment using the table on the next page. You and
your financial representative can initiate any purchase, exchange or sale
of shares.
20 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clipart] o Make out a check for the o Make out a check for the
investment amount, payable investment amount payable to
to "John Hancock Signature "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to your investment slip from an
financial representative, or account statement. If no slip
mail them to Signature is available, include a note
Services (address on next specifying the fund name, your
page). share class, your account
number and the name(s) in
which the account is
registered.
o Deliver the check and your
investment slip or note to
your financial representative,
or mail them to Signature
Services (address below).
By exchange
[Clipart] o Call your financial o Call your financial
representative or Signature representative or Signature
Services to request an Services to request an
exchange. exchange.
By wire
[Clipart] o Deliver your completed o Instruct your bank to wire
application to your financial the amount of your
representative, or mail it to investment to:
Signature Services. First Signature Bank & Trust
Account # 900000260
o Obtain your account number by Routing # 211475000
calling your financial Specify the fund name, your
representative or Signature share class, your account
Services. number and the name(s) in
which the account is
o Instruct your bank to registered. Your bank may
wire the amount of your charge a fee to wire funds.
investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s)
in which the account is
registered. Your bank may
charge a fee to wire funds.
By phone
[Clipart] See "By wire" and "By exchange." o Verify that your bank or
credit union is a member of
the Automated Clearing House
(ACH) system.
o Complete the "Invest-By-
Phone" and "Bank
Information" sections on
your account application.
o Call Signature Services to
verify that these features
are in place on your
account.
o Tell the Signature Services
representative the fund
name, your share class, your
account number, the name(s)
in which the account is
registered and the amount of
your investment.
- ------------------------------------------
Address
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000 To open or add to an account using
the Monthly Automatic Accumulation
Phone Program, see "Additional investor
1-800-225-5291 services."
Or contact your financial representative
for instructions and assistance.
- ------------------------------------------
YOUR ACCOUNT 21
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clipart] o Accounts of any type. o Write a letter of instruction or
complete a stock power indicating
o Sales of any amount. the fund name, your share class,
your account number, the name(s)
in which the account is registered
and the dollar value or number of
shares you wish to sell.
o Include all signatures and any
additional documents that may be
required (see next page).
o Mail the materials to Signature
Services.
o A check will be mailed to the
name(s) and address in which the
account is registered, or
otherwise according to your letter
of instruction.
By phone
[Clipart] o Most accounts.
o Sales of up to $100,000. o For automated service 24 hours a
day using your touch-tone phone,
call the EASI-Line at
1-800-338-8080.
o To place your order with a
representative at John Hancock
Funds, call Signature Services
between 8 A.M. and 4 P.M. Eastern
Time on most business days.
By wire or electronic funds transfer (EFT)
[Clipart] o Requests by letter to sell o Fill out the "Telephone
any amount (accounts of any Redemption" section of your
type). new account application.
o Requests by phone to sell up o To verify that the telephone
to $100,000 (accounts with redemption privilege is in
telephone redemption place on an account, or to
privileges). request the forms to add it
to an existing account, call
Signature Services.
o Amounts of $1,000 or more
will be wired on the next
business day. A $4 fee will
be deducted from your
account.
o Amounts of less than $1,000
may be sent by EFT or by
check. Funds from EFT
transactions are generally
available by the second
business day. Your bank may
charge a fee for this
service.
By exchange
[Clipart] o Accounts of any type. o Obtain a current prospectus
for the fund into which you
o Sales of any amount. are exchanging by calling
your financial
representative or Signature
Services.
o Call your financial
representative or Signature
Services to request an
exchange.
By Check
[Clipart] o Government Income, Limited- o Request checkwriting on your account
Term Government, Sovereign application.
U.S. Government and
Strategic Income Funds only. o Verify that the shares to be sold
were purchased more than 10 days
o Any account with checkwriting earlier or were purchased by wire.
privileges.
o Write a check for any amount over
o Sales of over $100. $100.
- ------------------------------------------
Address
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone
1-800-225-5291
Or contact your financial representative
for instructions and assistance.
- ------------------------------------------
To sell shares through a systematic withdrawal plan,
see "Additional investor services."
22 YOUR ACCOUNT
<PAGE>
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling more than $100,000 worth of shares
o you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
o a broker or securities dealer
o a federal savings, cooperative or other type of bank
o a savings and loan or other thrift institution
o a credit union
o a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
[Clipart]
- --------------------------------------------------------------------------------
Owners of individual, joint, sole o Letter of instruction.
proprietorship, UGMA/UTMA (custodial
accounts for minors) or general o On the letter, the signatures and
partner accounts. titles of all persons authorized
to sign for the account, exactly
as the account is registered.
o Signature guarantee if applicable
(see above).
Owners of corporate or association o Letter of instruction.
accounts.
o Corporate resolution, certified
within the past two years.
o On the letter and the resolution,
the signature of the person(s)
authorized to sign for the
account.
o Signature guarantee if applicable
(see above).
Owners or trustees of trust o Letter of instruction.
accounts.
o On the letter, the signature(s) of
the trustee(s).
o If the names of all trustees are
not registered on the account,
please also provide a copy of the
trust document certified within
the past six months.
o Signature guarantee if applicable
(see above).
Joint tenancy shareholders whose o Letter of instruction signed by
co-tenants are deceased. surviving tenant.
o Copy of death certificate.
o Signature guarantee if applicable
(see above).
Executors of shareholder estates. o Letter of instruction signed by
executor.
o Copy of order appointing executor.
o Signature guarantee if applicable
(see above).
Administrators, conservators, o Call 1-800-225-5291 for
guardians and other sellers or instructions.
account types not listed above.
YOUR ACCOUNT 23
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
Buy and sell prices When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
Execution of requests Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after your request is accepted by
Signature Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Signature Services will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or other taxpayer ID number and other relevant
information. If appropriate measures are taken, Signature Services is not
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Also for your protection, telephone transactions are not
permitted on accounts whose names or addresses have changed within the past 30
days. Proceeds from telephone transactions can only be mailed to the address of
record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical. Class B shares
will continue to age from the original date and will retain the same CDSC rate
as they had before the exchange, except that the rate will change to the new
fund's rate if that rate is higher. A CDSC rate that has increased will drop
again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may also refuse any exchange order.
A fund may change or cancel its exchange policies at any time, upon 60 days'
notice to its shareholders.
Certificated shares Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Signature Services. Certificated
shares can only be sold by returning the certificates to Signature Services,
along with a letter of instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The funds generally declare dividends daily and pay them monthly.
Short- and long-term capital gains, if any, are distributed annually, typically
after the end of a fund's fiscal year. Your dividends begin accruing the day
after payment is received by the fund and continue through the day your shares
are actually sold.
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
24 YOUR ACCOUNT
<PAGE>
Taxability of dividends As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. Dividends from a fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income. Some dividends paid in January may be
taxable as if they had been paid the previous December.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
- --------------------------------------------------------------------------------
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
o Complete the appropriate parts of your account application.
o If you are using MAAP to open an account, make out a check ($25 minimum)
for your first investment amount payable to "John Hancock Signature
Services, Inc." Deliver your check and application to your financial
representative or Signature Services.
Systematic withdrawal plan This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account
(buying shares during a period when you are also selling shares of the
same fund is not advantageous to you, because of sales charges).
o Specify the payee(s). The payee may be yourself or any other party, and
there is no limit to the number of payees you may have, as long as they
are all on the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial
representative or Signature Services.
Retirement plans John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SIMPLE plans, SEPs, 401(k) plans, 403(b) plans (including
TSAs) and other pension and profit-sharing plans. Using these plans, you can
invest in any John Hancock fund (except tax-free income funds) with a low
minimum investment of $250 or, for some group plans, no minimum investment at
all. To find out more, call Signature Services at 1-800-225-5291.
YOUR ACCOUNT 25
<PAGE>
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
How the funds are organized Each John Hancock income fund is an open-end
management investment company or a series of such a company.
Each fund is supervised by a board of trustees, an independent body that has
ultimate responsibility for the fund's activities. The board retains various
companies to carry out the fund's operations, including the investment adviser,
custodian, transfer agent and others (see diagram). The board has the right, and
the obligation, to terminate the fund's relationship with any of these companies
and to retain a different company if the board believes it is in the
shareholders' best interests.
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the fund's board. Thereafter, the board and the shareholders determine
the board's membership. The boards of the John Hancock income funds may include
individuals who are affiliated with the investment adviser. However, the
majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
[Diagram outlining the business structure of John Hancock Funds.]
SHAREHOLDERS
FINANCIAL SERVICES FIRMS AND
DISTRIBUTION AND THEIR REPRESENTATIVES
SHAREHOLDER SERVICES
Advise current and prospective
shareholders on their fund
investments, often in the context
of an overall financial plan.
PRINCIPAL DISTRIBUTOR TRANSFER AGENT
John Hancock Funds, Inc. John Hancock Signature Services, Inc.
101 Huntington Avenue 1 John Hancock Way, Suite 1000
Boston, MA 02199-7603 Boston, MA 02217-1000
Markets the funds and distributes Handles shareholder services,
shares through selling brokers, including record-keeping and
financial planners and other statements, distribution of dividends
financial representatives. and processing of buy and sell
requests.
INVESTMENT ADVISER CUSTODIAN
John Hancock Advisers, Inc. Investors Bank & Trust Co.
101 Huntington Avenue 200 Clarendon Street
Boston, MA 02199-7603 Boston, MA 02116
Manages the funds' business and Holds the funds' assets, settles all
investment activities. portfolio trades and collects most of
the valuation data required for
calculating each fund's NAV.
ASSET
TRUSTEES MANAGEMENT
Supervise the funds' activities.
26 FUND DETAILS
<PAGE>
Accounting compensation The funds compensate the adviser for performing tax and
financial management services. Annual compensation is not expected to exceed
0.02% of each fund's average net assets.
Portfolio trades In placing portfolio trades, the adviser may use brokerage
firms that market the fund's shares or are affiliated with John Hancock Mutual
Life Insurance Company, but only when the adviser believes no other firm offers
a better combination of quality execution (i.e., timeliness and completeness)
and favorable price.
Investment goals Except for Government Income Fund, High Yield Bond Fund and
Intermediate Maturity Government Fund, each fund's investment goal is
fundamental and may only be changed with shareholder approval.
Diversification All of the income funds are diversified.
- --------------------------------------------------------------------------------
SALES COMPENSATION
As part of their business strategies, the funds, along with John Hancock Funds,
pay compensation to financial services firms that sell the funds' shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the funds' assets ("12b-1" refers to the federal
securities regulation that authorizes annual fees of this type). The 12b-1 fee
rates vary by fund and by share class, according to Rule 12b-1 plans adopted by
the funds. The sales charges and 12b-1 fees paid by investors are detailed in
the fund-by-fund information. The portions of these expenses that are reallowed
to financial services firms are shown on the next page.
- --------------------------------------------------------------------------------
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and, for Class B shares,
interest expenses.
Class B unreimbursed distribution expenses(1)
Unreimbursed As a % of
Fund expenses net assets
Government Income $ 10,894,166 6.53%
High Yield Bond $ 8,666,437 2.80%
Intermediate Maturity Gov. $ 402,344 6.06%
Limited-Term Government $ 187,913 1.84%
Sovereign Bond $ 3,985,198 3.07%
Sovereign U.S. Gov. Income $ 5,472,842 5.27%
Strategic Income $ 5,684,848 2.12%
(1) As of the most recent fiscal year end covered by each fund's financial
highlights. These expenses may be carried forward indefinitely.
Initial compensation Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
Annual compensation Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears.
Financial services firms selling large amounts of fund shares may receive extra
compensation. This compensation, which John Hancock Funds pays out of its own
resources, may include asset retention fees as well as reimbursement for
marketing expenses.
FUND DETAILS 27
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Class A investments
- ------------------------------------------------------------------------------------------------------------------------------
Maximum
Sales charge reallowance First year Maximum
paid by investors or commission service fee total compensation(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
Group 1 funds
Up to $99,999 3.00% 2.26% 0.25% 2.50%
$100,000 - $499,999 2.50% 2.01% 0.25% 2.25%
$500,000 - $999,999 2.00% 1.51% 0.25% 1.75%
Group 2 funds
Up to $99,999 4.50% 3.76% 0.25% 4.00%
$100,000 - $249,999 3.75% 3.01% 0.25% 3.25%
$250,000 - $499,999 2.75% 2.06% 0.25% 2.30%
$500,000 - $999,999 2.00% 1.51% 0.25% 1.75%
Regular investments of
$1 million or more
(Groups 1 and 2)
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
Waiver investments(2) -- 0.00% 0.25% 0.25%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Class B investments
- ------------------------------------------------------------------------------------------------------------------------------
Maximum
reallowance First year Maximum
or commission service fee total compensation
(% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C>
Group 1 funds
All amounts 2.25% 0.25% 2.50%
Group 2 funds
All amounts 3.75% 0.25% 4.00%
</TABLE>
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members that take advantage of the sales charge
waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
28 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's principal securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief descriptions of these
securities and investment practices, along with the risks associated with them.
The funds follow certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that a John Hancock income fund
will earn income or show a positive total return over any period of time --
days, months or years.
- --------------------------------------------------------------------------------
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). Incomplete correlation can result
in unanticipated risks.
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency-denominated investments, and may widen any losses.
Extension risk The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value.
o Hedged When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
o Speculative To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
Liquidity risk The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative effect on fund management or
performance.
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. Market risk may affect a single issuer, an
industry, a sector of the bond market or the market as a whole. Common to all
stocks and bonds and the mutual funds that invest in them.
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events.
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and war.
Prepayment risk The risk that unanticipated prepayments may occur, reducing the
value of mortgage-backed securities.
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
FUND DETAILS 29
<PAGE>
- --------------------------------------------------------------------------------
Higher-risk securities and practices
- --------------------------------------------------------------------------------
This table shows each fund's investment limitations as a percentage of portfolio
assets. In each case the principal types of risk are listed (see previous page
for definitions). Numbers in this table show allowable usage only; for actual
usage, consult the fund's annual/semi-annual reports.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
* No policy limitation on usage;
fund may be using currently
o Permitted, but has not typically been used
- -- Not permitted
<TABLE>
<CAPTION>
Intermediate Sovereign
Government High Yield Maturity Limited-Term Sovereign U.S. Gov't Strategic
Income Bond Gov't Government Bond Income Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment practices
Borrowing; reverse repurchase agreements
The borrowing of money from banks
or through reverse repurchase agreements.
Leverage, credit risks. 33.3 33.3 33.3 33.3 33.3 33.3 33
Covered mortgage dollar roll transactions
The sale of mortgage-backed securities
with the commitment to buy back similar
securities at a future date. Credit, interest
rate,leverage, market, opportunity risks. * * * -- * * *
Repurchase agreements The purchase of a
security that must later be sold back to
the issuer at the same price plus interest.
Credit risk. * * * * * * *
Securities lending The lending of securities
to financial institutions, which provide
cash or government securities as collateral.
Credit risk. 30 30 33.3 33.3 33.3 30 33.3
Short-term trading Selling a security soon
after purchase. A portfolio engaging in
short-term trading will have higher turnover
and transaction expenses. Market risk. * * * * * * *
When-issued securities and forward commitments
The purchase or sale of securities for delivery
at a future date; market value may change before
delivery. Market, opportunity, leverage risks. * * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------------
Conventional securities
Brady bonds Dollar-denominated securities issued
to refinance foreign government bank loans and
other debt. Credit, interest rate, market,
political risks. 10 o (1) -- -- 25 -- o (1)
Foreign debt securities Debt securities issued
by foreign governments or companies. Credit,
currency, interest rate, market, political risks. 20 * (1) -- -- 25 -- * (1)
In-kind, delayed and zero coupon debt securities
Securities offering non-cash or delayed-cash
payment. Their prices are typically more volatile
than those of conventional debt securities.
Credit, interest rate, market risks. * * * -- * * *
Restricted and illiquid securities Securities
not traded on the open market. May include
illiquid Rule 144A securities. Liquidity,
valuation, market risks. 10 10 15 15 15 15 15
- ------------------------------------------------------------------------------------------------------------------------------------
Unleveraged derivative securities
Asset-backed securities Securities backed by
unsecured debt, such as credit card debt;
these securities are often guaranteed or
over-collateralized to enhance their credit
quality. Credit, interest rate risks. 20 * 20 20 * 35 *
Mortgage-backed securities Securities backed
by pools of mortgages, including passthrough
certificates, PACs, TACs and other senior
classes of collateralized mortgage obligations
(CMOs). Credit, extension, prepayment, interest
rate risks. * * * * * * *
Participation interests Securities representing
an interest in another security or in bank loans.
Credit, interest rate, liquidity, valuation
risks. -- 10(2) -- -- 15(2) -- 15(2)
Rights and warrants Securities offering the
right, or involving the promise, to buy or
sell certain securities at a future date.
Market risk. 5 5 5 5 5 -- 5
</TABLE>
(1) No more than 25% of the fund`s assets will be invested in government
securities of any one foreign country.
(2) Part of the 10% or 15% limitation on illiquid securities.
30 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
Higher-risk securities and practices (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate Sovereign
Government High Yield Maturity Limited-Term Sovereign U.S. Gov't Strategic
Income Bond Gov't Government Bond Income Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leveraged derivative securities
Currency contracts Contracts involving the
right or obligation to buy or sell a
given amount of foreign currency at a
specified price and future date.
o Hedged. Currency, hedged leverage,
correlation, liquidity, opportunity risks. -- * -- -- -- -- *
o Speculative. Currency, speculative
leverage, liquidity risks. -- -- -- -- -- -- o
Financial futures and options; securities
and index options Contracts involving the
right or obligation to deliver or receive
assets or money depending on the performance
of one or more assets or an economic index.
o Futures and related options. Interest
rate, currency, market, hedged or
speculative leverage, correlation,
liquidity, opportunity risks. * * -- -- * * *
o Options on securities and indices. Interest
rate, currency, market, hedged or speculative
leverage, correlation, liquidity, credit,
opportunity risks. * * -- -- o * o
Structured securities Indexed and/or leveraged
mortgage-backed and other debt securities,
including principal-only and interest-only
securities, leveraged floating rate securities,
and others. These securities tend to be highly
sensitive to interest rate movements and their
performance may not correlate to such movements
in a conventional fashion. Credit, interest
rate, extension, prepayment, market, speculative
leverage, liquidity, valuation risks. * 10 10 -- 10 10 *
Swaps, caps, floors, collars OTC contracts
involving the right or obligation to receive
or make payments based on two different income
streams. Correlation, credit, currency, interest
rate, hedged or speculative leverage, liquidity,
valuation risks. o o o -- o o o
</TABLE>
- --------------------------------------------------------------------------------
Analysis of funds with 5% or more in junk bonds(1)
- --------------------------------------------------------------------------------
[The following table was depicted as a bar graph in the printed material.]
<TABLE>
<CAPTION>
Quality rating
(S&P/Moody's)(2) High Yield Bond Fund Sovereign Bond Fund Strategic Income Fund
<S> <C> <C> <C>
Investment-Grade Bonds
AAA/Aaa 2.1% 31.4% 22.6%
AA/Aa 0.3% 8.6% 10.7%
A/A 0.1% 19.3% 0.6%
BBB/Baa 0.2% 13.1% 2.2%
- ---------------------------------------------------------------------------------------------
Junk Bonds
BB/Ba 8.2% 14.0% 12.2%
B/B 67.2% 8.4% 40.8%
CCC/Caa 6.3% 0.0% 1.6%
CC/Ca 0.0% 0.0% 0.0%
C/C 0.0% 0.0% 0.0%
D 0.2% 0.0% 0.3%
% of portfolio in bonds 84.6% 94.8% 91.3%
</TABLE>
|_| Rated by Standard & Poor's or Moody's |_| Rated by the adviser
(1) Average weighted quality distribution for the most recent fiscal year.
(2) In cases where the S&P and Moody's ratings for a given bond issue do not
agree, the issue has been counted in the higher category.
FUND DETAILS 31
<PAGE>
For more information
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
income funds:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/ semiannual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference (is legally a part of this prospectus).
To request a free copy of the current annual/semiannual report or the SAI,
please write or call:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA02217-1000
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
Internet: www.jhancock.com/funds
[Logo]JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts 02199-7603
John Hancock(R) (C)1996 John Hancock Funds, Inc.
Financial Services INCPN 8/97
<PAGE>
- --------------------------------------------------------------------------------
John Hancock Funds
- --------------------------------------------------------------------------------
Intermediate
Maturity
Government
Fund
ANNUAL REPORT
May 31, 1997
<PAGE>
================================================================================
DIRECTORS
Edward J. Boudreau, Jr.
James F. Carlin*
William H. Cunningham*
Charles F. Fretz*
Harold R. Hiser, Jr.*
Anne C. Hodsdon
Charles L. Ladner*
Leo E. Linbeck, Jr.*
Patricia P. McCarter*
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)*
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
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
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
The stock market has certainly put on a show since the start of the year. Stocks
began 1997 on the high wires, bolstered by a near-perfect "Goldilocks" economy
- -- not too hot, not too cold. In almost a straight shot, the Dow Jones
Industrial Average soared through the 7000 level for the first time in early
March. Just days later, stocks lost their footing and staged a month-long
free-fall in a nervous reaction to rising interest rates and data that showed
the economy was picking up steam. Stocks gave back all of their year's gain and
suffered their worst decline since 1990 during this period. No sooner had real
fears begun to beset investors than they were gone, erased in a euphoric rally
caused by strong earnings and no signs of inflation. By the end of May, the Dow
had risen by 14.6% and the broader Standard & Poor's 500 Stock Index by 15.4% --
levels not many thought the market would reach all year, let alone in five
months. Bondholders have not enjoyed the same bounty, as the bond market has
mostly stayed worried about the strength of the economy, the direction of
interest rates, and the Federal Reserve's next moves to pre-empt inflation.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
But the stock market's latest advance has amazed many analysts and left
them pondering their valuation models, since the market is now more expensive
than it has been in decades. It's impossible to know what will happen next in
the markets. But whether it's another strong move forward or a retreat, we
recommend keeping a long-term perspective, rather than over-focusing on the
market's daily twists and turns. While the economic backdrop seems to remain
near perfect, the one thing we believe investors should be prepared for is more
market volatility. It also makes sense to do something we've always advocated:
set realistic expectations, since, as we've also seen this year, markets can
move down as fast as they go up.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. After such a
strong advance in equities over the last two and a half years, it could be time
to rebalance your portfolio, if you haven't already, to maintain your desired
targets of diversification. As part of that process, make sure that your
investment strategies still reflect your individual time horizons, objectives
and risk tolerance. Despite turbulence, one thing remains constant. A
well-constructed plan and a cool head can be the best tools for reaching your
financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Roger Hamilton, Portfolio Manager
John Hancock
Intermediate Maturity
Government Fund
Economy keeps bond investors guessing;
--------------------------------------
search for yield continues
--------------------------
Recently John Hancock Intermediate Maturity Government Fund's fiscal year end
changed from March to May. What follows is a discussion of the Fund's
performance for the 12-month period ended May 31, 1997.
At certain times, the bond market has its limits. This past year was one of
those times. Prices moved up and down, in line with the latest economic trends.
But yields -- which move in the opposite direction of prices -- stayed within a
definite range. Last June, the economy was growing at a fast clip. Investors
expected the Federal Reserve to increase rates at its early July meeting. Yields
climbed, with the five-year Treasury hitting a ceiling of 6.85%, up from 6.63%
on May 31, 1996. When the Fed didn't raise rates, bond prices rallied briefly.
But indications of the economy's increasing strength soon caused a downturn. The
market again reversed course in mid-September, amid slower economic growth and
low inflation. Bond prices gained ground, with five-year Treasury yields
bottoming at 5.83% in late November.
- --------------------------------------------------------------------------------
"With...little chance of significant price gains, investors looked to yield..."
- --------------------------------------------------------------------------------
Bond yields started moving up again in December, as the economy picked up steam
[A 2 1/2" x 3 3/4" photo of Roger Hamilton and Barry Evans. Caption reads:
"Roger Hamilton (right), portfolio manager and Barry Evans (seated), head of the
Government Fixed-Income department"]
3
<PAGE>
================================================================================
John Hancock Funds - Intermediate Maturity Government Fund
[Pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into three sections. Going from top clockwise:
Short-Term Investments 7%; U.S. Treasury Bonds 43%; U.S. Government Agency Bonds
50%.]
- --------------------------------------------------------------------------------
"... investors looked to yield to enhance their total return."
- --------------------------------------------------------------------------------
and investors anticipated a Fed rate hike. On March 25, 1997, the Fed finally
did raise rates one-quarter percentage point. Fueled by news of the economy's
blistering first quarter pace, yields continued climbing -- with the five-year
Treasury peaking again at 6.86% in mid-April. A mild spring, auto strikes and
floods in the Midwest eventually dampened second quarter consumer spending,
slowing the economy's growth. Yields fell, ending May at 6.50%.
Despite these gyrations, money flowed into the U.S. bond market from both
domestic and foreign investors. With interest rates staying within a range and
little chance of significant price gains, investors looked to yield to enhance
their total return. As a result, securities with a yield advantage over
Treasuries -- including both mortgage bonds and U.S. government agencies -- came
out ahead.
Mortgages boost performance
A high stake in mortgage bonds helped John Hancock Intermediate Maturity Fund's
Class A and Class B shares post a total return of 7.50% and 6.76%, respectively,
at net asset value, for the year ended May 31, 1997. By comparison, the average
intermediate-term government fund returned 6.94%, according to Lipper Analytical
Services, Inc. 1 During the same period, the Lehman Brothers Intermediate
Government Bond Index returned 7.12%. Please see pages six and seven for
longer-term performance information.
During the period, the Fund had between 50% and 66% of its assets in
mortgage-backed securities. We maintained this mortgage stake throughout the
summer, lightening up in the fall rally. Then in December, we began adding
again. Mortgages reached a high of 66% in March of 1997. Our heaviest
concentration was in 15-year, fixed-rate mortgage bonds issued by the Federal
National Mortgage Association (FNMAs). We bought them partly because shorter
maturity mortgage bonds are usually more stable than longer maturity ones when
rates are rising. Plus, demand in the 15-year sector was increasing as new
issuance was falling off -- a combination that pushed up prices nicely. Shortly
before the Fed's March meeting, we decided to take some profits, leaving us with
a 50% stake in mortgages. This helped us right before the Fed meeting when the
mortgage market was volatile. With hindsight, we would have done slightly better
by keeping our investment, since mortgages continued to outpace Treasuries.
We invested the proceeds from our mortgage sales in both ends of the
maturity spectrum -- short and 30-year Treasuries. We did this because we
expected short-term yields to rise more than long-term yields in anticipation of
a possible Fed rate hike. When rates increased in March, the Fund benefited.
However, we gave back some of our gains in May when the Fed decided not to raise
rates. We've continued to keep this same
4
<PAGE>
================================================================================
John Hancock Funds - Intermediate Maturity Government Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the 12 months ended May 31, 1997." The chart is
scaled in increments of 2% from bottom to top, with 8% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
7.50% total return for John Hancock Intermediate Maturity Government Fund: Class
A. The second represents the 6.76% total return for John Hancock Intermediate
Maturity Government Fund: Class B. The third represents the 6.94% total return
for the Average intermediate term government fund. Footnote below reads: "Total
returns for John Hancock Intermediate Maturity Government Fund are at net asset
value with all distributions reinvested. The average intermediate-term
government fund is tracked by Lipper Analytical Services (1). See the following
two pages for historical performance information.]
structure, however, because we expect another rate hike during the summer
months. "The bond market today offers investors exceptional values." The Fund's
shorter-than-average duration also helped us early in 1997, as interest rates
climbed. Duration measures how sensitive a bond's price is to interest rate
changes. The longer a bond's duration, the more its price will fall as rates
rise -- or rise as rates fall. In October, as rates fell, we raised duration to
4.1 years. But in December, with signs of a stronger economy, we decided to
shorten duration to 3.5 years, which was below our peer group average. We raised
duration slightly in January to 3.8 years, where it remained the rest of the
period.
Optimistic outlook
We expect the economy to perk up soon, given the fact that unemployment is at a
24-year low, the stock market is strong and housing prices are rising. To
measure the economy's direction, we'll be watching retail sales, the benefits
component of the employment cost index and vendor delivery time. If these
increase faster than expected, we believe the Fed will raise rates at least once
- -- if not twice -- more. We'll keep the Fund in neutral -- with a 50% stake in
mortgages and 3.8 year duration -- until we're more certain about a Fed move. A
rate increase, however, would give us a chance to buy bonds at cheaper prices
and lengthen duration.
Eventually when the economy finally does slow and interest rates begin to
fall, bond prices could make some serious gains. The bond market today offers
investors exceptional values. Today's bond yields are much higher than
inflation, which is around 2% or 3%. In fact, it would be difficult for
inflation to get out of control, given limited growth in the labor force and
baby boomers' desire to increase savings. In addition, the United States is
getting its fiscal house in order. With spending under control and a shrinking
deficit, the government will need to issue fewer bonds. Less supply should in
turn help Treasury prices. Taken together, these factors could propel the bond
market into new territory.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
1Figures from Lipper Analytical Services, Inc. include reinvested dividends and
do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Intermediate Maturity Government Fund. Total
return is a performance measure that equals the sum of all income and capital
gains dividends, assuming reinvestment of these distributions, and the change in
the price of the Fund's shares, expressed as a percentage of the Fund's net
asset value per share. Performance figures include the maximum applicable sales
charge of 3% for Class A shares. The effect of the maximum contingent deferred
sales charge for Class B shares (maximum 3% and declining to 0% over five years)
is included in Class B performance. Remember that all figures represent past
performance and are no guarantee of how the Fund will perform in the future.
Also, keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth more or
less than their original cost, depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
One Five Most Recent
Year Years Ten Years
---------- ---------- ----------
John Hancock Intermediate Maturity
Government Fund: Class A 1.42% 21.10% 23.46%(1)
John Hancock Intermediate Maturity
Government Fund: Class B 0.84% 20.83% 23.00%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
One Five Most Recent
Year Years Ten Years
---------- ---------- ----------
John Hancock Intermediate Maturity
Government Fund: Class A(2) 1.42% 3.90% 4.10%(1)
John Hancock Intermediate Maturity
Government Fund: Class B(2) 0.84% 3.86% 4.02%(1)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of May 31, 1997
SEC 30-Day
Yield
----------
John Hancock Intermediate Maturity
Government Fund: Class A 6.09%
John Hancock Intermediate Maturity
Government Fund: Class B 5.52%
Notes to Performance
(1) Class A and Class B shares started on December 31, 1991.
(2) The Adviser voluntarily reduced a portion of the management fee during the
period. Without the reduction of expenses, the average annual total return
for the one-year, five-year and since inception periods would have been
0.72%, 3.35% and 3.53% for Class A shares, respectively, and for Class B
shares 0.14%, 3.31% and 3.45%, respectively.
6
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in John Hancock
Intermediate Maturity Government Fund would be worth on May 31, 1997, assuming
you invested on the day each class of shares started and reinvested all
distributions. For comparison, we've shown the same $10,000 investment in both
the Lipper Intermediate U.S. Government Index and Lehman Intermediate Government
Bond Index. The Lipper Intermediate U.S. Government Index is an equally weighted
unmanaged index that measures the performance of funds with at least 65% of
their assets in securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities with dollar-weighted average maturities of five to
ten years. The Lehman Intermediate Government Bond Index is an unmanaged index
that measures the performance of U.S.Treasury bonds and U.S. Government Agency
bonds.
[Line chart with the heading Intermediate Maturity Government Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are four lines. The first line represents the value
of the Lehman Intermediate Government Bond Index and is equal to $14,151 as of
May 31, 1997. The second line represents the value of the Lipper Intermediate
U.S. Government Index and is equal to $13,384 as of May 31, 1997. The third line
represents the value of the hypothetical $10,000 investment made in the
Intermediate Maturity Government Fund on December 31, 1991, before sales charge,
and is equal to $12,999 as of March 31, 1996. The fourth line represents the
Intermediate Maturity Government Fund, after sales charge, and is equal to
$12,609 as of May 31, 1997.]
[Line chart with the heading Intermediate Maturity Government Fund: Class B*,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of the Lehman Government Bond Index and is equal to $14,151 as of May 31, 1997.
The second line represents the value of the Lipper Intermediate U.S. Government
Index and is equal to $13,384 as of May 31, 1997. The third line represents the
value of the hypothetical $10,000 investment made in the Intermediate Maturity
Government Fund on December 31, 1991, before sales charge, and is equal to
$12,546 as of May 31, 1997.]
*No contingent deferred sales charge applicable.
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 1997
- --------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
U.S. government and agencies securities (cost -- $26,998,675) ................... $27,006,672
Joint repurchase agreement (cost - $2,904,000) .................................. 2,904,000
Corporate savings account ....................................................... 473
-----------
.................................................................................... 29,911,145
Receivable for investments sold ................................................... 977,082
Interest receivable ............................................................... 357,421
Receivable to John Hancock Advisers, Inc. and affiliates -- Note B ................ 19,475
Other assets ...................................................................... 10,104
-----------
Total Assets ............................................... 31,275,227
---------------------------------------------------------------------------
Liabilities:
Payable for investments purchased ................................................. 2,032,327
Payable for shares repurchased .................................................... 2,005
Accounts payable and accrued expenses ............................................. 35,012
-----------
Total Liabilities .......................................... 2,069,344
---------------------------------------------------------------------------
Net Assets:
Capital paid-in ................................................................... 29,962,850
Accumulated net realized loss on investments ...................................... ( 773,899)
Net unrealized appreciation of investments ........................................ 8,464
Undistributed net investment income ............................................... 8,468
-----------
Net Assets ................................................. $29,205,883
===========================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial interest outstanding --
unlimited number of shares authorized with no par value, respectively)
Class A -- $22,754,663 / 2,405,279 .............................................. $ 9.46
================================================================================================
Class B -- $6,451,220 / 681,925 ................................................. $ 9.46
================================================================================================
Maximum Offering Price Per Share*
Class A -- ($9.46 x 103.09%) .................................................... $ 9.75
================================================================================================
</TABLE>
* On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
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 May 31, 1997. You'll also
find the net asset value and the maximum offering price per share as of that
date.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1997
MARCH 31, 1997 TO MAY 31, 1997(1)
-------------- ------------------
<S> <C> <C>
Investment Income:
Interest ............................................................................... $2,552,330 $378,436
---------- --------
Expenses:
Investment management fee - Note B ................................................... 132,601 19,526
Distribution and service fee - Note B
Class A ............................................................................ 64,288 9,432
Class B ............................................................................ 68,775 11,086
Transfer agent fee - Note B .......................................................... 43,780 5,211
Custodian fee ........................................................................ 40,119 7,518
Registration and filing fees ......................................................... 31,940 21,796
Auditing fee ......................................................................... 13,736 20,000
Printing ............................................................................. 9,158 5,899
Organization expense - Note A ........................................................ 7,252 --
Financial services fee - Note B ...................................................... 4,508 915
Trustees' fees ....................................................................... 3,074 110
Miscellaneous ........................................................................ 1,004 517
Advisory board fee ................................................................... 436 --
Legal fees ........................................................................... 197 13
---------- --------
Total Expenses .................................................. 420,868 102,023
--------------------------------------------------------------------------------------------------
Less Expense Reductions - Note B ................................ ( 122,053) ( 57,097)
--------------------------------------------------------------------------------------------------
Net Expenses .................................................... 298,815 44,926
--------------------------------------------------------------------------------------------------
Net Investment Income ........................................... 2,253,515 333,510
--------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments sold .................................................. ( 759,398) ( 50,466)
Change in net unrealized appreciation/depreciation
of investments ....................................................................... ( 37,403) 334,487
---------- --------
Net Realized and Unrealized Gain (Loss) on Investments .......... ( 796,801) 284,021
--------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ............ $1,456,714 $617,531
==================================================================================================
(1) Effective May 31, 1997, the fiscal period end changed from March 31 to May 31.
</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.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
------------------------------ APRIL 1, 1997 TO
1996 1997 MAY 31, 1997(1)
------------- ------------- ---------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................... $ 2,005,181 $ 2,253,515 $ 333,510
Net realized gain (loss) on investments sold ............................ 333,135 ( 759,398) ( 50,466)
Change in net unrealized appreciation/depreciation of investments ....... ( 577,061) ( 37,403) 334,487
----------- ----------- -----------
Net Increase in Net Assets Resulting from Operations ................ 1,761,255 1,456,714 617,531
----------- ----------- -----------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6385, $0.6612, and $0.1092 per share, respectively) ..... ( 1,494,279) ( 1,787,778) ( 261,624)
Class B - ($0.5746, $0.5968, and $0.0973 per share, respectively) ..... ( 540,604) ( 466,451) ( 68,448)
Distributions from net realized gain on investments sold
Class A - (none, $0.0782, and none per share, respectively) ........... -- ( 189,501) --
Class B - (none, $0.0782, and none per share, respectively) ........... -- ( 58,760) --
----------- ----------- -----------
Total Distributions to Shareholders ................................. ( 2,034,883) ( 2,502,490) ( 330,072)
----------- ----------- -----------
From Fund Share Transactions - Net*: ...................................... 15,373,658 ( 7,687,534) 96,288
----------- ----------- -----------
Net Assets:
Beginning of period ..................................................... 22,455,416 37,555,446 28,822,136
----------- ----------- -----------
End of period (including undistributed net investment income of $3,180
and distributions in excess of net investment income of $6,462 and
undistributed net investment income of $8,468, respectively) .......... $37,555,446 $28,822,136 $29,205,883
=========== =========== ===========
*Analysis of Fund Share Transactions:
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
---------------------------------------------------- APRIL 1, 1997 TO
1996 1997 MAY 31, 1997(1)
------------------------ ----------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold ...................................... 1,360,554 $13,397,732 387,191 $3,706,355 222,104 $2,089,262
Shares issued in reorgnization - Note D .......... 2,305,865 22,643,129 -- -- -- --
Shares issued to shareholders in reinvestment
of distributions ............................... 54,240 535,013 77,547 741,124 10,430 98,314
--------- ----------- --------- ---------- ------- ----------
................................................... 3,720,659 36,575,874 464,738 4,447,479 232,534 2,187,576
Less shares repurchased .......................... (2,047,851) ( 20,195,985) (1,107,750) (10,635,603) (180,446) ( 1,700,404)
--------- ----------- --------- ---------- ------- ----------
Net increase (decrease) .......................... 1,672,808 $16,379,889 ( 643,012) ($6,188,124) 52,088 $ 487,172
========= =========== ========= ========== ======= ==========
CLASS B
Shares sold ...................................... 128,155 $ 1,251,224 465,120 $4,452,149 187,610 $1,766,769
Shares issued in reorgnization - Note D .......... 77,218 758,254 -- -- -- --
Shares issued to shareholders in reinvestment
of distributions ............................... 33,456 329,875 32,043 306,162 3,959 37,319
--------- ----------- --------- ---------- ------- ----------
................................................... 238,829 2,339,353 497,163 4,758,311 191,569 1,804,088
Less shares repurchased .......................... ( 329,486) ( 3,345,584) ( 654,247) ( 6,257,721) (233,349) ( 2,194,972)
--------- ----------- --------- ---------- ------- ----------
Net decrease .................................... ( 90,657) ($ 1,006,231) ( 157,084) ($1,499,410) ( 41,780) ($ 390,884)
========= =========== ========= ========== ======= ==========
(1) Effective May 31, 1997, the fiscal period end changed from March 31 to May 31.
</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
repurchased during the last three periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
------------------------------------------------- APRIL 1, 1997 TO
1993 1994 1995(1) 1996 1997 MAY 31, 1997(8)
-------- -------- -------- -------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.37
------- ------- ------- ------- ------- -------
Net Investment Income ........................................ 0.58 0.41 0.49 0.62 0.67 0.11(7)
Net Realized and Unrealized Gain (Loss) on Investments ....... 0.02 ( 0.16) ( 0.11) ( 0.08) ( 0.25) 0.09
------- ------- ------- ------- ------- -------
Total from Investment Operations ......................... 0.60 0.25 0.38 0.54 0.42 0.20
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ....................... ( 0.58) ( 0.41) ( 0.48) ( 0.64) ( 0.66) ( 0.11)
Distributions from Net Realized Gain on Investments Sold ... -- -- -- -- ( 0.08) --
------- ------- ------- ------- ------- -------
Total Distributions ...................................... ( 0.58) ( 0.41) ( 0.48) ( 0.64) ( 0.74) ( 0.11)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ............................... $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.37 $ 9.46
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (2) ............... 6.08% 2.51% 3.98% 5.60% 4.56% 2.13%(10)
Total Adjusted Investment Return at Net Asset Value (2,3) .... 5.53% 2.27% 3.43% 4.83% 4.19% 1.93%(10)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $33,273 $24,310 $12,950 $29,024 $22,043 $22,755
Ratio of Expenses to Average Net Assets (4) .................. 0.50% 0.75% 0.80% 0.75% 0.75% 0.75%(9)
Ratio of Adjusted Expenses to Average Net Assets (4,5) ....... 1.05% 0.99% 1.35% 1.45% 1.12% 1.92%(9)
Ratio of Net Investment Income to Average Net Assets ......... 5.47% 4.09% 4.91% 6.49% 6.99% 7.07%(9)
Ratio of Adjusted Net Investment Income to Average
Net Assets (5) ............................................. 4.92% 3.85% 4.36% 5.79% 6.62% 5.90%(9)
Fee Reduction Per Share (7) .................................. $ 0.06 $ 0.02 $ 0.05 $ 0.07 $ 0.04 $ 0.02
Portfolio Turnover Rate ...................................... 186% 244% 341% 423%(6) 427% 77%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: the net investment income, net realized
and unrealized 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.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
------------------------------------------------- APRIL 1, 1997 TO
1993 1994 1995(1) 1996 1997 MAY 31, 1997(8)
-------- -------- -------- -------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.37
------- ------- ------- ------- ------- -------
Net Investment Income 0.51 0.34 0.43 0.57 0.60 0.10(7)
Net Realized and Unrealized Gain (Loss) on Investments 0.02 ( 0.16) ( 0.11) ( 0.10) ( 0.24) 0.09
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.53 0.18 0.32 0.47 0.36 0.19
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ( 0.51) ( 0.34) ( 0.42) ( 0.57) ( 0.60) ( 0.10)
Distributions from Net Realized Gain on Investments Sold -- -- -- -- ( 0.08) --
------- ------- ------- ------- ------- -------
Total Distributions ( 0.51) ( 0.34) ( 0.42) ( 0.57) ( 0.68) ( 0.10)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.37 $ 9.46
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (2) 5.40% 1.85% 3.33% 4.92% 3.84% 2.01%(10)
Total Adjusted Investment Return at Net Asset Value (2,3) 4.85% 1.61% 2.78% 4.15% 3.47% 1.81%(10)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $13,753 $11,626 $ 9,506 $ 8,532 $ 6,779 $ 6,451
Ratio of Expenses to Average Net Assets (4) 1.15% 1.40% 1.45% 1.40% 1.43% 1.50%(9)
Ratio of Adjusted Expenses to Average Net Assets (4,5) 1.70% 1.64% 2.00% 2.10% 1.80% 2.67%(9)
Ratio of Net Investment Income to Average Net Assets 4.82% 3.44% 4.26% 5.80% 6.30% 6.04%(9)
Ratio of Adjusted Net Investment Income to Average
Net Assets (5) 4.27% 3.20% 3.71% 5.10% 5.93% 4.87%(9)
Fee Reduction Per Share (7) $ 0.06 $ 0.02 $ 0.05 $ 0.07 $ 0.04 $ 0.02
Portfolio Turnover Rate 186% 244% 341% 423%(6) 427% 77%
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) An estimated total return calculation that does not take into consideration fee reductions by
the Adviser during the periods shown.
(4) Beginning on December 31, 1991 (commencement of operations) through March 31, 1995, the expenses
used in the ratios represented the expenses of the Fund plus expenses incurred indirectly from
the Adjustable U.S. Government Fund (the "Portfolio"), the mutual fund in which the Fund invested
all of its assets. The expenses used in the ratios for the fiscal year ended March 31, 1996 include
the expenses of the Portfolio through September 22, 1995.
(5) Unreimbursed, without fee reduction.
(6) Portfolio turnover rate excludes merger activity.
(7) Based on average month end shares outstanding.
(8) Effective May 31, 1997, the fiscal period end changed from March 31 to May 31.
(9) Annualized.
(10) Not annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
Schedule of Investments
May 31, 1997
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Intermediate Maturity Government Fund on May 31, 1997. It's divided into two
main categories: U.S. government and agencies and short-term investments.
Short-term investments, which represent the Fund's "cash" position, are listed
last.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- ---- ---- -------- -----
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Governmental - U.S. (42.74%)
United States Treasury,
Bond .................................... 11.125% 08-15-03 $2,000 $ 2,457,500
Bond .................................... 12.000 08-15-13 2,250 3,142,958
Bond .................................... 6.625 02-15-27 750 722,580
Note .................................... 9.250 08-15-98 1,975 2,048,450
Note .................................... 9.125 05-15-99 1,000 1,052,810
Note .................................... 7.875 08-15-01 1,000 1,050,470
Note .................................... 6.625 03-31-02 2,000 2,008,740
------------
12,483,508
------------
Governmental - U.S. Agencies (49.73%)
Federal Home Loan Mortgage Corp,
Adjustable Rate Mortgage ................ 7.250# 05-01-17 52 53,605
Adjustable Rate Mortgage ................ 7.750# 10-01-18 58 59,480
Federal National Mortgage Association,
15 Yr Pass thru Ctf ..................... 7.500 06-01-10 2,168 2,196,831
15 Yr Pass thru Ctf ..................... 7.000 10-01-11 2,902 2,885,177
Adjustable Rate Mortgage ................ 6.671# 03-01-14 to 45 45,099
06-01-14
Adjustable Rate Mortgage ................ 6.875# 05-01-13 45 46,136
Adjustable Rate Mortgage ................ 7.256# 05-01-17 197 194,130
Adjustable Rate Mortgage ................ 7.250# 03-01-27 40 40,479
Government National Mortgage Association,
30 Yr Pass thru Ctf ..................... 12.000 02-15-14 24 27,241
30 Yr Pass thru Ctf ..................... 12.500 07-15-15 37 43,344
30 Yr Pass thru Ctf ..................... 7.500 05-15-24 1,882 1,884,070
30 Yr Pass thru Ctf ..................... 8.000 05-15-25 to 5,602 5,710,858
10-15-25
Adjustable Rate Mortgage .................... 6.875# 10-20-23 1,304 1,336,714
------------
14,523,164
------------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $26,998,675) (92.47%) 27,006,672
------ ------------
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (9.94%)
Investment in a joint repurchase agreement
transaction with Swiss Bank Corp. -
Dated 05-30-97, Due 06-02-97
(secured by U.S. Treasury Notes, 6.375%, Due 05-15-99,
U.S. Treasury Bonds, 6.250% - 11.250%, Due 11-15-08
thru 08-15-23) - Note A 5.560% $2,904 $ 2,904,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 473
------------
TOTAL SHORT-TERM INVESTMENTS ( 9.94%) 2,904,473
------- ------------
TOTAL INVESTMENTS (102.41%) $ 29,911,145
======= ============
</TABLE>
# Represents rate in effect on May 31, 1997.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Bond Trust (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of three series: John Hancock Intermediate Maturity Government Fund (the
"Fund"), John Hancock Government Income Fund and John Hancock High Yield Bond
Fund. The other two series of the Trust are reported in separate financial
statements. On June 25, 1996 the Trustees voted to approve a change in the
fiscal period from March 31 to May 31. This change is effective May 31, 1997.The
investment objective of the Fund is to achieve a high level of current income
consistent with preservation of capital and maintenance of liquidity.
The Trustees have authorized the issuance of multiple classes of shares 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. Shareholders of a class which bears distribution and
service expenses under the terms of a distribution plan have exclusive voting
rights to that distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
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
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
DISCOUNT ON SECURITIES The Fund 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'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 its taxable income, including any net realized gains on
investments, to its shareholders. Therefore, no federal income or excise tax
provision is required. For federal income tax purposes the Fund has $7,980,391
of capital loss carryforward available, to the extent provided by regulations,
to offset future net realized capital gains. To the extent such carryforward is
used by the Fund, no capital gains distributions will be made. The carryforward
expires as follows: May 31, 1998 - $653,763, May 31, 1999 - $2,207,560, May 31,
2000 - $23,234, May 31, 2001 - $4,062,681, May 31, 2002 - $427,159, May 31, 2004
- - $427,511, May 31, 2005 - $178,483. The Fund's tax year end is May 31. Expired
capital loss carryforwards are reclassified to capital paid-in in the year of
expiration.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis. The Fund records 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.
EXPENSES The majority of the expenses of the Trust were directly identifiable to
an individual fund. Expenses which were not readily identifiable to a specific
fund were allocated in such a manner as deemed
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
equitable, taking into consideration, among other things, the nature and type of
expense and the relative sizes of the funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to operations ratably over
a five-year period that began with the commencement of investment operations of
the Fund.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund had no borrowing
activity for the period ended May 31, 1997.
NOTE B --
MANAGEMENT FEE, AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent at
an annual basis of 0.40% of the Fund's average daily net asset value.
The Adviser has temporarily agreed to limit fund expenses, including the
management fee, to 0.75% and 1.50% of the average net assets attributable to the
Class A and Class B shares, respectively. Effective December 24, 1996, the
limitation on Class B shares of the Fund increased to 1.50% from 1.40% of the
average daily net assets due to an increase in the 12b-1 distribution rate from
0.90% to 1.00% of the average daily net assets. Accordingly, for the period
ended May 31, 1997, the reduction in the Adviser's fee collectively with any
additional amounts not borne by the Fund by virtue of the expense limit amounted
to $57,097.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended May 31,
1997, net sales charges received with regard to sales of Class A shares amounted
to $7,357. Out of this amount, $557 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $2,073 was paid
as sales commissions to unrelated broker-dealers and $4,727 was paid as sales
commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro &
Co., Inc. ("Sutro"), all of which are broker-dealers. The Adviser's indirect
parent, John Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect
sole shareholder of Distributors and was the indirect sole shareholder until
November 29, 1996 of John Hancock Freedom Securities Corporation and its
subsidiaries, which include Tucker Anthony and Sutro.
Class B shares which are redeemed within four 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 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 May 31, 1997,
contingent deferred sales charges amounted to $6,128.
In addition, to reimburse 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 to JH Funds for
distribution and service expenses, at an annual rate not to exceed 0.25% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution and 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. Under the
amended
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1 payments
could occur under certain circumstances.
The Board of Trustees approved a shareholder servicing agreement between the
Fund and John Hancock Signature Services, Inc. ("Signature Services"), an
indirect subsidiary of JHMLICo. The Fund pays transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of 0.01875% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S. Scipione
are trustees and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At May 31, 1997 the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $467.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended May 31, 1997 aggregated $21,912,539 and
$23,106,734, respectively.
The cost of investments owned at May 31, 1997 (including the joint repurchase
agreement) for federal income tax purposes was $30,070,579. Gross unrealized
appreciation and depreciation of investments aggregated $260,992, and $420,899,
respectively, resulting in net unrealized depreciation of $159,907.
NOTE D --
REORGANIZATION
On September 8, 1995, the shareholders of John Hancock Intermediate Government
Trust, (JHIGT) approved a plan of reorganization between JHIGT and the Fund
providing for the transfer of substantially all of the assets and liabilities of
JHIGT to the Fund in exchange solely for Class A shares and Class B shares of
the Fund. The acquisition after the close of business on September 22, 1995 was
accounted for as a tax free exchange of 672,093 Class A shares, and 48,918 Class
B shares for the net assets of JHIGT which amounted to $6,599,818 and $480,359
for Class A and Class B shares, respectively, including $89,503 of unrealized
appreciation.
Also on September 8, 1995, the shareholders of John Hancock U.S. Government
Trust, (JHUSGT) approved a plan of reorganization between JHUSGT and the Fund
providing for the transfer of substantially all of the assets and liabilities of
JHUSGT to the Fund in exchange solely for Class A shares and Class B shares of
the Fund. The acquisition after the close of business on September 22, 1995 was
accounted for as a tax free exchange of 1,633,772 Class A shares, and 28,300
Class B shares for the net assets of JHUSGT which amounted to $16,043,311 and
$277,895 for Class A and Class B shares, respectively, including $362,315 of
unrealized appreciation.
After the close of business on September 22, 1995, and prior to the
acquisitions referred to above, the Portfolio (the Adjustable U.S. Government
Fund, the mutual fund in which the Funds invested all of their assets) collapsed
into the Fund in a tax-free reorganization resulting in increases in the Fund's
undistributed net income of $16,545, unrealized appreciation of investments of
$183,471, accumulated net realized loss on investments of $203,823 and capital
paid-in of $3,807.
17
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
NOTE E --
RECLASSIFICATION OF ACCOUNTS
During the period ended May 31, 1997, the Fund has reclassified amounts to
reflect an increase in accumulated net realized loss on investments of $97,818,
an increase in undistributed net investment income of $11,492 and an increase in
capital paid-in of $86,326. This represents the cumulative amount necessary to
report these balances on a tax basis, excluding certain temporary differences,
as of May 31, 1997. Additional adjustments may be needed in subsequent reporting
periods. These reclassifications, which have no impact on the net asset value of
the Fund, are primarily attributable to certain differences in the computation
of distributable income and capital gains under federal tax rules versus
generally accepted accounting principles.
18
<PAGE>
================================================================================
John Hancock Funds - Intermediate Maturity Government Fund
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Bond Trust
John Hancock Intermediate Maturity Government Fund
We have audited the accompanying statement of assets and liabilities of the John
Hancock Intermediate Maturity Government Fund (the "Fund"), one of the
portfolios constituting John Hancock Bond Trust, including the schedule of
investments, as of May 31, 1997, and the related statement of operations for the
period from April 1, 1997 to May 31, 1997 and for the year ended March 31, 1997,
the statement of changes in net assets and the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1997, by correspondence with the custodian and brokers, and other auditing
procedures when replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
John Hancock Intermediate Maturity Government Fund portfolio of John Hancock
Bond Trust at May 31, 1997, the results of its operations for the period from
April 1, 1997 to May 31, 1997 and the year ended March 31, 1997, and the changes
in its net assets and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
July 11, 1997
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the dividends of the Fund paid during its taxable year ended May 31,
1997.
All of the dividends paid for the fiscal year are taxable as ordinary income.
None of the dividends qualify for the dividends received deduction available to
corporations.
Shareholders will be mailed a 1997 U.S. Treasury Department Form 1099-DIV in
January 1998. This will reflect the total of all distributions which are taxable
for calendar year 1997.
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 Huntington Avenue, Boston, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
Internet: www.jhancock.com/funds
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Intermediate Maturity Government Fund. It may be used as sales literature when
preceded or accompanied by the current prospectus, which details charges,
investment objectives and operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 5500A 5/97
7/97
<PAGE>
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL
SAVE YOUR FUND THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK LIMITED-TERM GOVERNMENT FUND
101 HUNTINGTON AVENUE, BOSTON, MASSACHUSETTS 02199
SPECIAL MEETING OF SHAREHOLDERS - NOVEMBER 12, 1997
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward J.
Boudreau, Jr., Susan S. Newton and James B. Little, with full power of
substitution in each, to vote all the shares of beneficial interest of John
Hancock Limited-Term Government Fund ("Limited-Term Government Fund") which the
undersigned is (are) entitled to vote at the Special Meeting of Shareholders
(the "Meeting") of Limited-Term Government Fund to be held at 101 Huntington
Avenue, Boston, Massachusetts, on November 12, 1997 at 9:00 a.m., Boston time,
and at any adjournment(s) of the Meeting. All powers may be exercised by a
majority of all proxy holders or substitutes voting or acting, or, if only one
votes and acts, then by that one. Receipt of the Proxy Statement dated September
22, 1997 is hereby acknowledged. If not revoked, this proxy shall be voted for
the proposal:
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date __________________, 1997
NOTE: Signature(s) should agree
with name(s) printed herein. When
signing as attorney, executor,
administrator, trustee or guardian,
please give your full title as
such. If a corporation, please sign
in full corporate name by president
or other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
-----------------------------------
Signature(s)
<PAGE>
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL SAVE YOUR FUND THE EXPENSE
OF ADDITIONAL MAILINGS.
THIS PROXY SHALL BE VOTED IN FAVOR OF (FOR) PROPOSAL 1 IF NO SPECIFICATION IS
MADE BELOW. AS TO ANY OTHER MATTER, THE PROXY OR PROXIES SHALL VOTE IN
ACCORDANCE WITH THEIR BEST JUDGEMENT. PLEASE VOTE BY FILLING IN THE APPROPRIATE
BOX BELOW, AS SHOWN, USING BLUE OR BLACK INK OR DARK PENCIL. DO NOT USE RED INK.
(1) To approve an Agreement and Plan of Reorganization between Limited-Term
Government Fund and John Hancock Intermediate Maturity Government Fund.
Under this Agreement, Limited Term Government Fund would transfer all of
its assets to Intermediate Maturity Government Fund in exchange for shares
of Intermediate Maturity Government Fund. These shares will be distributed
proportionately to you and the other shareholders of Limited-Term
Government Fund. Intermediate Maturity Government Fund will also assume
Limited-Term Government Fund's liabilities.
---- ---- ----
FOR |____| AGAINST |____| ABSTAIN |____|
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
JOHN HANCOCK INTERMEDIATE MATURITY GOVERNMENT FUND
October 1, 1997
This statement of additional information is not a prospectus. It should be read
in conjunction with the related proxy statement and prospectus which is also
dated October 1, 1997. This statement of additional information provides
additional information about John Hancock Intermediate Maturity Government Fund
and the fund that it is acquiring, John Hancock Limited-Term Government Fund.
Please retain this statement of additional information for future reference. A
copy of the proxy statement and prospectus can be obtained free of charge by
calling John Hancock Signature Services, Inc., at 1-800-225-5291.
TABLE OF CONTENTS
Page
Introduction 3
Additional Information About Intermediate Maturity Goverment Fund 3
General Information and History
Investment Objective and Policies
Management of Intermediate Maturity Government Fund
Control Persons and Principal Holders of Shares
Investment Advisory and Other Services
Brokerage Allocation
Capital Stock and Other Securities
Purchase, Redemption and Pricing of Intermediate Maturity Government
Fund Shares
Tax Status
Underwriters
Calculation of Performance Data
Financial Statements
Additional Information about Limited-Term Government Fund 4
General Information and History
Investment Objective and Policies
Management of Limited-Term Government Fund
Investment Advisory and Other Services
Brokerage Allocation
Capital Stock and Other Securities
Purchase, Redemption and Pricing of Limited-Term Government
Fund Shares
Tax Status
Underwriters
Calculation of Performance Data
Financial Statements
<PAGE>
Exhibits
A - Statement of additional information, dated October 1, 1997, of John
Hancock Intermediate Maturity Government Fund including audited
financial statements as of May 31, 1997.
B - Statement of additional information, dated October 1, 1997, of John
Hancock Limited-Term Government Fund including audited financial
statements as of May 31, 1997.
C - Pro forma combined financial statements as of May 31, 1997 assuming
the reorganization of John Hancock Limited-Term Government Fund into
John Hancock Intermediate Maturity Government Fund occured on that
date.
<PAGE>
INTRODUCTION
This statement of additional information is intended to supplement the
information provided in a proxy statement and prospectus dated October 1, 1997.
The proxy statement and prospectus has been sent to the shareholders of
Limited-Term Government Fund in connection with the solicitation by the trustees
of Limited-Term Government Fund of proxies to be voted at the special meeting of
shareholders of Limited-Term Government Fund to be held on November 12, 1997.
This statement of additional information incorporates by reference the statement
of additional information of Intermediate Maturity Government Fund, dated
October 1, 1997, and the statement of additional information of Limited-Term
Government Fund, also dated October 1, 1997. The Intermediate Maturity
Government Fund SAI and the Limited-Term Government Fund SAI are included with
this statement of additional information.
Additional Information About Intermediate Maturity Government Fund
General Information and History
For additional information about Intermediate Maturity Government Fund
generally and its history, see "Organization of the Fund" in the Intermediate
Maturity Government Fund SAI.
Investment Objective and Policies
For additional information about Intermediate Maturity Government
Fund's investment objective, policies and restrictions see "Investment Objective
and Policies" and "Investment Restrictions" in the Intermediate Maturity
Government Fund SAI.
Management of Intermediate Maturity Government Fund
For additional information about the Intermediate Maturity Government
Fund's Board of Trustees, officers and management personnel, see "Those
Responsible for Management" in the Intermediate Maturity Government Fund SAI.
Control Persons and Principal Holders of Shares
For additional information about control persons of Intermediate
Maturity Government Fund and principal holders of shares of Intermediate
Maturity Government Fund, see "Those Responsible for Management" in the
Intermediate Maturity Government Fund SAI.
Investment Advisory and Other Services
For additional information about Intermediate Maturity Government
Fund's investment adviser, custodian, transfer agent and independent
accountants, see "Investment Advisory and Other Services," "Distribution
Contracts," "Transfer Agent Services," "Custody of Portfolio" and "Independent
Auditors" in the Intermediate Maturity Government Fund SAI.
Brokerage Allocation and Other Practices
For additional information about Intermediate Maturity Government
Fund's brokerage allocation practices, see "Brokerage Allocation" in the
Intermediate Maturity Government Fund SAI.
Capital Stock and Other Securities
For additional information about the voting rights and other
characteristics of Intermediate Maturity Government Fund's shares of beneficial
interest, see "Description of the Fund's Shares" in the Intermediate Maturity
Government Fund SAI.
<PAGE>
Purchase, Redemption and Pricing of Intermediate Maturity Governement Fund
Shares
For additional information about the determination of net asset value,
see "Net Asset Value" in the Intermediate Maturity Government Fund SAI.
Tax Status
For additional information about the tax status of Intermediate
Maturity Government Fund, see "Tax Status" in the Intermediate Maturity
Government Fund's SAI.
Underwriters
For additional information about Intermediate Maturity Government
Fund's principal underwriter and the distribution contract between the principal
underwriter and Intermediate Maturity Government Fund, see "Distribution
Contracts" in the Intermediate Maturity Government Fund SAI.
Calculation of Performance Data
For additional information about the investment performance of
Intermediate Maturity Government Fund, see "Calculation of Performance" in the
Intermediate Maturity Government Fund SAI.
Financial Statements
Audited financial statements of Intermediate Maturity Government Fund
at May 31, 1997 are attached to the Intermediate Maturity Government Fund SAI.
Pro Forma combined financial statements as of May 31, 1997 are also
attached hereto.
Additional Information About Limited-Term Government Fund
General Information and History
For additional information about Limited-Term Government Fund generally
and its history, see "Organization of the Funds" in the Limited-Term Government
Fund SAI.
Investment Objectives and Policies
For additional information about Limited-Term Government Fund's
investment objectives and policies, see "Investment Objective and Policies" and
"Investment Restrictions" in the Limited-Term Government Fund SAI.
Management of Limited-Term Government Fund
For additional information about Limited-Term Government Fund's Board
of Trustees, officers and management personnel, see "Those Responsible for
Management" in the Limited-Term Government Fund SAI.
Investment Advisory and Other Services
For additional information about Limited-Term Government Fund's
investment adviser, custodian, transfer agent and independent accountants, see
"Investment Advisory and Other Services," "Distribution Contracts," "Transfer
Agent Services," "Custody of Portfolio" and "Independent Accountants" in the
Limited-Term Government Fund SAI.
Brokerage Allocation and Other Practices
For additional information about Limited-Term Government Fund's
brokerage allocation practices, see "Brokerage Allocation" in the Limited-Term
Government SAI.
<PAGE>
Capital Stock and Other Securities
For additional information about the voting rights and other
characteristics of Limited-Term Government Fund's shares of beneficial interest,
see "Description of the Funds' Shares" in the Limited-Term Government Fund SAI.
Purchase, Redemption and Pricing of Limited-Term Government Fund Shares
For additional information about the net asset value of Limited-Term
Government Fund's shares, see "Net Asset Value" in the Limited-Term Government
Fund SAI.
Tax Status
For additional information about the tax status of Limited-Term
Government Fund, see "Tax Status" in the Limited-Term Government Fund's SAI.
Underwriters
For additional information about Limited-Term Government Fund's
principal underwriter and the distribution contract between the principal
underwriter and Limited-Term Government Fund, see "Distribution Contracts" in
the Limited-Term Government Fund SAI.
Calculation of Performance Data
For additional information about the investment performance of
Limited-Term Government Fund, see "Calculation of Performance" in the
Limited-Term Government Fund SAI.
Financial Statements
Audited financial statements of Limited-Term Government Fund at May 31,
1997 are attached to the Limited-Term Government Fund SAI.
<PAGE>
JOHN HANCOCK INTERMEDIATE MATURITY GOVERNMENT FUND
Class A and Class B Shares
Statement Of Additional Information
October 1, 1997
This Statement of Additional Information provides information about the John
Hancock Intermediate Maturity Government Fund (the "Fund"), in addition to the
information that is contained in the combined Income Funds' Prospectus dated
October 1, 1997 (the "Prospectus"). The Fund is a diversified series of John
Hancock Bond Trust (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02117-1000
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund 2
Investment Objective and Policies 2
Investment Restrictions 10
Those Responsible for Management 12
Investment Advisory and Other Services 21
Distribution Contracts 24
Net Asset Value 26
Initial Sales Charge on Class A Shares 27
Deferred Sales Charge on Class B Shares 30
Special Redemptions 33
Additional Services and Programs 34
Description of the Fund's Shares 36
Tax Status 37
Calculation of Performance 40
Brokerage Allocation 42
Transfer Agent Services 44
Custody of Portfolio 44
Independent Auditors 44
Appendix A A-1
Financial Statements F-1
1
<PAGE>
ORGANIZATION OF THE TRUST
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust under the laws of The Commonwealth
of Massachusetts. Prior to 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.
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser.
The Adviser is an indirect wholly-owned subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company"), a Massachusetts life insurance company
chartered in 1862, with national headquarters at John Hancock Place, Boston,
Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus.
The Fund seeks to earn 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. Since the U.S. Government has never defaulted on its obligations, its
securities are considered unmatched as a safe and reliable income source. 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.
Under normal conditions, at least 80% of the Fund's total assets will be in U.S.
Government securities that 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 ("GNMA")), (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 Home Loan Mortgage Association ("FHLMC") or Federal
National Mortgage Association ("FNMA").
In general, investments in shorter and intermediate term (three to ten years)
debt securities are less sensitive to interest rate changes and provide more
stability than longer-term (ten years or more) investments. Shares of the Fund
are not deposits or obligations of, or guaranteed or endorsed by, any bank.
Also, Fund shares are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency. All
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temporary defensive investments are required to be high quality. There is no
assurance that the Fund will achieve its investment objective.
Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represents
the opinions of these agencies as to the quality of the securities that they
rate. It should be emphasized, however, that such ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Fund as initial criteria for the selection of portfolio securities. Among
the factors that will be considered are the long-term ability of the issuer to
pay principal and interest and general economic trends. Appendix A contains
further information concerning the ratings of Moody's and S&P and their
significance.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund, but the Adviser will consider the event in its determination of whether
the Fund should continue to hold the securities.
Structured Securities. The Fund may invest 10% of its net assets in structured
securities including notes, bonds or debentures, the value of the principal of
and/or interest on which is to be determined by reference to changes in the
value of specific currencies, interest rates, commodities, indices or other
financial indicators (the "Reference") or the relative change in two or more
References. The interest rate or the principal amount payable upon maturity or
redemption may be increased or decreased depending upon changes in the
applicable Reference. The terms of the structured securities may provide that in
certain circumstances no principal is due at maturity and, therefore, may result
in the loss of the Fund's investment. Structured securities may be positively or
negatively indexed, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at maturity.
In addition, the change in interest rate or the value of the security at
maturity may be a multiple of the change in the value of the Reference.
Consequently, structured securities entail a greater degree of market risk than
other types of debt obligations. Structured securities may also be more
volatile, less liquid and more difficult to accurately price than less complex
fixed income investments.
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 ("GNMA"), the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). GNMA certificates are guaranteed by the full
faith and credit of the U.S. Government for timely payment of principal and
interest on the certificates. FNMA certificates are guaranteed by FNMA, a
federally chartered and privately owned corporation, for full and timely payment
of principal and interest on the certificates. FHLMC certificates are guaranteed
by FHLMC, a corporate instrumentality of the U.S. Government, for timely payment
of interest and the ultimate collection of all principal of the related mortgage
loans.
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Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
CMOs and REMIC pass-through or participation certificates may be issued by,
among others, U.S. Government agencies and instrumentalities as well as private
lenders. CMOs and REMIC certificates are issued in multiple classes and the
principal of and interest on the mortgage assets may be allocated among the
several classes of CMOs or REMIC certificates in various ways. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Generally, interest is paid or accrues on all
classes of CMOs or REMIC certificates on a monthly basis.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates but also
may be collateralized by other mortgage assets such as whole loans or private
mortgage pass-through securities. Debt service on CMOs is provided from payments
of principal and interest on collateral of mortgaged assets and any reinvestment
income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the 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.
Investors may purchase "regular" or "residual" interest in REMICS, although the
Fund does not intend, absent a change in current tax law, to invest in residual
interests.
Stripped Mortgage-Backed Securities. SMBS are derivative multiple-class
mortgage-backed securities. SMBS are usually structured with two classes that
receive different proportions of interest and principal distributions on a pool
of mortgage assets. A typical SMBS will have one class receiving some of the
interest and most of the principal, while the other class will receive most of
the interest and the remaining principal. In the most extreme case, one class
will receive all of the interest (the "interest only" class) while the other
class will receive all of the principal (the "principal only" class). The yields
and market risk of interest only and principal only SMBS, respectively, may be
more volatile than those of other fixed income securities. The staff of the
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, 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
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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, 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.
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Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to resell it back to the issuer at a fixed time and price, plus accrued
interest. The Fund will enter into repurchase agreements only with member banks
of the Federal Reserve System and with "primary dealers" in U.S. Government
securities. The Adviser will continuously monitor the creditworthiness of the
parties with whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income or lack of
access to income during this period as well as the expense of enforcing its
rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank 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 that it is obligated to repurchase. The Fund will also continue to be
subject to the risk of a decline in the market value of the securities sold
under the agreements because it will reacquire those securities upon effecting
their repurchase. To minimize various risks associated with reverse repurchase
agreements, the Fund will establish and maintain with the Fund's custodian a
separate account consisting of liquid securities (plus any accrued interest
thereon) under such agreements. In addition, the Fund will not enter into
reverse repurchase agreements or 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 purchase any securities at any time when borrowings exceed 5%
of the total assets of the Fund (taken at market). Forward commitment
transactions shall not constitute borrowings and interest paid on any borrowings
will reduce the Fund's net investment income. The Fund will enter into reverse
repurchase agreements only with selected registered broker/dealers or with
federally insured banks or savings and loan associations that 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.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
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144A under the 1933 Act. However, the Fund will not invest more than 15% of its
net assets in illiquid investments. If the Trustees determine, based upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, they will not be subject to the 15% limit
on illiquid investments . The Trustees may adopt guidelines and delegate to the
Adviser the daily function of determining the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued and forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities on any type of maturity, equal in value to the
Fund's commitment. These assets will be valued daily at market, and additional
cash or securities will be segregated in a separate account to the extent that
the total value of the assets in the account declines below the amount of the
when-issued commitments. Alternatively, the Fund may enter into offsetting
contracts for the forward sale of other securities that it owns.
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" is a
specific type of dollar roll for which there is an offsetting cash position or a
cash equivalent security position that 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.
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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., S&P or Moody's) 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
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.
Swaps, Caps, Floor and Collars. As one way of managing its exposure to different
types of investments, the Fund and may enter into interest rate swaps, currency
swaps, and other types of swap agreements such as caps, collars and floors. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specified period of
time. If a swap agreement provides for payment in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift the Fund's investment exposure from one type
of investment to another. For example, if the Fund agreed to exchange payments
in dollars for payments in a foreign currency, the swap agreement would tend to
decrease the Fund's exposure to U.S. interest rates and increase its exposure to
foreign currency and interest rates. Caps and floors have an effect similar to
buying or writing options. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a Fund's investments and its
share price and yield.
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Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Fund may also suffer losses if
it is unable to terminate outstanding swap agreements or reduce its exposure
through offsetting transactions. The Fund will maintain in a segregated account
with its custodian, cash or liquid securities equal to the net amount, if any,
of the excess of the Fund's obligations over its entitlements with respect to
swap, cap, collar or floor transactions.
Pay-In-Kind, Delayed and Zero Coupon Bonds. The Fund may invest in pay-in-kind,
delayed and zero coupon bonds. These are securities issued at a discount from
their face value because interest payments are typically postponed until
maturity. The amount of the discount rate varies depending on factors including
the time remaining until maturity, prevailing interest rates, the security's
liquidity and the issuer's credit quality. These securities also may take the
form of debt securities that have been stripped of their interest payments. A
portion of the discount with respect to stripped tax-exempt securities or their
coupons may be taxable. The market prices in pay-in-kind, delayed and zero
coupon bonds generally are more volatile than the market prices of
interest-bearing securities and are likely to respond to a greater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit quality. The Fund's investments in pay-in-kind, delayed
and zero coupon bonds may require the Fund to sell certain of its portfolio
securities to generate sufficient cash to satisfy certain income distribution
requirements. See "TAX STATUS."
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights to not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund 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
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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. Short-term trading may have the effect of increasing
portfolio turnover rate. A high rate of portfolio turnover (100% or greater)
involves corresponding higher transaction expenses and may make it more
difficult for the Fund to qualify as a regulated investment company for federal
income tax purposes. The Fund's portfolio rate is set forth in the table under
the caption "Financial Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, means the approval by the lesser of (1) the holders of
67% or more of the Fund's shares represented at a meeting if more than 50% of
the Fund's outstanding shares are present in person or by proxy at that meeting
or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
1. 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 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
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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) 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 "Investment Company Act")) if such issuance is
specifically prohibited by the Investment Company 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.
Non-Fundamental Investment Restrictions. The following investment restrictions
are designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
The Fund may not:
(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) purchase a security if, as a result, (i) more than 10% of the Fund's
total assets would be invested in the securities of other investment
companies, (ii) the Fund would hold more than 3% of the total
outstanding voting securities of any one investment company, or (iii)
more than 5% of the Fund's total assets would be invested in the
securities of any one investment company. These limitations do not
apply to (a) the investment of cash collateral, received by the Fund in
connection with lending the Fund's portfolio securities, in the
securities of open-end investment companies or (b) the purchase of
shares of any investment company in connection with a merger,
consolidation, reorganization or purchase of substantially all of the
assets of another investment company. Subject to the above percentage
limitations, the Fund may, in connection with the John Hancock Group of
Funds Deferred Compensation Plan for Independent Trustees/Directors,
purchase securities of other investment companies within the John
Hancock Group of Funds.
(c) 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
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commitments, when-issued securities, securities index put or call
warrants and repurchase agreements entered into in accordance with the
Fund's investment policies;
(d) invest more than 15% of its net assets in illiquid securities.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees of the Trust who elect
officers who are responsible for the day-to-day operations of the Fund and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also Officers and Directors of the Adviser or Officers
and Directors of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
12
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman, Director and Chief
101 Huntington Avenue Executive Officer (1, 2) Executive Officer, the Adviser;
Boston, MA 02199 Chairman, Trustee and Chief
October 1944 Executive Officer, The Berkeley
Financial Group ("The Berkeley
Group"); Chairman and Director, NM
Capital Management, Inc. ("NM
Capital"), John Hancock Advisers
International Limited ("Advisers
International") and Sovereign Asset
Management Corporation ("SAMCorp");
Chairman, Chief Executive Officer
and President, John Hancock Funds,
Inc. ("John Hancock Funds");
Chairman, First Signature Bank and
Trust Company; Director, John
Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), John
Hancock Advisers International
(Ireland) Limited ("International
Ireland"), John Hancock Capital
Corporation and New England/Canada
Business Council; Member,
Investment Company Institute Board
of Governors; Director, Asia
Strategic Growth Fund, Inc.;
Trustee, Museum of Science;
Chairman, John Hancock
Distributors, Inc. (until April
1994); Director, John Hancock
Freedom Securities Corporation
(until September 1996); Director,
John Hancock Signature Services,
Inc. ("Signature Services") (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
13
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James F. Carlin Trustee (3) Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc.
Natick, MA 01760 (management/investments); Director,
April 1940 Arbella Mutual Insurance Company
(insurance), Consolidated Group
Trust (insurance administration),
Carlin Insurance Agency, Inc., West
Insurance Agency, Inc. (until May
1995) Uno Restaurant Corp.;
Chairman, Massachusetts Board of
Higher Education (since 1995);
Receiver, the City of Chelsea (until
August 1992).
William H. Cunningham Trustee (3) Chancellor, University of Texas
601 Colorado Street System and former President of the
O'Henry Hall University of Texas, Austin, Texas;
Austin, TX 78701 Lee Hage and Joseph D. Jamail
January 1944 Regents Chair of Free Enterprise;
Director, LaQuinta Motor Inns, Inc.
(hotel management company);
Director, Jefferson-Pilot
Corporation (diversified life
insurance company) and LBJ
Foundation Board (education
foundation); Advisory Director,
Texas Commerce Bank - Austin.
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
14
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Charles F. Fretz Trustee (3) Retired; self employed; Former Vice
RD #5, Box 300B President and Director, Towers,
Clothier Springs Road Perrin, Foster & Crosby, Inc.
Malvern, PA 19355 (international management
June 1928 consultants) (1952-1985).
Harold R. Hiser, Jr. Trustee (3) Executive Vice President,
123 Highland Avenue Schering-Plough Corporation
Short Hill, NJ 07078 (pharmaceuticals) (retired 1996);
October 1931 Director, ReCapital Corporation
(reinsurance) (until 1995).
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser; Trustee,
Boston, MA 02199 The Berkeley Group; Director, John
April 1953 Hancock Funds, Advisers
International, Insurance Agency,
Inc. and International Ireland;
President and Director, SAMCorp. and
NM Capital; Executive Vice
President, the Adviser (until
December 1994); Senior Vice
President, the Adviser (until
December 1993); Director, Signature
Services (until January 1997).
Charles L. Ladner Trustee (3) Director, Energy North, Inc. (public
UGI Corporation utility holding company) (until
P.O. Box 858 1992); Senior Vice President of UGI
Valley Forge, PA 19482 Corp. Holding Company Public
February 1938 Utilities, LPGAS.
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
15
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Leo E. Linbeck, Jr. Trustee (3) Chairman, President, Chief Executive
3810 W. Alabama Officer and Director, Linbeck
Houston, TX 77027 Corporation (a holding company
August 1934 engaged in various phases of the
construction industry and
warehousing interests); Former
Chairman, Federal Reserve Bank of
Dallas (1992, 1993); Chairman of
the Board and Chief Executive
Officer, Linbeck Construction
Corporation; Director, PanEnergy
Corporation (a diversified energy
company), Daniel Industries, Inc.
(manufacturer of gas measuring
products and energy related
equipment), GeoQuest International
Holdings, Inc. (a geophysical
consulting firm) (1980-1993);
Former Director, Greater Houston
Partnership (1980 -1995).
Patricia P. McCarter Trustee (3) Director and Secretary, The McCarter
1230 Brentford Road Corp. (machine manufacturer).
Malvern, PA 19355
May 1928
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
16
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Steven R. Pruchansky Trustee (1, 3) Director and President, Mast
4327 Enterprise Avenue Holdings, Inc. (since 1991);
Naples, FL 33942 Director, First Signature Bank &
August 1944 Trust Company (until August 1991);
Director, Mast Realty Trust (until
1994); President, Maxwell Building
Corp. (until 1991).
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John Hancock
Boston, MA 02117 Funds, John Hancock Distributors,
August 1937 Inc., Insurance Agency, Inc., John
Hancock Subsidiaries, Inc.,
SAMCorp. and NM Capital; Trustee,
The Berkeley Group; Director, JH
Networking Insurance Agency, Inc.;
Director, John Hancock Property and
Casualty Insurance and its
affiliates (until November 1993);
Director, Signature Services (until
January 1997).
Norman H. Smith Trustee (3) Lieutenant General, United States
243 Mt. Oriole Lane Marine Corps; Deputy Chief of Staff
Linden, VA 22642 for Manpower and Reserve Affairs,
March 1933 Headquarters Marine Corps;
Commanding General III Marine
Expeditionary Force/3rd Marine
Division (retired 1991).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
17
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
John P. Toolan Trustee (3) Director, The Smith Barney Muni Bond
13 Chadwell Place Funds, The Smith Barney Tax-Free
Morristown, NJ 07960 Money Funds, Inc., Vantage Money
September 1930 Market Funds (mutual funds), The
Inefficient-Market Fund, Inc.
(closed-end investment company) and
Smith Barney Trust Company of
Florida; Chairman, Smith Barney
Trust Company (retired December,
1991); Director, Smith Barney,
Inc., Mutual Management Company and
Smith Barney Advisers, Inc.
(investment advisers) (retired
1991); Senior Executive Vice
President, Director and member of
the Executive Committee, Smith
Barney, Harris Upham & Co.,
Incorporated (investment bankers)
(until 1991).
Robert G. Freedman Vice Chairman and Chief Investment Vice Chairman and Chief Investment
101 Huntington Avenue Officer (2) Officer, the Adviser; Director, the
Boston, MA 02199 Adviser, Advisers International,
July 1938 John Hancock Funds, SAMCorp.,
Insurance Agency, Inc.,
Southeastern Thrift & Bank Fund and
NM Capital; Senior Vice President,
The Berkeley Group; President, the
Adviser (until December 1994);
Director, Signature Services (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
18
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James B. Little Senior Vice President and Chief Senior Vice President, the Adviser,
101 Huntington Avenue Financial Officer The Berkeley Group, John Hancock
Boston, MA 02199 Funds.
February 1935
John A. Morin Vice President Vice President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services and John Hancock
July 1950 Funds; Secretary, NM Capital and
SAMCorp.; Clerk, Insurance Agency,
Inc.; Counsel, John Hancock Mutual
Life Insurance Company (until
February 1996), and Vice President
of John Hancock Distributors, Inc.
(until April 1994).
Susan S. Newton Vice President and Secretary Vice President, the Adviser; John
101 Huntington Avenue Hancock Funds, Signature Services
Boston, MA 02199 and The Berkeley Group; Vice
March 1950 President, John Hancock
Distributors, Inc. (until April
1994).
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
</TABLE>
19
<PAGE>
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of July 11, 1997, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund. As of
that date, the following shareholders beneficially owned 5% of the outstanding
shares of the Fund listed below:
Percentage Ownership
Class A Shares Held of Outstanding Shares
- ------- ----------- ---------------------
MLPF&S For The Sole 303,949 12.89%
Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr East
Jacksonville FL 32246-6484
River Production Co Inc. 161,685 6.86%
PO Box 909
Columbia MS 39429-0909
Northern Trust Co TTEE 120,342 5.10%
FBO Adventist Health System/
West
Attn: Tiffany Sndyer
PO Box 92956
A/C #22-85446/4-866770
Chicago IL 60675-2956
Class B
- -------
142,735 21.07%
MLPF&S For The Sole
Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
From December 22, 1994 until December 22, 1996, the Trustees established an
Advisory Board to facilitate a smooth transition between Transamerica Fund
Management Company ("TFMC"), the prior investment adviser, and the Adviser. The
members of the Advisory Board were distinct from the Trustees, did not serve the
Fund in any other capacity and were persons who had no power to determine what
securities were purchased or sold and behalf of the Fund.
Compensation of the Trustees and Advisory Board. The following tables provide
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. Messrs. Boudreau, Scipione, and Ms.
Hodsdon, each a non-Independent Trustees, and each of the officers of the Fund
who are interested persons of the Adviser, are compensated by the Adviser and/or
its affiliates and receive no compensation from the Fund for their services.
20
<PAGE>
<TABLE>
<CAPTION>
Total Compensation from
Aggregate Compensation from all Funds in John Hancock Fund
Trustees the Fund (1) Complex to Trustees*
- -------- ------------ --------------------
<S> <C> <C>
James F. Carlin $ 10 $ 74,250
William H. Cunningham (**) $ 10 74,250
Charles F. Fretz $ 10 74,500
Harold R. Hiser, Jr. (**) $ 10 70,250
Charles L. Ladner $ 10 74,500
Leo E. Linbeck, Jr. $ 10 74,250
Patricia P. McCarter $ 10 74,250
Steven R. Pruchansky $ 13 77,500
Norman H. Smith $ 13 77,500
John P. Toolan (**) $ 10 74,250
---- --------
Total $106 $745,500
</TABLE>
(1) Compensation for the period from April 1, 1997 to May 31, 1997.
* The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees as of the calendar year ended December 31, 1996.
As of this date, there were sixty-seven funds in the John Hancock Fund
Complex, of which each of these Independent Trustees served on
thirty-two.
** As of December 31, 1996, the value of the aggregate deferred
compensation from all funds in the John Hancock Fund Complex for Mr.
Cunningham was $131,741 , for Mr. Hiser was $90,972 , for Ms. McCarter
was $67,548, for Mr. Pruchansky was $28,731, for Mr. Smith was $32,314
and for Mr. Toolan was $163,385 under the John Hancock Deferred
Compensation Plan for Independent Trustees.
Total Compensation from all
Funds in John Hancock Fund
Advisory Board Aggregate Compensation Complex to Advisory Board
Members from the Fund + Members***
- ------- --------------- ----------
R. Trent Campbell $0 $ 47,000
Mrs. Lloyd Bentsen $0 47,000
Thomas R. Powers $0 47,000
Thomas B. McDade $0 47,000
-- --------
Total $0 $188,000
+ Compensation for the period from April 1, 1997 to May 31, 1997. The
Advisory Board was discontinued as of December 22, 1996.
*** For the calendar year ended December 31, 1996.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $22 billion in assets under management
in its capacity as investment adviser to the Fund and the other mutual funds and
publicly traded investment companies in the John Hancock group of funds, having
a combined total of over 1,080,000 shareholders. The Adviser is an affiliate of
the Life Company, one of the most recognized and respected financial
21
<PAGE>
institutions in the nation. With total assets under management of more than $100
billion, the Life Company is one of the ten largest life insurance companies in
the United States and carries a high rating from Standard & Poor's and A.M.
Best's. Founded in 1862, the Life Company has been serving clients for over 130
years.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, the Adviser will (a) furnish continuously an
investment program, for the Fund and determine, subject to the overall
supervision and review of the Trustees, which investments should be purchased,
held, sold or exchanged and (b) provide supervision over all aspects of the
Fund's operations except those which are delegated to a custodian, transfer
agent or other agent.
The Fund bears all costs of its organization and operation, including expenses
of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plan of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Fund (including an allocable portion of the cost of the
Adviser's employees rendering such services to the Fund; the compensation and
expenses of Trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders'
meetings; trade association memberships; insurance premiums; and any
extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage, equal on an annual basis to
0.40%, of the average daily net assets of the Fund.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to reimpose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provides 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 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 the Fund
or for other funds or clients, for which the Adviser renders investment advice
arise for consideration at or about the same time transactions in such
securities will be made insofar as feasible, for the respective funds or clients
in a manner deemed equitable to all of them. To the extent that transactions on
behalf of more than one client of the Adviser or its respective affiliates may
increase the demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price.
Pursuant to the Advisory Agreement, 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 its contract relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
22
<PAGE>
the performance of its duties or from reckless disregard of the obligations and
duties under the contract.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the applicable Advisory
Agreement or any extension, renewal or amendment thereof remains in effect. If
the Fund's Advisory Agreement is no longer in effect, the Fund (to the extent
that it lawfully can) will cease to use such name or any other name indicating
that it is advised by or otherwise connected with the Adviser. In addition, the
Adviser or the Life Company may grant the 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 (which was terminated on September 22,
1995 pursuant to an Agreement and Plan of Liquidation and Termination dated June
13, 1995) existing for the fiscal years ended March 31, 1995 and 1996 (until
September 22, 1995), the Fund 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 $107,596 and $0, respectively. For the
fiscal years ended March 31, 1995, 1996, 1997 and for the period April 1, 1997
to May 31, 1997, advisory fees paid by the Portfolio to the Adviser and borne
indirectly by the Fund, amounted to $35,865, $137,927, $132,601 and $19,526,
respectively. For the years ended March 31, 1995, 1996, 1997 and for the period
April 1, 1997 to May 31, 1997 TFMC (until December 22, 1994), the Adviser
received fees of $0, $0, $10,548 and $0, respectively.
The initial term of the Advisory Agreement expires on September 25, 1997. The
Advisory Agreement and the Distribution Agreement discussed below, will continue
in effect from year to year, provided that its continuance is approved annually
both (i) by the holders of a majority of the outstanding voting securities of
the Trust or by the Trustees, and (ii) by majority of the Trustees who are not
parties to the Agreement or "interested persons" of any such parties. Both
agreements may be terminated on 60 days written notice by any party or by a vote
of a majority of the outstanding voting securities of the Fund and will
terminate automatically if assigned.
Administration Agreement. Pursuant to an administration agreement, dated
December 22, 1994, the Adviser 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. The
Adviser paid all compensation of the Trustees, officers and employees of the
Fund who were affiliated persons of the Adviser. The administration agreement
terminated in September 1995.
Under the administration agreement, the Adviser would have 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 described below. For the fiscal
year ended March 31, 1995, administration fees paid by the Fund to TFMC, the
Fund's former administrator would have amounted to $21,511 and the Adviser would
have 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.
23
<PAGE>
Under the administration agreement, neither the Adviser 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 year ended March 31, 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 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 year ended March 31, 1995, the Fund paid to TFMC (pursuant to the
Services Agreement) $9,604 of which $8,164 was paid to TFMC and $1,440 was paid
for certain data processing and pricing information services.
For the fiscal year ended March 31, 1995, the Portfolio paid TFMC (pursuant to
the Services Agreement) $24,461of which $17,704 was paid to TFMC and $6,757 was
paid for certain data processing and pricing information services.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the period from April 1, 1997 to May 31, 1997, the Fund
paid the Adviser $915 for services under this agreement. From the effective date
of July 1, 1996 to March 31, 1997, the Fund paid the Adviser $4,508 under this
agreement.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser and
the Fund have adopted extensive restrictions on personal securities trading by
personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement, John Hancock Funds is obligated to use its best efforts to sell
shares 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 that are continually offered at net asset
value next determined, plus any applicable sales charge, if any. In connection
with the sale of Class A or Class B shares, John Hancock Funds and Selling
Brokers receive compensation from a sales charge imposed, in the case of Class A
shares, at the time of sale or, in the case of Class B shares, on a deferred
24
<PAGE>
basis. John Hancock Funds may pay extra compensation to financial services firms
selling large amounts of fund shares. This compensation would be calculated as a
percentage of fund shares sold by the firm.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal years ended March 31, 1995, 1996 and 1997 were $24,555, $4,976 and
$26,470, respectively, and for the period from April 1, 1997 to May 31, 1997 was
$7,357. Of such amounts, $4,090, $0, $6,000 and $557, respectively, were
retained by John Hancock Funds in 1995, 1996, 1997 and for the period from April
1, 1997 to May 31, 1997. The remainder of the underwriting commissions were
reallowed to dealers.
The Fund's Trustees, including the Independent Trustees, adopted new
Distribution Plans with respect to Class A and Class B shares (the "Plans"),
pursuant to Rule 12b-1 under the Investment Company Act. 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 Plans the
Fund will pay distribution and service fees at an aggregate annual rate of up to
0.25% and 1.00%, respectively, of the Fund's average daily net assets
attributable to shares of that class. However, the service fee will not exceed
0.25% of the Fund's average daily net assets attributable to each class of
shares. The distribution fees will be used to reimburse the John Hancock Funds
for their distribution expenses, including but not limited to: (i) initial and
ongoing sales compensation to Selling Brokers and others (including affiliates
of the John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing,
promotional and overhead expenses incurred in connection with the distribution
of Fund shares; and (iii) with respect to Class B shares only, interest expenses
on unreimbursed distribution expenses. The service fees will be used to
compensate Selling Brokers and others for providing personal and account
maintenance services to shareholders. In the event the John Hancock Funds is not
fully reimbursed for payments or expenses they incur under the Class A Plan,
these expenses will not be carried beyond twelve months from the date they were
incurred. Unreimbursed expenses under the Class B Plan will be carried forward
together with interest on the balance of these unreimbursed expenses. The Fund
does not treat unreimbursed expenses under the Class B Plan as a liability of
the Fund, because the Trustees may terminate the Class B Plan at any time. For
the period from April 1, 1997 to May 31, 1997, an aggregate of $402,344 of
distribution expenses or 6.06% of the average net assets of the Class B shares
of the Fund, was not reimbursed or recovered by the John Hancock Funds through
the receipt of deferred sales charges or 12b-1 fees in prior periods.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on these Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as its
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. The Plans provide that they may be terminated without
penalty (a) by a vote of a majority of the Independent Trustees, or (b) by a
vote of a majority of the Fund's outstanding shares of the applicable class in
each case upon 60 days' written notice to John Hancock Funds and (c)
25
<PAGE>
automatically in the event of assignment. The Plans further provide that they
may not be amended to increase the maximum amount of the fees for the services
described therein without the approval of a majority of the outstanding shares
of the class of the Fund which has voting rights with respect to the Plan. Each
Plan provides that no material amendment to the Plans will be effective unless
it is approved by a majority vote of the Trustees and the Independent Trustees
of the Fund. The holders of Class A and Class B shares have exclusive voting
rights with respect to the Plan applicable to their respective class of shares.
In adopting the Plans, the Trustees concluded that, in their judgment, there is
a reasonable likelihood that the Plans will benefit the holders of the
applicable class of shares of the Fund.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of the
Trustees. From time to time, the Fund may participate in joint distribution
activities with other Funds and the costs of those activities will be borne by
each Fund in proportion to the relative net asset value of the participating
Funds.
During the period from April 1, 1997 to May 31, 1997, the Fund paid John Hancock
Funds the following amounts of expenses in connection with their services for
the Fund:
<TABLE>
<CAPTION>
Expense Items
Printing and Interest,
Mailing of Expenses of Carrying or
Prospectus to Compensation to John Hancock Other Finance
Advertising New Shareholders Selling Brokers Funds Charges
----------- ---------------- --------------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A shares $1,021 $ 656 $5,845 $1,909 $ 0
Class B shares $ 781 $ 623 $3,852 $1,343 $4,487
</TABLE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
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.
26
<PAGE>
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by the
events occurring after closing of a foreign market, assets are valued by a
method that Trustees believe accurately reflects fair value.
The NAV for each fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net assets by the number of its shares outstanding.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which the Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
will not be issued unless requested by the shareholder in writing, and then they
will only be issued for full shares. The Trustees reserve the right to change or
waive a Fund's minimum investment requirements and to reject any order to
purchase shares (including purchase by exchange) when in the judgment of the
Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining reduced sales charges referred
to generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares of the Fund, the
investor is entitled to accumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund owned by the
investor, or if John Hancock Signature Services, Inc. ("Signature Services") is
notified by the investor's dealer or the investor at the time of the purchase,
the cost of the Class A shares owned.
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
o Any state, county or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment
laws from paying a sales charge or commission when it purchases shares
of any registered investment management company.*
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if
it is purchasing $1 million or more for non-discretionary customers or
accounts.*
27
<PAGE>
o A Trustee or officer of the Trust; a Director or officer of the
Adviser and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law) of any of the foregoing; or any fund,
pension, profit sharing or other benefit plan for the individuals
described above.
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into an agreement with John Hancock
Funds providing specifically for the use of Fund shares in fee-based
investment products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any
or all of his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.*
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Retirement plans participating in Merrill Lynch servicing programs,
if the Plan has more than $3 million in assets or 500 eligible
employees at the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for further information.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994 , and participant
directed defined contribution plans with at least 100 eligible
employees at the inception of the Fund account, may purchase Class A
shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which
the purchase was made, a CDSC will be imposed at the following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
28
<PAGE>
account and (c) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or a Selling Broker's representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current value of the Class A shares John Hancock
money market funds will only be eligible for the accumulation privilege if the
investor has previously paid a sales charge on the amount of those shares.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges are also applicable to investments
made pursuant to a Letter of Intention (the "LOI"), which should be read
carefully prior to its execution by an investor. The Fund offers two options
regarding the specified period for making investments under the LOI. All
investors have the option of making their investments over a specified period of
thirteen (13) months. Investors who are using the Fund as a funding medium for a
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 IRAs, SEP, SARSEP, 401(k), 403(b) (including TSAs) and
Section 457 plans. Such an investment (including accumulations and combinations)
must aggregate $50,000 or more invested during the specified period from the
date of the LOI or from a date within ninety (90) days prior thereto, upon
written request to Signature Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate amount intended
to be invested had been invested immediately. If such aggregate amount is not
actually invested, the difference in the sales charge actually paid and the
sales charge payable had the LOI not been in effect is due from the investor.
However, for the purchases actually made within the specified period (either 13
or 48 months), the sales charge applicable will not be higher than that which
would have been applied (including accumulations and combinations) had the LOI
been for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his or her
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional Class A shares and
may be terminated at any time.
29
<PAGE>
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of 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 purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. No CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B shares derived from
reinvestment of dividends or capital gains distributions. No CDSC will be
imposed on shares derived from reinvestment of dividends or capital gains
distributions.
Class B shares are not available to full-service defined contribution plans
administered by Signature Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
dividend and capital gain reinvestment, and next from the shares you have held
the longest during the six-year period. For this purpose, the amount of any
increase in a share's value above its initial purchase price is not regarded as
a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price. However, you cannot redeem appreciation value only in order to avoid a
CDSC.
When requesting a redemption for a specific dollar amount please indicate if you
require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
30
<PAGE>
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) -120
* Minus appreciation on remaining shares
(40 shares x $2) - 80
----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account
value, including reinvested dividends, at the time you established your
periodic withdrawal plan and 12% of the value of subsequent investments
(less redemptions) in that account at the time you notify Signature
Services. (Please note that this waiver does not apply to periodic
withdrawal plan redemptions of Class A shares that are subject to a
CDSC.)
* Redemptions by Retirement plans participating in Merrill Lynch
servicing programs, if the Plan has less than $3 million in assets or
500 eligible employees at the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for further information.
For Retirement Accounts (such as IRA, SIMPLE, Rollover IRA, TSA, 457, 403(b),
401(k), Money Purchase Pension Plan, Profit-Sharing Plan and other qualified
plans as described in the Internal Revenue Code) unless otherwise noted.
31
<PAGE>
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans under Section
401(a) of the Code (such as 401(k), Money Purchase Pension Plan,
Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA accounts that purchased shares
prior to May 15, 1995.
Please see matrix for reference.
32
<PAGE>
<TABLE>
<CAPTION>
CDSC Waiver Matrix for Class B Funds
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Type of 401(a) Plan 403(b) 457 IRA, IRA Rollover Non-retirement
Distribution (401(k), MPP,
PSP)
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually in
distributions or periodic payments
12% of account
value annually
in periodic
payments
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or value annually in
12% of account periodic payments
value annually
in periodic
payments
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Under 59 1/2 Waived Waived for Waived for Waived for 12% of account
annuity payments annuity payments annuity payments value annually in
(72+) or 12% of (72+) or 12% of (72+) or 12% of periodic payments
account value account value account value
annually in annually in annually in
periodic payments periodic payments periodic payments
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Loans Waived Waived N/A N/A N/A
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Hardships Waived Waived Waived N/A N/A
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Return of Waived Waived Waived Waived N/A
Excess
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
33
<PAGE>
securities received in this fashion, the shareholder will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Fund has
elected to be governed by Rule 18f-1 under the Investment Company Act. Under
that rule, the Fund must redeem its shares for cash except to the extent that
the redemption payments to any shareholder during any 90-day period would exceed
the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of
such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock Short-Term Strategic Income
Fund, John Hancock Intermediate Maturity Government Fund and John Hancock
Limited-Term Government Fund will retain the exchanged fund's CDSC schedule).
For purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the holding
period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares. Since the redemption price of the Fund shares may be
more or less than the shareholder's cost, depending upon the market value of the
securities owned by the Fund at the time of redemption, the distribution of cash
pursuant to this plan may result in realization of gain or loss for purposes of
Federal, state and local income taxes. The maintenance of a Systematic
Withdrawal Plan concurrently with purchases of additional Class A or Class B
shares of the Fund could be disadvantageous to a shareholder because of the
initial sales charge payable on such purchases of Class A shares and the CDSC
imposed on redemptions of Class B shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase Class A and Class B shares
34
<PAGE>
at the same time a Systematic Withdrawal Plan is in effect. The Fund reserves
the right to modify or discontinue the Systematic Withdrawal Plan of any
shareholder on 30 days prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the due date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit of that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of any CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
35
<PAGE>
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years, or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund, without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trust has two Funds and only one series and the Trustees have
not authorized any additional series of the Fund, although they may do so in the
future. The Declaration of Trust also authorizes the Trustees to classify and
reclassify the shares of the Fund, or any new series of the Trust into one or
more classes. As of the date of this Statement of Additional Information, the
Trustees have authorized the issuance of two classes of shares of the Fund,
designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class or series of the Fund.
Holders of Class A and Class B shares have certain exclusive voting rights on
matters relating to their respective distribution plans. The different classes
of the Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that class, (ii) Class B shares will pay higher
distribution and service fees than Class A shares and (iii) each Class A and
Class B shares will bear any class expenses properly allocable to that class of
shares, subject to the conditions the Internal Revenue Service imposes with
respect to the multiple-class structures. Similarly, the net asset value per
share may vary depending on whether Class A or Class B shares are purchased.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
36
<PAGE>
of the Trust. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts, obligations or affairs of the Fund. The
Declaration of Trust also provides for indemnification out of the Fund's assets
for all losses and expenses of any shareholder held personally liable by reason
of being or having been a shareholder. The Declaration of Trust also provides
that no series of the Trust shall be liable for the liabilities of any other
series. Furthermore, no fund included in this Fund's prospectus shall be liable
for the liabilities of any other John Hancock Fund. Liability is therefore
limited to circumstances in which the Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. Use of
information provided on the account application may be used by the Fund to
verify the accuracy of the information or for background or financial history
purposes. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts.
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
for each taxable year. As such and by complying with the applicable provisions
of the Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, the Fund will not be
subject to Federal income tax on its taxable income (including net realized
capital gains) which is distributed to shareholders in accordance with the
timing requirements of the Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
37
<PAGE>
The amount of net realized capital gains, if any, in any given year will vary
depending upon the Adviser's current investment strategy and whether the Adviser
believes it to be in the best interests 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 on
these shares 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 the
amount of the proceeds and the investor's basis in his shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and will be long-term or short-term, depending upon the
shareholder's tax holding period for the shares and subject to the special rules
described below. A sales charge paid in purchasing Class A shares of the Fund
cannot be taken into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to the
extent shares of the Fund or another John Hancock Fund are subsequently acquired
without payment of a sales charge pursuant to the reinvestment or exchange
privilege. This disregarded charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Also, any loss
realized on a redemption or exchange may be disallowed to the extent the shares
disposed of are replaced with other shares of the Fund within a period of 61
days beginning 30 days before and ending 30 days after the shares are disposed
of, such as pursuant to automatic dividend reinvestments. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized upon the redemption of shares with a tax holding period of six
months or less will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain with respect to such
shares.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain in his return for his taxable year in which the last day of the
Fund's taxable year falls, (b) be entitled either to a tax credit on his return
for, or to a refund of, his pro rata share of the taxes paid by the Fund, and
(c) be entitled to increase the adjusted tax basis for his shares in the Fund by
the difference between his pro rata share of such excess and his pro rata share
of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
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
38
<PAGE>
shareholders. The Fund has $7,980,391 of capital loss carryforwards as of the
tax year ended May 31, 1997, of which $653,763 expires in 1998, $2,207,560
expires in 1999, $23,234 expires in 2000, $4,062,681 expires in 2001, $427,159
expires in 2002, $427,511 expires in 2004 and $178,483 expires in 2005,
available to offset future net capital gains.
The Fund's dividends and capital gain distributions will not qualify for the
corporate dividends-received deduction.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options and futures contracts, may also
require the Fund to recognize gain without a concurrent receipt of cash.
However, the Fund must distribute to shareholders for each taxable year
substantially all of its net income and net capital gains, including such income
or gain, to qualify as a regulated investment company and avoid liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. The Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
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.
39
<PAGE>
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 transactions.
Certain options and futures transactions undertaken by the Fund may cause the
Fund to recognize gains or losses from marking to market even though its
positions have not been sold or terminated and affect the character as long-term
or short-term and timing of some capital gains and losses realized by the Fund.
Also, certain of the Fund's losses on its transactions involving options or
futures contracts and/or offsetting or successor portfolio positions may be
deferred rather than being taken into account currently in calculating the
Fund's taxable income or gain. Certain of these transactions may also cause the
Fund to dispose of investments sooner than would otherwise have occurred.
Certain of the applicable tax rules may be modified if the Fund is eligible and
chooses to make one or more of certain tax elections that may be available.
These transactions may therefore affect the amount, timing and character of the
Fund's distributions to shareholders. The Fund will take into account the
special tax rules (including consideration of available elections) applicable to
options and futures contracts in order to seek to minimize any potential adverse
tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of 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 for Form W-8 is on file, to 31% backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
For the 30-day period ended May 31, 1997, the annualized yield for the Fund's
Class A and Class B shares were 6.09% and 5.52%, respectively. Average annual
40
<PAGE>
return for the Fund's Class A and Class B shares for the period from December
31, 1991 (inception of the Fund) through May 31, 1997 were 4.38% and 4.28%,
respectively. For the two month period from April 1, 1997 to May 31, 1997
returns were 2.00% and 1.88%, respectively, for Class A and B shares of the
Fund. For the one year period ended May 31, 1997, the average annual returns
were 4.24% and 3.77%, respectively. For the five year period ended May 31, 1997,
the average annual returns were 3.94% and 3.89%, respectively.
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, where applicable) on the last day of the period,
according to the following standard formula:
6
Yield = 2 ( [ (a - b) + 1 ] - 1 )
---
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of shares of the Fund 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).
Total return is computed by finding the average annual compounded rate of return
over the 1-year, 5-year, and 10-year periods that would equate the initial
amount invested to the ending redeemable value according to the following
formula:
n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return
n = number of years
ERV= ending redeemable value of a hypothetical $1,000 investment made at
designated periods or fraction thereof.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of Class A or Class B shares, this
calculation assumes the maximum sales charge is included in the initial
investment or the CDSC applied at the end of the period, respectively. This
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period. The "distribution rate"
41
<PAGE>
is determined by annualizing the result of dividing the declared dividends of
the Fund during the period stated by the maximum offering price or net asset
value at the end of the period. Excluding the Fund's sales charge from the
distribution rate produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
or the CDSC on Class B shares into account. Excluding the Fund's sales charge on
Class A shares and the CDSC on Class B shares from a total return calculation
produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's total
return and/or yield 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 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, may also be
utilized. The Fund's promotional and sales literature may make reference to the
Fund's "beta." Beta is a reflection of the market-related risk of the Fund by
showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by an investment committee of the Adviser, which consists
of officers and directors of the Adviser and affiliates and 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 to
reflect a "spread." Debt securities are generally traded on a net basis through
dealers acting for their own account as principals and not as brokers; no
brokerage commissions are payable on these transactions.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. In other countries, both debt and equity
42
<PAGE>
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and other policies as the Trustees may determine, the Adviser may consider sales
of shares of the Fund as a factor in the selection of broker-dealers to execute
the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser of the Fund, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will not make any commitment to allocate portfolio transactions upon any
prescribed basis. While the Adviser's officers will be primarily responsible for
the allocation of the Fund's brokerage business, the policies in this regard
must be consistent with the foregoing and will at all times be subject to review
by the Trustees. For the years ended March 31, 1997, 1996, and 1995, no
negotiated brokerage commissions were paid on portfolio transactions. For the
period from April 1, 1997 to May 31, 1997, no negotiated brokerage commissions
were paid on portfolio transactions.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the period from April 1, 1997 to
May 31, 1997, the Fund did not pay commissions to compensate 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., a broker-dealer ("Distributors"
or "Affiliated Broker"). Pursuant to procedures determined by the Trustees and
consistent with the above policy of obtaining best net results, the Fund may
execute portfolio transactions with or through Affiliated Brokers. During the
years ended March 31, 1997, 1996 and 1995, the Fund did not execute any
portfolio transactions with any Affiliated Broker. For the period from April 1,
1997 to May 31, 1997, the Fund did not execute any portfolio transactions with
any Affiliated Broker.
43
<PAGE>
Distributors may act as broker for the Fund on exchange transactions, subject,
however, to the general policy of the Fund set forth above and the procedures
adopted by the Trustees pursuant to the Investment Company Act. Commissions paid
to an Affiliated Broker must be at least as favorable as those which the
Trustees believe to be contemporaneously charged by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold. A transaction would not be placed with an Affiliated Broker if the Fund
would have to pay a commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers, except for accounts for which the Affiliated Broker
acts as 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 Investment Company
Act) of the Fund, the Adviser or the Affiliated Broker. Because the Adviser,
which is affiliated with the Affiliated Brokers, has, as an investment adviser
to the Fund, the obligation to provide investment management services, which
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.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Fund with those to be sold or purchased for
other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc. , 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays an annual fee of
$20.00 for each Class A shareholder and $22.50 for each Class B shareholder,
plus certain out-of- pocket expenses. These expenses are aggregated and charged
to the Fund and allocated to each class on the basis of their relative net asset
values.
CUSTODY OF THE FUND
Portfolio securities of the Fund are held pursuant to custodian agreements
between the Fund and Investors Bank & Trust Company, 200 Clarendon Street,
Boston, Massachusetts 02116. Under the custodian agreement, Investors Bank &
Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Ernst & Young LLP, 200 Clarendon
Street, Boston, Massachusetts 02116. Ernst & Young LLP audits and renders an
opinion of the Fund's annual financial statements and prepares the Fund's annual
Federal income tax return.
44
<PAGE>
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 1997 Annual
Report to Shareholders for the year ended May 31, 1997 (filed electronically on
July 24, 1997, accession number 0001010521-97-000350) and are included in and
incorporated by reference into Part B of this registration statement of John
Hancock Intermediate Maturity Government Fund (file nos. 811-03006 and 2-66906).
John Hancock Bond Trust
John Hancock Intermediate Maturity Government Fund
Statement of Assets and Liabilities as of May 31, 1997.
Statement of Operations for the period from April 1, 1997 to May 31, 1997.
Statement of Changes in Net Assets for each of the periods indicated
therein.
Financial Highlights for each of the periods indicated therein.
Schedule of Investment as of May 31, 1997.
Notes to Financial Statements.
Report to Independent Auditors.
45
<PAGE>
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.
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.
A-1
<PAGE>
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 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-2
<PAGE>
Quality Distribution. The average weighted quality distribution of the
securities in the portfolio for the period ended May 31, 1997.
John Hancock Intermediate Maturity Government Fund
<TABLE>
<CAPTION>
- --------------------------- ----------------- ------------- -------------- ------------ ----------------- -----------
Year-to-Date Rating Rating Assigned
Average Value % of Assigned by % of by Service % of
Security Ratings Portfolio Adviser Portfolio Portfolio
- --------------------------- ----------------- ------------- -------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
AAA $27,820,184 96.0% 0 0.0% $27,820,184 96.0%
AA 0 0.0% 0 0.0% 0 0.0%
A 0 0.0% 0 0.0% 0 0.0%
BAA 0 0.0% 0 0.0% 0 0.0%
BA 0 0.0% 0 0.0% 0 0.0%
B 0 0.0% 0 0.0% 0 0.0%
CAA 0 0.0% 0 0.0% 0 0.0%
CA 0 0.0% 0 0.0% 0 0.0%
C 0 0.0% 0 0.0% 0 0.0%
D 0 0
---------------- -------------- --------------
Debt-Securities $27,820,184 96.0% 0 0.0% $27,820,184 96.0%
Equities Securities 0 0.0%
Short-Term Securities 1,155,667 4.0%
---------
Total 28,975,851 100.0%
Portfolio
Other Assets -- Net (7,043)
-------
Net Assets $28,968,808
================
- --------------------------- ----------------- ------------- -------------- ------------ ----------------- -----------
</TABLE>
A-3
<PAGE>
FINANCIAL STATEMENTS
F-1
<PAGE>
JOHN HANCOCK LIMITED-TERM GOVERNMENT FUND
Class A and Class B Shares
Statement of Additional Information
October 1, 1997
This Statement of Additional Information provides information about John Hancock
Limited-Term Government Fund (the "Fund"), a diversified open-end investment
company, in addition to the information that is contained in the combined Income
Funds' Prospectus (the "Prospectus") dated October 1, 1997.
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund ............................................... 2
Investment Objective and Policies ...................................... 2
Investment Restrictions ................................................ 6
Those Responsible for Management ....................................... 8
Investment Advisory and Other Services ................................. 17
Distribution Contracts ................................................. 19
Net Asset Value ........................................................ 20
Initial Sales Charge on Class A Shares ................................. 21
Deferred Sales Charge on Class B Shares ................................ 23
Special Redemptions .................................................... 27
Additional Services and Programs ....................................... 27
Description of the Fund's Shares ....................................... 29
Tax Status ............................................................. 30
Calculation of Performance ............................................. 33
Brokerage Allocation ................................................... 34
Transfer Agent Services ................................................ 36
Custody of Portfolio ................................................... 36
Independent Auditors ................................................... 36
Financial Statements ................................................... F-1
1
<PAGE>
ORGANIZATION OF THE FUND
The Fund is a diversified open-end investment management company organized as a
Massachusetts business trust in 1984 under the laws of The Commonwealth of
Massachusetts.
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser.
The Adviser is a wholly owned subsidiary of John Hancock Mutual Life Insurance
Company (the "Life Company") a Massachusetts life insurance company chartered in
1862, with national headquarters at John Hancock Place Boston, Massachusetts. On
July 1, 1993 the Fund changed its name from "John Hancock U.S. Government
Securities Fund."
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus.
The investment objective of the Fund is to provide current income and security
of principal through investment primarily in securities of the United States
Government and its agencies. These securities (which are herein referred to as
"Government Obligations") are direct obligations of, or are guaranteed as to
payment of principal and interest by, the United States government or its
agencies. There is no assurances that the Fund will achieve its investment
objective.
The Fund intends to invest at least 80% of its total assets in Government
Obligations, including repurchase agreements secured by those obligations.
Investments will be made in an attempt to minimize excessive fluctuations in net
asset value per share, so at times the highest yielding Government Obligations
may not be selected for investment if, in management's view, future interest
rate movements could result in a depreciation in value. While the Fund makes no
commitment concerning the portfolio maturities of particular securities, it
expects that under normal conditions a substantial portion of the portfolio will
be invested in Government Obligations with maturities of up to ten years. In the
past year, the average dollar-weighted maturity was under five years.
The Government Obligations in which the Fund will invest include but are not
limited to:
Treasury Notes and Bonds-These are direct obligations of the United
States government backed by the full faith and credit of the United
States. New issues of notes mature in one to seven years, while bonds
generally have a maturity of five years or more.
Treasury Bills-These are direct obligations of the United States
government backed by the full faith and credit of the United States and
mature in one year or less.
Agency Securities-These securities may be guaranteed by the United
States Treasury or supported by the issuer's right to borrow from the
Treasury, and may be backed by the credit of the Federal agency itself.
Federal agencies include, but are not limited to: Federal Intermediate Credit
Banks, Federal Land Banks, Banks for Cooperatives, Federal Home Loan Banks,
Federal National Mortgage Association, Government National Mortgage Association,
Tennessee Valley Authority, Federal Home Loan Mortgage Corporation and Farmers
Home Administration.
2
<PAGE>
For liquidity and flexibility, the Fund may place up to 20% of total assets in
investment grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic.
Mortgage-Backed and Derivative Securities. Mortgage-backed securities represent
participation interests in pools of adjustable and fixed rate mortgage loans
which are guaranteed by agencies or instrumentalities of the U.S. Government.
Unlike conventional debt obligations, mortgage-backed securities provide monthly
payments derived from the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans. The
mortgage loans underlying mortgage-backed securities are generally 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 and prepayment rate scenarios, the Fund may
fail to recover the full amount of its investment in mortgage-backed securities
notwithstanding any direct or indirect governmental or agency guarantee. Since
faster than expected prepayments must usually be invested in lower yielding
securities, mortgage-backed securities are less effective than conventional
bonds in "locking in" a specified interest rate. In a rising interest rate
environment, a declining prepayment rate may extend the average life of many
mortgage-backed securities. Extending the average life of a mortgage-backed
security increases the risk of depreciation due to future increases in market
interest rates.
The Fund's investments in mortgage-backed securities may include conventional
mortgage passthrough securities and certain classes of multiple class
collateralized mortgage obligations ("CMOs"). In order to reduce the risk of
prepayment for investors, CMOs are issued in multiple classes, each having
different maturities, interest rates, payment schedules and allocations of
principal and interest on the underlying mortgages. Senior CMO classes will
typically have priority over residual CMO classes as to the receipt of principal
and/or interest payments on the underlying mortgages. The CMO classes in which
the Fund may invest include sequential and parallel pay CMOs, including planned
amortization class ("PAC") and target amortization class ("TAC") securities. The
Fund does not invest in residual classes of CMOs.
Risks of Mortgage-Backed Securities. Different types of mortgage-backed
securities are subject to different combinations of prepayment, extension,
interest rate and/or other market risks. Conventional mortgage passthrough
securities and sequential pay CMOs are subject to all of these risks, but are
typically not leveraged. PACs, TACs and other senior classes of sequential and
parallel pay CMOs 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."
Asset-Backed Securities. The Fund may invest a portion of its assets in
asset-backed securities. 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 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
3
<PAGE>
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.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price plus accrued interest.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government securities.
The Adviser will continuously monitor the creditworthiness of the parties with
whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income, decline in
value of the underlying securities and lack of access to income during this
period as well as the expense of enforcing its rights.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section (2) of the 1933 Act and
securities offered and sold to "qualified institutional buyers" under Rule 144A
under the 1933 Act. However, the Fund will not invest more than 15% of its net
assets in illiquid investments. If the Trustees determine, based upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, they will not be subject to the 15% limit
on illiquid investments. The Trustees may adopt guidelines and delegate to the
Adviser the daily function of determining and monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
REMIC Securities. The Fund may purchase collateralized mortgage obligations
issued by a real estate mortgage investment conduit ("REMIC"). REMIC securities
represent interests in a fixed pool of mortgages secured by an interest in real
property and are typically issued in multiple classes to investors such as the
Fund. The Fund may invest in REMIC securities that are issued or guaranteed by
the Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation or other U.S. government agencies or instrumentalities and for which
the mortgage collateral is insured, guaranteed or otherwise backed by the U.S.
government or one or more of its agencies or instrumentalities. The Fund will
not invest in "residual" interests in REMICs because of certain tax
disadvantages for regulated investment companies that own such interests.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
4
<PAGE>
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns. All
when-issued and other delayed-delivery transactions will be settled within 120
days.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments or to take advantage of yield disparities between fixed income
securities in order to realize capital gains or improve income. Short-term
trading may have the effect of increasing portfolio turnover rate. A high rate
of portfolio turnover (100% or greater) involves correspondingly greater
brokerage expenses and may make it more difficult for the Fund to qualify as a
regulated investment company for federal income tax purposes. The Fund's
portfolio turnover rate is set forth in the table under the caption "Financial
Highlights" in the Prospectus.
5
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without approval of a majority of the Fund's outstanding voting
securities which, as used in the Prospectus and this Statement of Additional
Information means, approval of the lesser of (1) the holders of 67% or more of
the Fund's shares represented at a meeting if more than 50% of the Fund's
outstanding shares are present in person or by proxy at that meeting or (2) more
than 50% of the Fund's outstanding shares.
The Fund may not:
(1) Make loans, except that the Fund may (1) lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the
Fund's total assets taken at market value, (2) enter into repurchase
agreements, and (3) purchase all or a portion of securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities,
bank loan participation interests, bank certificates of deposit,
bankers' acceptances, debentures or other securities, whether or not
the purchase is made upon the original issuance of the securities.
(2) Purchase securities of an issuer (other than the U.S. government, its
agencies or instrumentalities), if:
(i) such purchase would cause more than 5% of the Fund's total
assets taken at market value to be invested in the securities
of such issuer, or
(ii) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the
Fund.
(3) Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, the Fund may be deemed to be
an underwriter for purposes of the 1933 Act.
(4) Borrow money, except from banks as a temporary measure for
extraordinary emergency purposes in amounts not to exceed 33 1/3% of
the Fund's total assets (including the amount borrowed) taken at market
value. The Fund will not use leverage to attempt to increase income.
The Fund will not purchase securities while outstanding borrowings
exceed 5% of the Fund's total assets.
(5) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted by paragraph (4) above and then only if such
pledging, mortgaging or hypothecating does not exceed 33 1/3% of the
Fund's total assets taken at market value.
(6) Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities of corporate or governmental entities
secured by real estate or marketable interests therein or securities
issued by companies that invest in real estate or interests therein.
6
<PAGE>
(7) Issue senior securities, except as permitted by paragraphs (1) and (4)
above. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale
of options, futures contracts and options on futures contracts, forward
commitments, forward foreign currency exchange contracts and repurchase
agreements entered into in accordance with the Fund's investment
policy, and the pledge, mortgage or hypothecation of the Fund's assets
within the meaning of paragraph (5) above are not deemed to be senior
securities.
(8) Purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after such purchase, the
value of its investments in such industry would exceed 25% of its total
assets taken at market value at the time of each investment. This
limitation does not apply to investments in obligations of the U.S.
Government or any of its agencies or instrumentalities.
In connection with the lending of portfolio securities under item (1) above,
such loans must at all times be fully collateralized by cash or securities of
the U.S. Government or its agencies or instrumentalities, and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Any cash collateral will consist of short-term high quality debt
instruments. Securities used as collateral must be marked to market daily.
Non-fundamental Investment Restrictions. The following investment restrictions
are designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
The Fund may not:
(a) Purchase securities on margin or make short sales, except in connection
with arbitrage transactions, or unless, by virtue of its ownership of
other securities, the Fund has the right to obtain securities
equivalent in kind and amount to the securities sold and, if the right
is conditional, the sale is made upon the same conditions, except that
the Fund may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities.
(b) Invest for the purpose of exercising control over or management of any
company.
(c) Invest more than 15% of its net assets in illiquid securities.
(d) Purchase a security if, as a result, (i) more than 10% of the Fund's
total assets would be invested in the securities of other investment
companies, (ii) the Fund would hold more than 3% of the total
outstanding voting securities of any one investment company, or (iii)
more than 5% of the Fund's total assets would be invested in the
securities of any one investment company. These limitations do not
apply to (a) the investment of cash collateral, received by the Fund in
connection with lending the Fund's portfolio securities, in the
securities of open-end investment companies or (b) the purchase of
shares of any investment company in connection with a merger,
consolidation, reorganization or purchase of substantially all of the
assets of another investment company. Subject to the above percentage
limitations, the Fund may, in connection with the John Hancock Group of
Funds Deferred Compensation Plan of Independent Trustees/Directors,
purchase securities of other investment companies within the John
Hancock Group of Funds.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the values of the Fund's assets will not be
considered a violation of the restriction.
7
<PAGE>
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees of the Trust, who elect
officers who are responsible for the day-to-day operations of the Fund and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also Officers and Directors of the Adviser or Officers
and Directors of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
8
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman, Director and Chief
101 Huntington Avenue Executive Officer (1, 2) Executive Officer, the Adviser;
Boston, MA 02199 Chairman, Trustee and Chief
October 1944 Executive Officer, The Berkeley
Financial Group ("The Berkeley
Group"); Chairman and Director, NM
Capital Management, Inc. ("NM
Capital"), John Hancock Advisers
International Limited ("Advisers
International") and Sovereign Asset
Management Corporation ("SAMCorp");
Chairman, Chief Executive Officer
and President, John Hancock Funds,
Inc. ("John Hancock Funds");
Chairman, First Signature Bank and
Trust Company; Director, John
Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), John
Hancock Advisers International
(Ireland) Limited ("International
Ireland"), John Hancock Capital
Corporation and New England/Canada
Business Council; Member,
Investment Company Institute Board
of Governors; Director, Asia
Strategic Growth Fund, Inc.;
Trustee, Museum of Science;
Chairman, John Hancock
Distributors, Inc. (until April
1994); Director, John Hancock
Freedom Securities Corporation
(until September 1996); Director,
John Hancock Signature Services,
Inc. ("Signature Services") (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
9
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dennis S. Aronowitz Trustee (3) Professor of Law, Emeritus, Boston
Boston University University School of Law; Trustee,
Boston, Massachusetts Brookline Savings Bank.
June 1931
Richard P. Chapman, Jr. Trustee (1, 3) President, Brookline Savings Bank;
160 Washington Street Director, Federal Home Loan Bank of
Brookline, MA 02147 Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University (education);
Director, Depositors Insurance Fund,
Inc. (insurance).
William J. Cosgrove Trustee (3) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, NJ 07458 N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation, Inc.
(consulting) (until October 1993);
Trustee, the Hudson City Savings
Bank (since 1995).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
10
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Douglas M. Costle Trustee (1, 3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, VT 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991); Dean Vermont Law
School (until 1991); Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
Mitretek Systems (governmental
consulting services).
Leland O. Erdahl Trustee (3) Director, Santa Fe Ingredients
8046 Mackenzie Court Company of California, Inc. and
Las Vegas, NV 89129 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing companies),
Uranium Resources, Inc.; President,
Stolar, Inc. (1987-1991); President,
Albuquerque Uranium Corporation
(1985-1992); Director,
Freeport-McMoRan Copper & Gold
Company, Inc., Hecla Mining Company,
Canyon Resources Corporation and
Original Sixteen to One Mines, Inc.
(1984-1987 and 1991-1995)
(management consultant).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
11
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Farrell Trustee(3) President of Farrell, Healer & Co.,
Venture Capital Partners (venture capital management firm)
160 Federal Street (since 1980); Prior to 1980, headed
23rd Floor the venture capital group at Bank of
Boston, MA 02110 Boston Corporation.
November 1932
Gail D. Fosler Trustee (3) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD 20815 economic and business research);
December 1947 Director, Unisys Corp.; and H.B.
Fuller Company.
William F. Glavin Trustee (3) President, Babson College; Vice
Babson College Chairman, Xerox Corporation (until
Horn Library June 1989); Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994) and Inco
March 1931 Ltd.
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser; Trustee,
Boston, MA 02199 The Berkeley Group; Director, John
April 1953 Hancock Funds, Advisers
International, Insurance Agency,
Inc. and International Ireland;
President and Director, SAMCorp. and
NM Capital; Executive Vice
President, the Adviser (until
December 1994); Senior Vice
President, the Adviser (until
December 1993); Director, Signature
Services (until January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
12
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dr. John A. Moore Trustee (3) President and Chief Executive
Institute for Evaluating Health Risks Officer, Institute for Evaluating
1629 K Street NW Health Risks, (nonprofit
Suite 402 institution) (since September 1989).
Washington, DC 20006-1602
February 1939
Patti McGill Peterson Trustee (3) Cornell Institute of Public Affairs,
Cornell University Cornell University (since August
Institute of Public Affairs 1996); President Emeritus of Wells
364 Upson Hall College and St. Lawrence University;
Ithica, NY 14853 Director, Niagara Mohawk Power
May 1943 Corporation (electric utility) and
Security Mutual Life (insurance).
John W. Pratt Trustee (3) Professor of Business Administration
2 Gray Gardens East at Harvard University Graduate
Cambridge, MA 02138 School of Business Administration
September 1931 (since 1961).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
13
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John Hancock
Boston, MA 02117 Funds, John Hancock Distributors,
August 1937 Inc., Insurance Agency, Inc., John
Hancock Subsidiaries, Inc.,
SAMCorp. and NM Capital; Trustee,
The Berkeley Group; Director, JH
Networking Insurance Agency, Inc.;
Director, John Hancock Property and
Casualty Insurance and its
affiliates (until November 1993);
Director, Signature Services (until
January 1997).
Edward J. Spellman, CPA Trustee (3) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL 33308
November 1932
Robert G. Freedman Vice Chairman and Chief Investment Vice Chairman and Chief Investment
101 Huntington Avenue Officer (2) Officer, the Adviser; Director, the
Boston, MA 02199 Adviser, Advisers International,
July 1938 John Hancock Funds, SAMCorp.,
Insurance Agency, Inc.,
Southeastern Thrift & Bank Fund and
NM Capital; Senior Vice President,
The Berkeley Group; President, the
Adviser (until December 1994);
Director, Signature Services (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
14
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James B. Little Senior Vice President and Chief Senior Vice President, the Adviser,
101 Huntington Avenue Financial Officer The Berkeley Group, John Hancock
Boston, MA 02199 Funds.
February 1935
John A. Morin Vice President Vice President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services and John Hancock
July 1950 Funds; Secretary, NM Capital and
SAMCorp.; Clerk, Insurance Agency,
Inc.; Counsel, John Hancock Mutual
Life Insurance Company (until
February 1996), and Vice President
of John Hancock Distributors, Inc.
(until April 1994).
Susan S. Newton Vice President and Secretary Vice President, the Adviser; John
101 Huntington Avenue Hancock Funds, Signature Services
Boston, MA 02199 and The Berkeley Group; Vice
March 1950 President, John Hancock
Distributors, Inc. (until April
1994).
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
</TABLE>
15
<PAGE>
All of the officers listed are officers or employees of the Adviser or the
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of August 1, 1997, the officers and trustees of the Fund as a group owned
less than 1% of the outstanding shares of each class of the Fund. As of that
date, the following shareholder beneficially owned 5% or more of the outstanding
shares of the Fund:
<TABLE>
<CAPTION>
Number of shares Percentage of Total
Name and Address of of Beneficial Outstanding Shares of
Shareholders Class of Shares Interest Owned the Class of the Fund
- ------------ --------------- -------------- ---------------------
<S> <C> <C> <C>
MLPF&S For The Sole B 328,218 19.25%
Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East
Jacksonville FL 32246-6484
</TABLE>
The following table provides information regarding the compensation paid by the
Fund during its most recently completed fiscal year and the other investment
companies in the John Hancock Fund Complex to the Independent Trustees for their
services. Messrs. Boudreau, Scipione and Ms. Hodsdon, each a non-Independent
Trustee, and each of the officers of the Fund are interested persons of the
Adviser, and/or affiliates are compensated by the Adviser and receive no
compensation from the Fund for their services.
Total Compensation
Aggregate From the Fund and John
Compensation Hancock Fund Complex
Independent Trustees From the Fund(1) to Trustees(2)
- -------------------- ---------------- --------------
Dennis S. Aronowitz $ 1,087 $ 72,450
Richard P. Chapman, Jr. + ++ $ 1,110 $ 75,200
William J. Cosgrove + $ 1,087 $ 72,450
Douglas M. Costle ++ $ 1,110 $ 75,350
Leland O. Erdahl ++ $ 1,087 $ 72,350
Richard A. Farrell ++ $ 1,110 $ 75,350
Gail D. Fosler $ 1,087 $ 68,450
William F. Glavin + $ 1,087 $ 72,250
Bayard Henry (3) $ 0 $ 23,700
Dr. John A. Moore ++ $ 1,087 $ 68,350
Patti McGill Peterson ++ $ 1,087 $ 72,100
John W. Pratt ++ $ 1,087 $ 72,350
Edward J. Spellman $ 1,110 $ 73,950
------- --------
Total $13,136 $894,300
(1) Compensation for the fiscal period from January 1, 1997 to May 31,
1997.
16
<PAGE>
(2) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31,
1996. As of this date, there were sixty-seven funds in the John Hancock
Complex of which each of these Independent Trustees served on
thirty-two.
(3) Mr. Henry retired from this position as Trustee effective April 26,
1996.
+ As of December 31, 1996, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Fund Complex for
Mr. Chapman was $63,164 and for Mr. Cosgrove was $131,317 and for Mr.
Glavin was $109,059 under the John Hancock Deferred Compensation Plan
for Independent Trustees.
++ Became Trustees of the Trust on June 26, 1996.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $22 billion in assets under management
in its capacity as investment adviser to the Fund and the other mutual funds and
publicly traded investment companies in the John Hancock group of funds having a
combined total of over 1,080,000 shareholders. The Adviser is an affiliate of
the Life Company, one of the most recognized and respected financial
institutions in the nation. With total assets under management of more than $100
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries a high rating from Standard & Poor's and A.M.
Best's. Founded in 1862, the Life Company has been serving clients for over 130
years.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously
an investment program for the Fund and determine, subject to the overall
supervision and review of the Trustees, which investments should be purchased,
held, sold or exchanged and (b) provide supervision over all aspects of the
Fund's operations except those which are delegated to a custodian, transfer
agent or other agent.
The Fund bears all costs of its organization and operation, including expenses
of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plan of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Fund (including an allocable portion of the cost of the
Adviser's employees rendering such services to the Fund; the compensation and
expenses of Trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders'
meetings; trade association memberships; insurance premiums; and any
extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
17
<PAGE>
Net Asset Value Annual Rate
--------------- -----------
First $250,000,000 0.60%
Next $250,000,000 0.55%
Amount over $500,000,000 0.50%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to reimpose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provides investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more other funds or clients are selling the same security. If opportunities for
the 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 affiliates may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
Pursuant to the Advisory Agreement, 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 its contract relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the performance of its duties or from reckless disregard of the obligations and
duties under the contract.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the contract or any
extension, renewal or amendment thereof remains in effect. If the contract is no
longer in effect, the Fund (to the extent that it lawfully can) will cease to
use such a name or any other name indicating that it is advised by or otherwise
connected with the Adviser. In addition, the Adviser or the Life Company may
grant the nonexclusive right to use the name "John Hancock" or any similar name
to any other corporation or entity, including but not limited to any investment
company of which the Life Company or any subsidiary or affiliate thereof or any
successor to the business of any subsidiary or affiliate thereof shall be the
investment adviser.
The continuation of the Advisory Agreement was approved by all of the Trustees.
The Advisory Agreement, and the Distribution Agreement discussed below, will
continue in effect from year to year, provided that its continuance is approved
annually both (i) by the holders of a majority of the outstanding voting
securities of the Trust or by the Trustees, and (ii) by a majority of the
Trustees who are not parties to the Agreement or "interested persons" of any
such parties. Both agreements may be terminated on 60 days written notice by any
party or by a vote of a majority of the outstanding voting securities of the
Fund and will terminate automatically if assigned.
For the fiscal years ended December 31, 1994, 1995 and 1996, the Adviser
received fees of $1,506,527, $1,278,357 and $1,174,508, respectively. For the
period from January 1, 1997 to May 31, 1997, the Adviser received fees of
$439,538.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the period from January 1, 1997 to May 31, 1997, the
Fund paid the Adviser $13,736 for services under this agreement.
18
<PAGE>
In order to avoid conflicts with portfolio trades for the Fund, the Adviser and
the Fund have adopted extensive restrictions on personal securities trading by
personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined, plus any applicable sales charge, if any. In connection
with the sale of Class A or Class B shares, John Hancock Funds and Selling
Brokers receive compensation from a sales charge imposed, in the case of Class A
shares, at the time of sale or, in the case of Class B shares, on a deferred
basis. John Hancock Funds may pay extra compensation to financial services firms
selling large amounts of fund shares. This compensation would be calculated as a
percentage of fund shares sold by the firm.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal years ended December 31, 1995 and 1996 were $205,285 and $230,067,
respectively, and for the period from January 1, 1997 to May 31, 1997 was
$95,383. Of such amounts $24,825, $27,901 and $13,287, respectively, were
retained by John Hancock Funds in 1995, 1996 and for the period from January 1,
1997 to May 31, 1997. The remainder of the underwriting commissions were
reallowed to dealers.
The Fund's Trustees adopted Distribution Plans with respect to Class A and Class
B shares (the "Plans"), pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Investment Company Act") . Under the Plans, the Fund will pay
distribution and service fees at an aggregate annual rate of up to 0.30% and
1.00%, respectively, of the Fund's average daily net assets attributable to the
shares of that class. However, the service fee will not exceed 0.25% of the
Fund's average daily net assets attributable to each class of shares. The
distribution fees will be used to reimburse the John Hancock Funds for its
distribution expenses, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of John
Hancock Funds) engaged in the sale of Fund shares; (ii) marketing, promotional
and overhead expenses incurred in connection with the distribution of Fund
shares; and (iii) with respect to Class B shares only, interest expenses on
unreimbursed distribution expenses. The service fees will be used to compensate
Selling Brokers and others for providing personal and account maintenance
services to shareholders. In the event that John Hancock Funds is not fully
reimbursed for payments or expenses incurred by it under the Class A Plan, these
expenses will not be carried beyond twelve months from the date they were
incurred. Unreimbursed expenses under the Class B Plan will be carried forward
together with interest on the balance of these unreimbursed expenses. The Fund
does not treat unreimbursed expenses under the Class B Plan as a liability of
the Fund because the Trustees may terminate the Class B Plan at any time. For
the period from January 1, 1997 to May 31, 1997, an aggregate of $ of
distribution expenses or % of the average net assets of the Class B shares of
the Fund, was not reimbursed or recovered by John Hancock Funds through the
receipt of deferred sales charges or Rule 12b-1 fees in prior periods.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
19
<PAGE>
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on these Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their appropriateness.
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. The Plans provide that they may be terminated without
penalty, (a) by a vote of a majority of the Independent Trustees, (b) by a vote
of a majority of the Fund's outstanding shares of the applicable class upon 60
days' written notice to the John Hancock Funds, and (c) automatically in the
event of assignment. The Plans further provide that they may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to that Plan. Each Plan provides that
no material amendment to the Plan will be effective unless it is approved by a
vote of a majority of the Trustees and the Independent Trustees of the Fund. The
holders of Class A and Class B shares have exclusive voting rights with respect
to the Plan applicable to their respective class of shares. In adopting the
Plans, the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plan will benefit the holders of the applicable class of
shares of the Fund.
Amounts paid to the John Hancock Funds by any class of shares of the Fund will
not be used to pay the expenses incurred with respect to any other class of
shares of the Fund; provided, however, that expenses attributable to the Fund as
a whole will be allocated, to the extent permitted by law, according to a
formula based upon gross sales dollars and/or average daily net assets of each
such class, as may be approved from time to time by vote of a majority of the
Trustees. From time to time the Fund may participate in joint distribution
activities with other Funds and the costs of those activities will be borne by
each Fund in proportion to the relative net asset value of the participating
Funds.
During the period from January 1, 1997 to May 31, 1997, the Fund paid John
Hancock Funds the following amounts of expenses in connection with their
services for the Fund:
<TABLE>
<CAPTION>
Expense Items
-------------
Printing and Interest
Mailing of Compensation Expenses of Carrying or
Prospectus to New to Selling John Hancock Other Finance
Advertising Shareholders Brokers Funds Charges
----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A Shares $20,104 $4,141 $135,194 $47,326 $ 0
Class B Shares $ 4,168 $ 837 $ 17,482 $ 9,818 $9,914
</TABLE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
20
<PAGE>
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.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotation
are not readily available, or the value has been materially affected by the
events occurring after the closing of a foreign market, assets are valued by a
method that the Trustees believe accurately reflects fair value.
The NAV for each fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net assets by the number of its shares outstanding.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which the Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
will not be issued unless requested by the shareholder in writing, and then they
will only be issued for full shares. The Trustees reserve the right to change or
waive the Fund's minimum investment requirements and to reject any order to
purchase shares (including purchase by exchange) when in the judgment of the
Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining reduced sales charges referred
to generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares of the Fund, the
investor is entitled to accumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund owned by the
investor, or, if John Hancock Signature Services, Inc. ("Signature Services") is
notified by the investor's dealer or the investor at the time of the purchase,
the cost of the Class A shares owned.
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
o Any state, county or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment
laws from paying a sales charge or commission when it purchases shares
of any registered investment management company.*
21
<PAGE>
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if
it is purchasing $1 million or more for non-discretionary customers or
accounts.*
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law) of any of the foregoing; or any fund,
pension, profit sharing or other benefit plan for the individuals
described above.
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into an agreement with John Hancock
Funds providing specifically for the use of Fund shares in fee-based
investment products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any
or all of his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.*
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million in assets or 500 eligible employees
at the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement. See your Merrill Lynch financial consultant for
further information.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed defined contribution plans with at least 100 eligible
employees at the inception of the Fund account, may purchase Class A
shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which
the purchase was made, a CDSC will be imposed at the following rate:
Amount Invested CDSC RATE
--------------- ---------
$1 to $4,999,000 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class A shares may also be acquired without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
22
<PAGE>
account and (c) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or a Selling Broker's representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges are also applicable to investments
made pursuant to a Letter of Intention (the "LOI"), which should be read
carefully prior to its execution by an investor. The Fund offers two options
regarding the specified period for making investments under the LOI. All
investors have the option of making their investments over a specified period of
thirteen (13) months. Investors who are using the Fund as a funding medium for a
qualified retirement plan, however, may opt to make the necessary investments
called for by the LOI over a forty-eight (48) month period. These qualified
retirement plans include IRA, SEP, SARSEP, 401(k), 403(b) (including TSAs) and
Section 457 plans. Such an investment (including accumulations and combinations)
must aggregate $100,000 or more invested during the specified period from the
date of the LOI or from a date within ninety (90) days prior thereto, upon
written request to Signature Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate amount intended
to be invested had been invested immediately. If such aggregate amount is not
actually invested, the difference in the sales charge actually paid and the
sales charge payable had the LOI not been in effect is due from the investor.
However, for the purchases actually made within the specified period (either 13
or 48 months) the sales charge applicable will not be higher than that which
would have applied (including accumulations and combinations) had the LOI been
for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his or her
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase or by the Fund to sell any additional Class A shares and
may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so the Fund will receive the full
amount of the purchase payment.
23
<PAGE>
Contingent Deferred Sales Charge. Class B shares which are redeemed within four
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. No CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B shares derived from
reinvestment of dividends or capital gains distributions. No CDSC will be
imposed on shares derived from reinvestment of dividends or capital gains
distributions.
Class B shares are not available to full-service defined contribution plans
administered by Signature Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
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
dividend and capital gain reinvestment, and next from the shares you have held
the longest during the four-year period. For this purpose, the amount of any
increase in a share's value above its initial purchase price is not regarded as
a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price. However, you cannot redeem appreciation value only in order to avoid a
CDSC.
When requesting a redemption for a specific dollar amount, please indicate if
you require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) - 80
----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase.
24
<PAGE>
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account
value, including reinvested dividends, at the time you established your
periodic withdrawal plan and 12% of the value of subsequent investments
(less redemptions) in that account at the time you notify Signature
Services. (Please note, this waiver does not apply to periodic
withdrawal plan redemptions of Class A shares that are subject to a
CDSC.)
* Redemptions by Retirement plans participating in Merrill Lynch
servicing programs, if the Plan has less than $3 million in assets or
500 eligible employees at the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for further information.
For Retirement Accounts (such as IRA, SIMPLE, Rollover IRA, TSA, 457, 403(b),
401(k), Money Purchase Pension Plan, Profit-Sharing Plan and other qualified
plans under the Internal Revenue Code)) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement under Section 401(a)
of the Code (such as 401(k), Money Purchase Pension Plan and
Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares
prior to May 15, 1995.
Please see matrix for reference.
25
<PAGE>
<TABLE>
<CAPTION>
CDSC Waiver Matrix for Class B Funds.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Type of Distribution 401(a) Plan 403(b) 457 IRA, IRA Non-
(401(k), MPP, Rollover Retirement
PSP)
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Over 70 1/2 Waived Waived Waived Waived for 12% of
mandatory account value
distributions annually in
or 12% of periodic
account value payments
annually in
periodic
payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of
and 70 1/2 Expectancy or account value
12% of account annually in
value annually periodic
in periodic payments
payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Under 59 1/2 Waived Waived for Waived for Waived for 12% of
annuity annuity annuity account value
payments (72t) payments (72t) payments (72t) annually in
or 12% of or 12% of or 12% of periodic
account value account value account value payments
annually in annually in annually in
periodic periodic periodic
payments. payments. payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Loans Waived Waived N/A N/A N/A
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Hardships Waived Waived Waived N/A N/A
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Return of Waived Waived Waived Waived N/A
Excess
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
26
<PAGE>
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholder will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, the Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90-day period would
exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock Short-Term Strategic Income
Fund, John Hancock Intermediate Maturity Government Fund and John Hancock
Limited-Term Government Fund will retain the exchanged fund's CDSC schedule).
For purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the holding
period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares. Since the redemption price of the Fund shares may be
more or less than the shareholder's cost, depending upon the market value of the
securities owned by the Fund at the time of redemption, the distribution of cash
pursuant to this plan may result in realization of gain or loss for purposes of
Federal, state and local income taxes. The maintenance of a Systematic
Withdrawal Plan concurrently with purchases of additional Class A or Class B
shares of the Fund could be disadvantageous to a shareholder because of the
initial sales charge payable on such purchases of Class A shares and the CDSC
imposed on redemptions of Class B shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase Class A and Class B shares
27
<PAGE>
at the same time a Systematic Withdrawal Plan is in effect. The Fund reserves
the right to modify or discontinue the Systematic Withdrawal Plan of any
shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the due date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit of that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of any CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
28
<PAGE>
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years. or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have not authorized any additional series of the Fund,
although they may do so in the future. The Declaration of Trust also authorizes
the Trustees to classify and reclassify the shares of the Fund, or any new
series of the Trust, into one or more classes. As of the date of this Statement
of Additional Information, the Trustees have authorized the issuance of two
classes of shares of the Fund, designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
Class A and Class B shares have certain exclusive voting rights on matters
relating to their respective distribution plans. The different classes of the
Fund may bear different expenses relating to the cost of holding shareholder
meetings necessitated by the exclusive voting rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that class, (ii) Class B shares will pay higher
distribution and service fees than Class A shares and (iii) each of Class A and
Class B shares will bear any class expenses properly allocable to that class of
shares, subject to conditions the Internal Revenue imposes with respect to the
multiple-class structures. Similarly, the net asset value per share may vary
depending on whether Class A or Class B shares are purchased.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts, obligations or affairs of the Fund. The
Declaration of Trust also provides for indemnification out of the Fund's assets
for all losses and expenses of any shareholder held personally liable by reason
of being or having been a shareholder. The Declaration of Trust also provides
that no series of the Trust shall be liable for the liabilities of any other
series. Furthermore, no fund included in this Fund's prospectus shall be liable
29
<PAGE>
for the liabilities of any other John Hancock Fund. Liability is therefore
limited to circumstances in which the Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. Use of
information provided on the account application may be used by the Fund to
verify the accuracy of the information or for background or financial history
purposes. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts.
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
for each taxable year. As such and by complying with the applicable provisions
of the Code regarding the sources of its income, the timing of its distributions
and the diversification of its assets, the Fund will not be subject to Federal
income tax on taxable income (including net realized capital gains, if any)
which is distributed to shareholders in accordance with the timing requirements
of the Code.
The Fund will be subject to a four percent nondeductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to seek to avoid or minimize liability
for such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
The amount of net realized capital gains, if any, in any given year will vary
depending upon the Adviser's current investment strategy and whether the Adviser
believes it to be in the best interests of the Fund to dispose of portfolio
securities that will generate capital gains. At the time of an investor's
purchase of Fund shares, a portion of the purchase price is often attributable
to realized or unrealized appreciation in the Fund's portfolio. Consequently,
subsequent distributions on these shares 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.
30
<PAGE>
Upon a redemption of shares of the Fund (including by exercise of the exchange
privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares
and subject to the special rules described below. A sales charge paid in
purchasing Class A shares of the Fund cannot be taken into account for purposes
of determining gain or loss on the redemption or exchange of such shares within
90 days after their purchase to the extent Class A shares of the Fund or another
John Hancock fund are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. This disregarded charge will
result in an increase in the shareholder's tax basis in the Class A shares
subsequently acquired. Also, any loss realized on a redemption or exchange may
be disallowed to the extent the shares disposed of are replaced with other
shares of the Fund within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of, such as pursuant to automatic
dividend reinvestments. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized upon the redemption
of shares with a tax holding period of six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain with respect to such shares.
Although the Fund's present intention is to distribute, at least annually, all
net capital gain, if any, the Fund reserves the right to retain and reinvest all
or any portion of the excess, as computed for Federal income tax purposes, of
net long-term capital gain over net short-term capital loss in any year. The
Fund will not in any event distribute net capital gain realized in any year to
the extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain in his return for the taxable year in which the last day of the
Fund's taxable year falls, (b) be entitled either to a tax credit on his return
for, or to a refund of, his pro rata share of the taxes paid by the Fund, and
(c) be entitled to increase the adjusted tax basis for his shares in the Fund by
the difference between his pro rata share of such excess and his pro rata share
of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset net capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent net capital gains
are offset by such losses, they would not result in Federal income tax liability
to the Fund and, as noted above, would not be distributed as such to
shareholders. The Fund has $10,550,415 of capital loss carry forward available,
to the extent provided by regulations, to offset future net realized capital
gains. The carryforwards expire as follows: May 31, 2002 - $7,286,040, May 31,
2004 - $1,950,205 and May 31, 2005 - $1,314,170.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. However, the
Fund must distribute to shareholders for each taxable year substantially all of
its net income and net capital gains, including such income to qualify as a
regulated investment company and avoid liability for any federal income or
excise tax. Therefore, the Fund may have to dispose of its portfolio securities
under disadvantageous circumstances to generate cash, or may have to leverage
itself by borrowing the cash, to satisfy these distribution requirements.
31
<PAGE>
The Fund's transactions in interest rate swaps, caps, floors and collars and its
dollar rolls are subject to tax rules, the interrelationship of which with the
Code's regulated investment company provisions, as well as certain other aspects
of which, have not been fully addressed or resolved in published authorities.
The Fund may accordingly be required to limit the extent to which it engages in
such transactions in order to preserve its qualification as a regulated
investment company and seek to avoid liability for federal income and excise
taxes.
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.
Dividends and capital gain distributions from the Fund will not qualify for the
dividends-received deduction for corporations.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the Fund's distributions are
derived from interest on (or, in the case of intangibles taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in some
states that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. The Fund will not seek to satisfy any threshold or
reporting requirements that may apply in particular taxing jurisdictions,
although the Fund may in its sole discretion provide relevant information to
shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. The Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above. These investors may be
32
<PAGE>
subject to non- resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from the Fund and, unless an effective IRS Form W-8 or authorized substitute for
Form W-8 is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
For the 30 day period ending May 31, 1997, the yield on Class A and Class B
shares of the Fund was 5.13% and 4.59%, respectively. The average annual total
return of the Fund's Class A shares for the 1 year, 5 year and 10 year periods
ended May 31, 1997 was 2.57%, 4.41% and 6.18%, respectively. The average total
return for the one year ending May 31, 1997 and since inception on January 3,
1994 for Class B shares was 2.14% and 3.40%, respectively.
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, where applicable) on the last day of the period,
according to the following standard formula:
6
Yield = ( [ ( a - b ) + 1 ] - 1
-----
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of Fund shares outstanding during the
period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
Total return is computed by finding the average annual compounded rate of return
over the 1 year, 5 year and 10 year periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
n
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
33
<PAGE>
ERV = ending redeemable value of a hypothetical $1,000 investment made
at the beginning of the 1 year, 5 year and 10 year periods.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of Class A 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, respectively. This
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period. The "distribution rate"
is determined by annualizing the result of dividing the declared dividends of
the Fund during period stated by the maximum offering price or net asset value
at the end of the period. Excluding the Fund's sales charge from the
distribution rate produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
or the CDSC on Class B shares into account. Excluding the Fund's sales charge on
Class A shares and the CDSC on Class B shares from a total return calculation
produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's total
return and/or yield 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 fixed income mutual funds in the United States. Comparisons
may also be made to bank certificates of deposit ("CDs"), which differ from
mutual funds, such as the Fund, in several ways. The interest rate established
by the sponsoring bank is fixed for the term of a CD, there are penalties for
early withdrawal from CDs, and the principal on a CD is insured.
Performance rankings and ratings reported periodically in national financial
publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may also be
utilized.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by an investment committee of the Adviser, which consists
of officers and directors of the Adviser and affiliates, 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 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 to
reflect a "spread." Debt securities are generally traded on a net basis through
34
<PAGE>
dealers acting for their own account as principals and not as brokers; no
brokerage commissions are payable on these transactions.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. Ion other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and other policies as the Trustees may determine, the Adviser may consider sales
of shares of the Fund as a factor in the selection of broker-dealers to execute
the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and, to a
lesser extent, statistical assistance furnished to the Adviser of the Fund, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and, conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitment to allocate portfolio transactions upon any
prescribed basis. While the Adviser's officers will be primarily responsible for
the allocation of the Fund's brokerage business, the policies in this regard
must be consistent with the foregoing and will at all times be subject to review
by the Trustees. For the fiscal years ended December 31, 1996, 1995 and 1994 ,
no negotiated brokerage commissions were paid on portfolio transactions. For the
fiscal period from January 1, 1997 to May 31, 1997, no negotiated brokerage
commissions were paid on portfolio transactions.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended December 31,
1996, the Fund paid commissions of $1,953 to compensate brokers for research
services such as industry, economic and company reviews and evaluations of
securities. During the fiscal period from January 1, 1997 to May 31, 1997, the
Fund did not pay commissions to compensate any brokers 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., a broker-dealer and
("Distributors" or "Affiliated Broker"). Pursuant to procedures determined by
the Trustees and consistent with the above policy of obtaining best net results,
the Fund may execute portfolio transactions with or through Affiliated Brokers.
For the fiscal years ended December 31, 1995 and 1996, the Fund did not execute
35
<PAGE>
any portfolio transactions with Affiliated Brokers. For the fiscal period from
January 1, 1997 to May 31, 1997, the Fund did not execute any portfolio
transactions with Affiliated Brokers.
Distributors may act as broker for the Fund on exchange transactions, subject,
however, to the general policy of the Fund set forth above and the procedures
adopted by the Trustees pursuant to the Investment Company Act. Commissions paid
to an Affiliated Broker must be at least as favorable as those which the
Trustees believe to be contemporaneously charged by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold. A transaction would not be placed with an Affiliated Broker if the Fund
would have to pay a commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers except for accounts for which the Affiliated Broker
acts as clearing broker for another brokerage firm, and any customers of the
Affiliated Broker not comparable to the Fund as determined by a majority of the
Trustees who are not interested persons (as defined in the Investment Company
Act) of the Fund, the Adviser or the Affiliated Broker. Because the Adviser,
which is affiliated with the Affiliated Brokers, has, as an investment adviser
to the Fund, the obligation to provide investment management services, which
includes elements of research and related investment skills, such research and
related skills will not be used by the Affiliated Broker as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Fund with those to be sold or purchased for
other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays an annual fee of
$20.00 for each Class A shareholder and $22.50 for each Class B shareholder,
plus certain out-of-pocket expenses. These expenses are aggregated and charged
to the Fund and allocated to each class on the basis of their relative net asset
values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 200 Clarendon Street,
Boston, Massachusetts 02116. Under the custodian agreement, Investors Bank &
Trust performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Ernst & Young LLP, 200 Clarendon
Street, Boston, Massachusetts 02116. Ernst & Young LLP audits and renders an
opinion of the Fund's annual financial statements and prepares the Fund's annual
Federal income tax return.
36
<PAGE>
FINANCIAL STATEMENTS
The financial statements listed below are included in and incorporated in the
Fund's 1997 Annual Report to Shareholders for the year ended May 31, 1997 (filed
electronically on July 24, 1997, accession number 0000928816-97-000233) and are
included in and incorporated by reference into Part B of this registration
statement of John Hancock Limited-Term Government Fund (file nos. 811-1678 and
2-29503).
John Hancock Limited-Term Government Fund
John Hancock Limited-Term Government Fund
Statement of Assets and Liabilities as of May 31, 1997.
Statement of Operations for the period from January 1, 1997 to May 31, 1997.
Statement of Changes in Net Assets for each of the periods indicated therein.
Financial Highlights for each of the periods indicated therein.
Schedule of Investments as of May 31, 1997.
Notes to Financial Statements.
Report of Independent Auditors.
37
<PAGE>
FINANCIAL STATEMENTS
F-1
<PAGE>
John Hancock Funds
Limited-
Term
Government
Fund
ANNUAL REPORT
May 31, 1997
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
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
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market has certainly put on a show since the start of the
year. Stocks began 1997 on the high wires, bolstered by a near-perfect
"Goldilocks" economy -- not too hot, not too cold. In almost a straight
shot, the Dow Jones Industrial Average soared through the 7000 level for
the first time in early March. Just days later, stocks lost their
footing and staged a month-long free-fall in a nervous reaction to
rising interest rates and data that showed the economy was picking up
steam. Stocks gave back all of their year's gain and suffered their
worst decline since 1990 during this period. No sooner had real fears
begun to beset investors than they were gone, erased in a euphoric rally
caused by strong earnings and no signs of inflation. By the end of May,
the Dow had risen by 14.6% and the broader Standard & Poor's 500 Stock
Index by 15.4% -- levels not many thought the market would reach all
year, let alone in five months. Bondholders have not enjoyed the same
bounty, as the bond market has mostly stayed worried about the strength
of the economy, the direction of interest rates, and the Federal
Reserve's next moves to pre-empt inflation.
But the stock market's latest advance has amazed many analysts and left
them pondering their valuation models, since the market is now more
expensive than it has been in decades. It's impossible to know what will
happen next in the markets. But whether it's another strong move forward
or a retreat, we recommend keeping a long-term perspective, rather than
over-focusing on the market's daily twists and turns. While the economic
backdrop seems to remain near perfect, the one thing we believe
investors should be prepared for is more market volatility. It also
makes sense to do something we've always advocated: set realistic
expectations, since, as we've also seen this year, markets can move down
as fast as they go up.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. After
such a strong advance in equities over the last two and a half years, it
could be time to rebalance your portfolio, if you haven't already, to
maintain your desired targets of diversification. As part of that
process, make sure that your investment strategies still reflect your
individual time horizons, objectives and risk tolerance. Despite
turbulence, one thing remains constant. A well-constructed plan and a
cool head can be the best tools for reaching your financial goals.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
BY BARRY H. EVANS, CFA, PORTFOLIO MANAGER
John Hancock
Limited-Term
Government Fund
Changes in economic outlook keep the bond market hopping
Recently John Hancock Limited-Term Government Fund's fiscal year end
changed from December to May. What follows is a discussion of the Fund's
performance for the 12-month period ended May 31, 1997.
The bond market did a lot of twisting and turning during the past year.
Starting last spring and summer, economic growth appeared to be strong.
Investors worried that rising inflation would erode the value of their
fixed-income payments and interest rates began to rise. Yields on two-
year Treasuries climbed from 6.24% to a high of 6.53% during the summer.
By September, however, the economy seemed to be slowing. Bond prices
gained ground, with yields on the two-year Treasury bottoming at 5.58%
late in November.
In December, it became clear that the economy was not slowing. Investors
began expecting the Federal Reserve to raise short-term interest rates.
Yields climbed and bond prices fell. Finally, in late March, the Fed did
hike rates one-quarter percentage point. News that the economy had grown
at a booming 5.6% annual rate in the first quarter pushed yields on two-
year Treasuries up to 6.54% by late April. Bond prices rallied in early
May, amid new signs that the economy was slowing. Late in the month,
there were reports that consumer confidence had soared to a 27-year high
and unemployment was at its lowest rate in 24 years. Although these
concerns temporarily slowed the rally, the two-year Treasury ended May
with a yield of 6.19% -- about where it had begun a year earlier.
"The bond
market did
a lot of
twisting
and turning
during the
past year."
A 2 1/4" x 3 1/2" photo of Fund management team at bottom right. Caption
reads: "Barry Evans (l) and Fund management team members Roger Hamilton
(center) and Seth Robbins (r)."
Pie chart with the heading "Portfolio Diversification" at top of left
hand column. The chart is divided into two sections; U.S. Government
Agencies 56%; U.S. Treasuries 44%. A footnote below states "As a
percentage of net assets on May 31, 1997."
"...we boosted
our invest-
ment in
mortgage
bonds and
agencies..."
Reviewing performance
Despite these ups and downs, the Lehman Brothers Aggregate Bond Index
returned 8.32% for the year ended May 31, 1997 -- with the bulk of the
gains coming in the first half. Bonds that offered a yield advantage to
Treasuries were the clearcut winners. With interest rates mostly moving
within a range, there was little chance for price appreciation. So
demand increased for higher yielding securities like mortgage-backed
securities and government agency bonds.
In this environment, John Hancock Limited-Term Government Fund
maintained its goal of protecting shareholders' principal, even though
that meant sacrificing some return. During the year ended May 31, 1997,
the Fund's Class A and Class B shares had total returns of 5.74% and
5.13%, respectively, at net asset value. These results, however, lagged
the 6.37% return for the average short-intermediate government fund,
according to Lipper Analytical Services, Inc.1 Please see pages six and
seven for longer-term Fund performance information.
With hindsight, it's easy to see where the Fund gained and lost ground.
Throughout the year, we kept the Fund's duration between 1.8 and 2.5
years. Duration measures how sensitive a bond's price is to changes in
interest rates. The shorter the duration, the less a bond's price will
fall as interest rates rise -- or rise as rates fall. Last summer, our
duration was shorter than our peers, which helped the Fund as rates
rose. Then in the fall, we lengthened duration to 2.5 years to take
advantage of the bond rally. We started shortening again in December to
protect the Fund from a possible Fed rate hike. We stayed in a defensive
position, taking duration as low as 1.8 years before each Fed meeting.
After the Fed acted in March, however, we continued to be cautious --
expecting the Fed to move again soon. When rates started falling in late
April and May, our more conservative, shorter-than-average duration cost
us.
Our search for yield also affected performance. The Fund benefited from
its above-average stake in bonds with a yield advantage over Treasuries.
These included traditional mortgage bonds, U.S. government agencies,
short-maturity adjustable rate mortgages (ARMs), and short-maturity
collateralized mortgage obligations (CMOs) -- a type of security that
separates the cash flows of mortgage pools into different classes of
various maturities. We would have done even better, though, if we had
further increased our stake in these higher-yielding securities.
Fortunately, we boosted our investment in mortgage bonds and agencies --
the best performing areas -- to 27% of assets, while trimming short-
maturity CMOs. But we still had a 29% stake in short-maturity CMOs and
ARMs that held us back.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the 12 months ended May 31,
1997." The chart is scaled in increments of 2% from bottom to top, with
8% at the top and 0% at the bottom. Within the chart, there are three
solid bars. The first represents the 5.74% total return for John Hancock
Limited-Term Government Fund: Class A. The second represents the 5.13%
total return for John Hancock Limited-Term Government Fund: Class B. The
third represents the 6.37% total return for the Average short-
intermediate government bond fund. The footnote below states:
"Total returns for John Hancock Limited-Term Government Fund are at net
asset value with all distributions reinvested. The average short-
intermediate government fund is tracked by Lipper Analytical Services.
See following two pages for historical performance information."
Looking down the road
We believe the economy will pick up steam in the coming months. Auto
strikes, floods and a mild winter followed by a cool spring have all
held back spending in April and May. But the impact of these factors
won't last forever. The Fed has said it will be watching consumer
spending to measure the economy's strength. For this reason, we'll be
tracking housing starts, durable goods, personal income, auto sales and
retail sales to determine the Fed's next move. Right now, we expect one
- -- possibly two -- more rate hikes before the economy starts to slow.
Our strategy will be one of continued caution until we know where the
Fed is headed. At this point in the market's cycle, we probably won't
add to our total stake in higher-yielding bonds. Instead, we may shift
our allocations by increasing our investment in traditional mortgage
bonds and cutting back on some of our short-term ARMs and CMOs. After
the Fed's next move, we'll consider adding more longer-term Treasuries,
which would do well if the economy weakened and interest rates fell.
Near term, we expect short-term bonds to continue to go through periods
of panic and glee -- depending on what investors expect the Fed to do.
But we don't expect to see great headway anytime soon. Still, several
factors are working in the bond market's favor. In an effort to balance
the budget, the government is cutting back on spending and issuing fewer
bonds. Lower supply will help prices. In addition, inflation is low --
and the Fed is committed to keeping it that way. There are also no major
commodity price shocks on the horizon. And demand from foreign investors
for U.S. bonds remains strong. All of these bode well for bonds over the
long term.
"Our strategy
will be one
of continued
caution..."
This commentary reflects the views of the portfolio manager through the
end of the Fund's period discussed in this report. Of course, the
manager's views are subject to change as market and other conditions
warrant.
1 Figures from Lipper Analytical Services, Inc. include reinvested
dividends and do not take into account sales charges. Actual load-
adjusted performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Limited-Term
Government Fund. Total return is a performance measure that equals the
sum of all income and capital gain distributions, assuming reinvestment
of these distributions and the change in the price of the Fund's net
asset value per share. Performance figures include the maximum
applicable sales charge of 3% for Class A shares. The effect of the
maximum contingent deferred sales charge for Class B shares (maximum 3%
and declining to 0% over four years) is included in Class B performance.
Different sales charge schedules for Class A shares were in effect prior
to May 1, 1993 and are not reflected in the above performance
information. Remember that all figures represent past performance and
are no guarantee of how the Fund will perform in the future. Also, keep
in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or
less than their original cost, depending on when you sell them.
CUMULATIVE TOTAL RETURNS
For the period ended March 31, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
-------- -------- ------------
John Hancock Limited-Term
Government Fund: Class A 0.98% 24.86% 74.24%
John Hancock Limited-Term
Government Fund: Class B 0.42% 10.17%(1) N/A
AVERAGE ANNUAL TOTAL RETURNS
For the period ended March 31, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
-------- -------- ------------
John Hancock Limited-Term
Government Fund: Class A 0.98% 4.54% 5.71%
John Hancock Limited-Term
Government Fund: Class B 0.42% 3.16%(1) N/A
YIELDS
As of May 31, 1997
SEC 30-DAY
YIELD
------------
John Hancock Limited-Term
Government Fund: Class A 5.13%
John Hancock Limited-Term
Government Fund: Class B 4.59%
Notes to Performance
(1) Class B shares started on January 3, 1994.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Limited-Term Government Fund would be worth on May 31, 1997.
They assume that you either had invested on the day each class of shares
started, or that you have been invested for the most recent 10 years. In
either case, they also assume that you have reinvested all
distributions. For comparison, we've shown the same $10,000 investment
in the Lehman Brothers Intermediate-Term Government Fund Index -- an
unmanaged index made up of the Treasury Bond Index and the Agency Bond
Index, which cover intermediate issues. The same $10,000 investment is
also shown in the Lehman Brothers One-to-Three-Year Government Fund
Index, which is a subindex composed of Agency and Treasury Securities
with maturities of one- to three-years.
Limited-Term Government Fund
Class A shares
Line chart with the heading Limited-Term Government Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the most
recent 10 year period. Within the chart are four lines. The first line
represents the value of the Lehman Brothers Intermediate-Term Government
Fund Index and is equal to $21,408 as of May 31, 1997. The second line
represents the value of the Lehman Brothers One-to-Three Year Government
Fund Index and is equal to $20,446 as of May 31, 1997. The third line
represents the value of the hypothetical $10,000 investment made in the
Limited-Term Government Fund on May 31, 1987, before sales charge, and
is equal to $18,813 as of May 31, 1997. The fourth line represents the
value of the hypothetical $10,000 investment made in the Limited-Term
Government Fund, after sales charge, and is equal to $18,248 as of May
31, 1997.
Limited-Term Government Fund
Class B shares
Line chart with the heading Limited-Term Government Fund: Class B,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are four lines. The first line
represents the value of the Lehman Brothers One-to-Three Year Government
Fund Index and is equal to $11,961 as of May 31, 1997. The second line
represents the value of the Lehman Brothers Intermediate-Term Government
Fund Index, and is equal to $11,919 as of May 31, 1997. The third line
represents the value of the hypothetical $10,000 investment made in the
Limited-Term Government Fund on January 3, 1994, before sales charge,
and is equal to $11,304 as of May 31, 1997. The fourth line represents
the value of the hypothetical $10,000 investment made in the Limited-
Term Government Fund, after sales charge, and is equal to $11,204 as of
May 31, 1997.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 1997
- -------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
United States government and agencies securities (cost --
$167,815,997) $167,668,799
Joint repurchase agreement (cost -- $12,313,000) 12,313,000
------------
179,981,799
Receivable for shares sold 43,686
Interest receivable 1,779,824
Other assets 20,577
------------
Total Assets 181,825,886
- --------------------------------------------------------------------------------------
Liabilities:
Due to custodian 6,382,962
Payable for investments purchased 6,405,749
Payable for shares repurchased 24,691
Dividend payable 53,061
Payable to John Hancock Advisers, Inc. and affiliates -- Note B 167,964
Accounts payable and accrued expenses 81,065
------------
Total Liabilities 13,115,492
- --------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 179,469,141
Accumulated net realized loss on investments ( 10,624,296)
Net unrealized depreciation of investments ( 145,487)
Undistributed net investment income 11,036
------------
Net Assets $168,710,394
======================================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding -- unlimited number of shares
authorized with no par value, respectively)
Class A -- $158,217,528/18,745,924 $ 8.44
======================================================================================
Class B -- $10,492,866/1,243,215 $ 8.44
======================================================================================
Maximum Offering Price Per Share*
Class A -- ($8.44 x 103.09%) $ 8.70
======================================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more and on
group sales the offering price is reduced.
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 May 31, 1997. You'll also find the net asset
value and the maximum offering price per share as of that date.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
- ----------------------------------------------------------------------------------------
PERIOD FROM
YEAR ENDED JANUARY 1, 1997
DECEMBER 31, 1996 TO MAY 31, 1997(1)
----------------- ------------------
<S> <C> <C>
Investment Income:
Interest $13,989,845 $5,548,900
------------ ------------
Expenses:
Investment management fee -- Note B 1,174,508 439,538
Distribution and service fee -- Note B
Class A 555,330 207,104
Class B 106,412 42,219
Transfer agent fee -- Note B 690,249 234,919
Printing 41,549 14,314
Custodian fee 39,080 20,286
Registration and filing fees 36,489 316
Financial services fee -- Note B 36,160 13,736
Auditing fee 35,917 26,000
Trustees' fees 17,682 13,270
Legal fees 9,431 34
Miscellaneous 7,070 862
------------ ------------
Total Expenses 2,749,877 1,012,598
- ----------------------------------------------------------------------------------------
Net Investment Income 11,239,968 4,536,302
- ----------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments sold ( 2,003,789) ( 1,334,467)
Change in net unrealized appreciation/depreciation
of investments ( 2,843,831) ( 429,177)
------------ ------------
Net Realized and Unrealized Loss on
Investments ( 4,847,620) ( 1,763,644)
- ----------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 6,392,348 $ 2,772,658
========================================================================================
(1) Effective May 31, 1997, the fiscal period end changed from December 31 to May 31.
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.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD FROM
------------------------------- JANUARY 1, 1997
1995 1996 TO MAY 31, 1997(1)
----------- ---------- -------------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 12,261,116 $ 11,239,968 $ 4,536,302
Net realized gain (loss) on
investments sold 18,754 ( 2,003,789) ( 1,334,467)
Change in net unrealized appreciation/
depreciation of investments 10,474,785 ( 2,843,831) ( 429,177)
--------------- -------------- ---------------
Net Increase in Net Assets Resulting
from Operations 22,754,655 6,392,348 2,772,658
--------------- -------------- ---------------
Distributions to Shareholders:
Dividends from net investment income
Class A -- ($0.4956; $0.4969; and
$0.2172 per share, respectively) ( 11,820,582) ( 10,700,263) ( 4,285,612)
Class B -- ($0.4463; $0.4365; and
$0.1927 per share, respectively) ( 440,534) ( 539,705) ( 232,158)
Distributions in excess of net
investment income
Class A -- (none; $0.0004; and none
per share, respectively) -- ( 7,046) --
Class B -- (none; $0.0004; and none
per share, respectively) -- ( 450) --
Distributions from capital paid-in
Class A -- (none; $0.0002; and none
per share, respectively) -- ( 4,733) --
Class B -- (none; $0.0002; and none
per share, respectively) -- ( 302) --
--------------- -------------- ---------------
Total Distributions to Shareholders ( 12,261,116) ( 11,252,499) ( 4,517,770)
--------------- -------------- ---------------
From Fund Share Transactions -- Net*: ( 27,003,981) ( 18,119,220) ( 16,011,498)
--------------- -------------- ---------------
Net Assets:
Beginning of period 225,956,817 209,446,375 186,467,004
--------------- -------------- ---------------
End of period (including distributions
in excess of net investment income of
none and $7,496; and undistributed
net investment income of $11,036,
respectively) $209,446,375 $186,467,004 $168,710,394
=============== =============== ===============
* Analysis of Fund Share Transactions:
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
--------------------------------------------------- JANUARY 1, 1997
1995 1996 TO MAY 31, 1997(1)
----------------------- ----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold 5,589,248 $48,212,989 8,589,879 $73,562,942 6,285,942 $53,204,395
Shares issued to shareholders in
reinvestment of distributions 1,175,325 10,108,924 1,084,136 9,262,691 435,562 3,679,981
----------- ----------- ----------- ----------- ----------- -----------
6,764,573 58,321,913 9,674,015 82,825,633 6,721,504 56,884,376
Less shares repurchased (10,330,451) ( 88,597,139) (11,785,941) (100,900,256) (8,627,330) ( 73,012,198)
----------- ----------- ----------- ----------- ----------- -----------
Net decrease ( 3,565,878) ($30,275,226) ( 2,111,926) ($18,074,623) (1,905,826) ($16,127,822)
=========== =========== =========== =========== =========== ===========
CLASS B
Shares sold 4,230,179 $36,444,892 2,842,991 $24,268,297 652,540 $ 5,515,265
Shares issued to shareholders in
reinvestment of distributions 39,700 341,783 47,385 404,715 19,673 166,136
----------- ----------- ----------- ----------- ----------- -----------
4,269,879 36,786,675 2,890,376 24,673,012 672,213 5,681,401
Less shares repurchased ( 3,891,751) ( 33,515,430) ( 2,895,175) ( 24,717,609) ( 657,806) ( 5,565,077)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) 378,128 $ 3,271,245 ( 4,799) ($ 44,597) 14,407 $ 116,324
=========== =========== =========== =========== =========== ===========
(1) Effective May 31, 1997, the fiscal period end changed from December 31 to May 31.
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 repurchased during the last three periods, along with the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each period indicated, investment returns,
key ratios and supplemental data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD FROM
--------------------------------------------------------- JANUARY 1, 1997
1992 1993 1994 1995 1996 TO MAY 31, 1997(6)
-------- -------- -------- -------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.97 $ 8.77 $ 8.80 $ 8.31 $ 8.73 $ 8.52
--------- --------- --------- --------- --------- ---------
Net Investment Income 0.54 0.48 0.38(1) 0.50(1) 0.50(1) 0.22(1)
Net Realized and Unrealized Gain (Loss)
on Investments ( 0.18) 0.14 ( 0.49) 0.42 ( 0.21) ( 0.08)
--------- --------- --------- --------- --------- ---------
Total from Investment Operations 0.36 0.62 ( 0.11) 0.92 0.29 0.14
--------- --------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ( 0.54) ( 0.48) ( 0.38) ( 0.50) ( 0.50) ( 0.22)
Distributions from Net Realized Gain on
Investments Sold ( 0.02) ( 0.11) -- -- -- --
--------- --------- --------- --------- --------- ---------
Total Distributions ( 0.56) ( 0.59) ( 0.38) ( 0.50) ( 0.50) ( 0.22)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period $ 8.77 $ 8.80 $ 8.31 $ 8.73 $ 8.52 $ 8.44
========= ========= ========= ========= ========= =========
Total Investment Return at Net Asset
Value(2) 4.19% 7.13% ( 1.31%) 11.23% 3.45% 1.64%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $259,170 $262,903 $218,846 $198,681 $175,995 $158,218
Ratio of Expenses to Average Net Assets 1.55% 1.51% 1.41% 1.36% 1.37% 1.34%(5)
Ratio of Net Investment Income to Average
Net Assets 6.13% 5.34% 4.39% 5.76% 5.81% 6.23%(5)
Portfolio Turnover Rate 185% 175% 155% 105% 166% 142%
CLASS B(3)
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.77 $ 8.31 $ 8.73 $ 8.52
--------- --------- --------- ---------
Net Investment Income(1) 0.30 0.45 0.44 0.19(1)
Net Realized and Unrealized Gain (Loss)
on Investments ( 0.46) 0.42 ( 0.21) ( 0.08)
--------- --------- --------- ---------
Total from Investment Operations ( 0.16) 0.87 0.23 0.11
--------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ( 0.30) ( 0.45) ( 0.44) ( 0.19)
--------- --------- --------- ---------
Net Asset Value, End of Period $ 8.31 $ 8.73 $ 8.52 $ 8.44
========= ========= ========= =========
Total Investment Return at Net Asset Value(2) ( 1.84%)(4) 10.60% 2.72% 1.34%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $ 7,111 $ 10,765 $ 10,472 $ 10,493
Ratio of Expenses to Average Net Assets 2.12%(5) 1.93% 2.08% 2.04%(5)
Ratio of Net Investment Income to Average Net Assets 3.70%(5) 5.21% 5.10% 5.53%(5)
Portfolio Turnover Rate 155% 105% 166% 142%
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Class B shares commenced operations on January 3, 1994.
(4) Not annualized.
(5) Annualized.
(6) Effective May 31, 1997, the fiscal period end changed from December 31 to May 31.
The Financial Highlights summarizes the impact of the following factors on a single share for each period indicated: 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.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
May 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the Limited-Term Government Fund on May 31, 1997.
It's divided into two main categories: U.S. Government and agencies securities and short-term investments. Short-term
investments,which represent the Fund's "cash" position, are listed last.
PAR VALUE
INTEREST MATURITY (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Governmental -- U.S. (43.32%)
United States Treasury,
Bond 11.875% 11-15-03 $17,000 $ 21,656,470
Bond 10.750 08-15-05 15,000 18,813,300
Bond 12.000 08-15-13 7,000 9,778,090
Note 8.625 08-15-97 3,000 3,021,090
Note 8.750 10-15-97 13,000 13,154,310
Note 8.750 08-15-00 3,000 3,201,570
Note 6.250 02-28-02 3,500 3,463,915
------------
73,088,745
------------
Governmental -- U.S. Agencies (56.06%)
Federal Farm Credit Bank,
Bond 11.900 10-20-97 2,000 2,046,240
Note 6.750 05-14-99 7,000 7,008,750
Federal Home Loan Mortgage Corp.,
15 Yr Pass Thru Ctf 8.500 06-01-06 to 6,490 6,732,016
07-01-07
CMO Remic 1204-G 7.000 11-15-05 4,358 4,389,063
CMO Remic 1419-F Var Rate 6.050# 11-15-97 18,046 18,051,945
Federal National Mortgage Association,
30 Yr ARM 8.000# 03-01-22 1,037 1,072,753
CMO REMIC G-29-N 8.500 06-25-07 7,323 7,417,100
Note Series SM 2004-J 8.250 10-12-04 12,600 12,956,883
Bond 6.500 04-30-99 5,000 4,990,600
Government National Mortgage Association,
30 Yr Pass Thru Ctf 8.500 01-15-27 9,556 9,896,353
30 Yr ARM 6.875# 10-20-24 19,542 20,018,351
------------
94,580,054
------------
TOTAL U.S.GOVERNMENT AND AGENCIES SECURITIES
(Cost $167,815,997) (99.38%) 167,668,799
------------ ------------
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---------- ---------- ----------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (7.30%)
Investment in a joint repurchase agreement transaction
with Swiss Bank Corp. - Dated 5-30-97, Due 6-02-97
(Secured by U.S. Treasury Notes, 6.375%, Due 5-15-99
and U.S. Treasury Bonds, 6.25% thru 11.25%, Due
11-15-08 thru 8-15-23) Note A 5.560% $12,313 $ 12,313,000
------------ ------------
TOTAL SHORT-TERM INVESTMENTS (7.30%) 12,313,000
------------ ------------
TOTAL INVESTMENTS (106.68%) $179,981,799
============ ============
# Represents rate in effect on May 31, 1997.
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of
the Fund.
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
NOTE A --
ACCOUNTING POLICIES
John Hancock Limited-Term Government Fund (the "Fund") is a diversified
open-end management investment company, registered under the Investment
Company Act of 1940. On May 21, 1996 the Trustees voted to approve a
change in the fiscal period from December 31 to May 31. This change is
effective May 31, 1997.The investment objective of the Fund is to
provide current income and security of principal through investments
primarily in securities of the United States government and its
agencies.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A and Class B shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights to voting, redemptions, dividends and
liquidation, except that certain expenses subject to the approval of the
Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under terms of a
distribution plan, have exclusive voting rights regarding that
distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, may participate in a joint repurchase
agreement. 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 Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund'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 its taxable
income, including any net realized gain on investment, to its
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has $10,550,415 of a capital
loss carryforward available, to the extent provided by regulations, to
offset future net realized capital gains. To the extent such
carryforward is used by the Fund, no capital gains distributions will be
made. The carryforward expires as follows: May 31, 2002 - $7,286,040,
May 31, 2004 - $1,950,205 and May 31, 2005 - $1,314,170. Expired capital
loss carryforwards are reclassified to capital paid-in, in the year of
expiration.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Interest income on investment
securities is recorded on the accrual basis.
The Fund records 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 principals. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class.
DISCOUNT ON SECURITIES The Fund 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.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are calculated at the Fund level and allocated daily to
each class of shares based on the appropriate net assets of the
respective classes. Distribution and service fees, if any, are
calculated daily at the class level based on the appropriate net assets
of each class and the specific expense rate(s) applicable to each class.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues and expenses of the Fund. Actual results
could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. The Fund had no borrowing activity for the period ended May
31, 1997.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.60% of the
first $250,000,000 of the Fund's average daily net asset value, (b)
0.55% of the next $250,000,000, and (c) 0.50% of the Fund's average
daily net asset value in excess of $500,000,000.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended
May 31, 1997, net sales charges received with regard to sales of Class A
shares amounted to $95,383. Out of this amount, $13,287 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, $40,489 was paid as sales commissions to unrelated broker-
dealers and $41,607 was paid as sales commissions to sales personnel of
John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony,
Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of
which are broker-dealers. The Adviser's indirect parent, John Hancock
Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors and was the indirect shareholder until
November 29, 1996 of John Hancock Freedom Securities Corporation and
its subsidiaries, which include Tucker Anthony and Sutro.
Class B shares which are redeemed within four 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 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 May 31, 1997, contingent deferred
sales charges paid to JH Funds amounted to $9,362.
In addition, to reimburse 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 to JH Funds for distribution and service expenses at an annual
rate not to exceed 0.30% of Class A average daily net assets and 1.00%
of Class B average daily net assets to reimburse JH Funds for its
distribution and 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. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's
12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of
JHMLICo. The Fund pays transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the
period was at an annual rate of 0.01875% of the average net assets of
the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees
may elect to defer for tax purposes their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The
Fund makes investments into other John Hancock funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover
the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the
related other asset are always equal and are marked to market on a
periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. At May 31, 1997, the Fund's investments
to cover the deferred compensation liability had unrealized appreciation
of $1,711.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of obligations of the
U.S. government and its agencies, other than short-term securities,
during the period ended May 31, 1997, aggregated $243,709,238 and
$258,401,282, respectively.
The cost of investments owned at May 31, 1997 for federal income tax
purposes was $180,202,879. Gross unrealized appreciation and
depreciation of investments aggregated $1,122,828 and $1,343,908,
respectively, resulting in net unrealized depreciation of $221,080.
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Limited-Term Government Fund
We have audited the accompanying statement of assets and liabilities of
the John Hancock Limited-Term Government Fund (the "Fund"), including
the schedule of investments, as of May 31, 1997, and the related
statement of operations for the period from January 1, 1997 to May 31,
1997 and for the year ended December 31, 1996, the statement of changes
in net assets and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of May 31, 1997, by correspondence
with the custodian and brokers, and other auditing procedures when
replies from brokers were not received. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of the John Hancock Limited-Term Government Fund at
May 31, 1997, the results of its operations for the period from January
1, 1997 to May 31, 1997 and the year ended December 31, 1996, and the
changes in its net assets and the financial highlights for each of the
indicated periods, in conformity with generally accepted accounting
principles.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
July 11, 1997
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is
furnished with respect to the taxable distributions of the Fund for its
fiscal year ended May 31, 1997.
With respect to the Fund's ordinary taxable income for the fiscal year
ended May 31, 1997, none of the dividends qualify for the dividends
received deduction available to corporations.
NOTES
John Hancock Funds - Limited-Term Government Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
NOTES
John Hancock Funds - Limited-Term Government Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
1-800-225-5291 1-800-554-6713 (TDD)
Internet: www.jhancock.com/funds
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U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John Hancock
Limited-Term Government Fund. It may be used as sales literature when
preceded or accompanied by the current prospectus, which details
charges, investment objectives and operating policies.
A recycled logo in lower left hand corner with the caption "Printed on
Recycled Paper."
2200A 5/97
7/97
<PAGE>
John Hancock Intermediate Maturity Government Fund
Pro-forma combined statement of assets and liabilities
May 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
John Hancock John Hancock Pro
Intermediate Maturity Limited Term Forma
Government Fund Government Fund Adjustments Combined
--------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Assets:
Investments at value $29,910,672 $179,981,799 $ -- $209,892,471
Cash 473 -- -- 473
Receivable for shares sold 0 43,686 -- 43,686
Interest receivable 357,421 1,779,824 -- 2,137,245
Receivable from John Hancock Advisers, Inc. 19,475 0 -- 19,475
Receivable for investments sold 977,082 0 -- 977,082
Other Assets 10,104 20,577 -- 30,681
----------- ------------ ------------- ------------
Total assets 31,275,227 181,825,886 -- 213,101,114
----------- ------------ ------------- ------------
Liabilities:
Payable for investments purchased 2,032,327 6,405,749 -- 8,438,076
Payable for shares repurchased 2,005 24,691 -- 26,696
Dividend Payable 0 53,061 -- 53,061
Accounts payable and accrued expenses 35,012 6,631,991 -- 6,667,004
----------- ------------ ------------- ------------
Total liabilities 2,069,344 13,115,492 -- 15,184,837
----------- ------------ ------------- ------------
Net Assets:
Capital paid-in $29,962,850 $179,469,141 -- $209,431,991
Accumulated net realized loss on investments (773,899) (10,624,296) -- ($11,398,195)
Net unrealized appreciation/(depreciation)
of investments 8,464 (145,487) -- ($137,023)
Undistributed net investment income 8,468 11,036 -- 19,504
----------- ------------ ------------- ------------
Net assets $29,205,883 $168,710,394 -- $197,916,277
=========== ============ ============= ============
Net assets:
Limited Term Government Fund
Class A $ -- $158,217,528 ($158,217,528)(a) $0
Class B -- 10,492,866 (10,492,866)(a) $0
-------------
Intermediate Maturity Government Fund
Class A 22,754,663 -- 158,217,528(a) 180,972,191
Class B 6,451,220 -- 10,492,866(a) 16,944,086
----------- ------------ ------------- ------------
$29,205,883 $168,710,394 $0 $197,916,277
=========== ============ ============= ============
Shares outstanding:
Limited Term Government Fund
Class A -- 18,745,924 (18,745,924)(a) 0
Class B -- 1,243,215 (1,243,215)(a) 0
Intermediate Maturity Government Fund
Class A 2,405,279 -- 16,724,367(a) 19,129,646
Class B 681,925 -- 1,109,147(a) 1,791,072
----------- ------------ ------------- ------------
Net asset value per share:
Limited Term Government Fund
Class A -- $8.44 ($8.44)(a) $0.00
Class B -- $8.44 ($8.44)(a) $0.00
Intermediate Maturity Government Fund
Class A $9.46 -- -- $9.46
Class B $9.46 -- -- $9.46
=========== ============ ============= ============
</TABLE>
See Notes to Pro-forma Combined Financial Statements
<PAGE>
John Hancock Intermediate Maturity Government Fund
Pro-forma combined statement of operations
May 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
John Hancock John Hancock Pro
Intermediate Maturity Limited Term Forma
Government Fund Government Fund Adjustments Combined
--------------- --------------- ----------- --------
<S> <C> <C> <C> <C>
Investment Income:
Interest $2,446,298 $13,771,169 $ -- $16,217,467
---------- ----------- --------- -----------
Total 2,446,298 13,771,169 -- 16,217,467
---------- ----------- --------- -----------
Expenses:
Investment managment fee 126,945 1,109,482 (373,641)(b) 862,786
Distribution/Service fee
Class A 61,470 523,324 (88,723)(c) 496,071
Class B 67,302 104,722 -- 172,024
Transfer agent fee(d) 41,904 594,664 -- 636,568
Advisory Board 362 -- -- 362
Custodian fee 39,513 44,289 (10,065)(e) 73,737
Registration and filing fees 48,586 20,019 (10,000)(e) 58,605
Financial services fee 5,423 34,888 -- 40,311
Auditing & Legal fees 30,366 54,995 (26,000)(e) 59,361
Organization expense 7,252 0 (7,252) 0
Printing 11,923 34,364 (7,000)(e) 39,287
Directors' fee 2,369 22,461 -- 24,830
Miscellaneous 238 3,533 (800)(e) 2,971
---------- ----------- --------- -----------
Total Expenses 443,653 2,546,741 (523,481) 2,466,913
Less Expense Reductions (156,198) 0 156,198 0
---------- ----------- --------- -----------
Net Expenses 287,455 2,546,741 (367,283) 2,466,913
---------- ----------- --------- -----------
Net Investment Income 2,158,843 11,224,428 367,283 13,750,554
---------- ----------- --------- -----------
Realized and Unrealized
Gain (Loss) on Investments:
Net realized gain (loss) on
investments sold (517,387) (2,791,421) -- (3,308,808)
Net realized loss on foreign
currency transactions -- -- -- 0
Change in net unrealized appreciation/
(depreciation) of investments 680,728 1,536,196 -- 2,216,924
---------- ----------- --------- -----------
Net Realized and Unrealized
Gain (Loss) on Investments 163,341 (1,255,225) -- (1,091,884)
---------- ----------- --------- -----------
Net Increase in Net Assets
Resulting from Operations $2,322,184 $ 9,969,203 $ 367,283 $12,658,670
========== =========== ========= ===========
</TABLE>
* actual income and expense numbers annualized using 11 months of actuals
(7/1/96 - 5/31/97)
See Notes to Pro-Forma Combined Financial Statements
<PAGE>
JOHN HANCOCK INTERMEDIATE MATURITY GOVERNMENT FUND
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS - (UNAUDITED)
MAY 31, 1997
Pro forma information is intended to provide shareholders of the John Hancock
Limited-Term Government Fund with information about the impact of the proposed
merger by indicating how the merger might have affected information had the
merger been consummated as of June 1, 1996.
The unaudited pro forma combined statements of assets and liabilities and
results of operations as of May 31, 1997,have been prepared to reflect the
merger of the John Hancock Intermediate Maturity Government Fund and John
Hancock Limited-Term Government Fund after giving effect to pro forma
adjustments described in the notes listed below.
(a) Acquistion by John Hancock Intermediate Maturity Government Fund of all
the assets of John Hancock Limited-Term Government Fund and issuance of
John Hancock Intermediate Maturity Government Fund Class A and Class B
shares in exchange for all of the the outstanding Class A and Class B
shares, repectively of John Hancock Limited-Term Government Fund.
(b) The investment advisory fee was adjusted to reflect the application of the
fee structure which will be in effect for John Hancock Intermediate
Maturity Government Fund: 0.40% of the Fund's average daily net asset
value.
(c) The 12b-1 fee was adjusted to reflect the application of the fee stucture
which will be in effect for the John Hancock Intermediate Maturity
Government Fund: 0.25% of Class A average daily net assets and 1.00% of
Class B average daily net assets.
(d) The transfer agent fee for each of the Class A and Class B shares is the
total of the respective individual fund's transfer agent fees. The main
criteria in determining the transfer agent fees for a specific class is
the number of shareholder accounts.
(e) The actual expenses incurred by the John Hancock Intermediate Maturity
Government Fund and John Hancock Limited-Term Government Fund for various
expenses included on a pro forma basis were reduced to reflect the
estimated savings arising from the merger.
<PAGE>
Schedule of Investments
May 31, 1997
- -------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Limited Term Government Fund and the Intermediate Maturity Government Fund
combined on May 31, 1997.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
LIMITED TERM GOVERNMENT FUND INTERMEDIATE MATURITY GOVERNMENT FUND
---------------------------------------------------------------------------------------------
INTEREST MATURITY PAR VALUE INTEREST MATURITY PAR VALUE
ISSUER, DESCRIPTION RATE DATE (000'S OMITTED) MARKET VALUE RATE DATE (000'S OMITTED)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES
SECURITIES
Governmental - U.S. (43.24%)
United States Treasury,
Bond 12.00% 08-15-13 $7,000 $9,778,090 2,250
Bond 11.875 11-15-03 17,000 21,656,470
Bond 10.750 08-15-05 15,000 18,813,300
Note 8.625 08-15-97 3,000 3,021,090
Note 8.750 10-15-97 13,000 13,154,310
Note 8.750 08-15-00 3,000 3,201,570
Note 6.250 02-28-02 3,500 3,463,915
Bond 11.125 08-15-03 2,000
Bond 6.625 02-15-27 750
Note 9.250 08-15-98 1,975
Note 9.125 05-15-99 1,000
Note 7.875 08-15-01 1,000
Note 6.625 03-31-02 2,000
------------
73,088,745
------------
Governmental - U.S. Agencies (55.12%)
Federal Farm Credit Bank,
Bond 11.900 10-20-97 2,000 2,046,240
Note 6.750 05-14-99 7,000 7,008,750
Federal Home Loan Mortgage Corp.,
15 Yr Pass Thru Ctf 8.500 06-01-06 to 6,490 6,732,016
07-01-07
CMO Remic 1204-G 7.000 11-15-05 4,358 4,389,063
CMO Remic 1419-F Var Rate 6.050# 11-15-97 18,046 18,051,945
Adjustable Rate Mortgage 7.25# 05-01-17 52
Adjustable Rate Mortgage 7.750 10-01-18 58
Federal National Mortgage Association,
30 Yr ARM 8.000# 03-01-22 1,037 1,072,753
CMO REMIC G-29-N 8.500 06-25-07 7,323 7,417,100
Note Series SM 2004-J 8.250 10-12-04 12,600 12,956,883
Bond 6.500 04-30-99 5,000 4,990,600
15 Yr Pass thru Ctf 7.500 06-01-10 2,168
15 Yr Pass thru Ctf 7.000 10-01-11 2,902
Adjustable Rate Mortgage 6.671# 03-01-14 45
to 06-01-14
Adjustable Rate Mortgage 6.875# 05-01-13 45
Adjustable Rate Mortgage 7.256# 05-01-17 197
Adjustable Rate Mortgage 7.250# 03-01-27 40
Government National Mortgage
Association,
30 Yr SF PassThru Ctf 8.500 01-15-27 9,556 9,896,353
30 Yr Adj Rate 6.875# 10-20-24 19,542 20,018,351
30 Yr Pass thru Ctf 12.000 02-15-14 24
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
COMBINED
-----------
PAR VALUE
ISSUER, DESCRIPTION MARKET VALUE (000'S OMITTED) MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES
SECURITIES
Governmental - U.S. (43.24%)
United States Treasury,
Bond $ 3,142,958 9,250 $12,921,048
Bond 17,000 21,656,470
Bond 15,000 18,813,300
Note 3,000 3,021,090
Note 13,000 13,154,310
Note 3,000 3,201,570
Note 3,500 3,463,915
Bond 2,457,500 2,000 2,457,500
Bond 722,580 750 722,580
Note 2,048,450 1,975 2,048,450
Note 1,052,810 1,000 1,052,810
Note 1,050,470 1,000 1,050,470
Note 2,008,740 2,000 2,008,740
------------ ------------
12,483,508 85,572,253
------------ ------------
Governmental - U.S. Agencies (55.12%)
Federal Farm Credit Bank,
Bond 2,000 2,046,240
Note 7,000 7,008,750
Federal Home Loan Mortgage Corp.,
15 Yr Pass Thru Ctf 6,490 6,732,016
CMO Remic 1204-G 4,358 4,389,063
CMO Remic 1419-F Var Rate 18,046 18,051,945
Adjustable Rate Mortgage 53,605 52 53,605
Adjustable Rate Mortgage 59,480 58 59,480
Federal National Mortgage Association,
30 Yr ARM 1,037 1,072,753
CMO REMIC G-29-N 7,323 7,417,100
Note Series SM 2004-J 12,600 12,956,883
Bond 5,000 4,990,600
15 Yr Pass thru Ctf 2,196,831 2,168 2,196,831
15 Yr Pass thru Ctf 2,885,177 2,902 2,885,177
Adjustable Rate Mortgage 45,099 45 45,099
Adjustable Rate Mortgage 46,136 45 46,136
Adjustable Rate Mortgage 194,130 197 194,130
Adjustable Rate Mortgage 40,479 40 40,479
Government National Mortgage
Association,
30 Yr SF PassThru Ctf 9,896,353
30 Yr Adj Rate 20,018,351
30 Yr Pass thru Ctf 27,241 24 27,241
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
LIMITED TERM GOVERNMENT FUND INTERMEDIATE MATURITY GOVERNMENT FUND
---------------------------------------------------------------------------------------------
INTEREST MATURITY PAR VALUE INTEREST MATURITY PAR VALUE
ISSUER, DESCRIPTION RATE DATE (000'S OMITTED) MARKET VALUE RATE DATE (000'S OMITTED)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
30 Yr Pass thru Ctf 12.500 07-15-15 37
30 Yr Pass thru Ctf 7.500 05-15-24 1,882
30 Yr Pass thru Ctf 8.000 05-15-25 5,602
to 10-15-25
Adjustable Rate Mortgage 6.875# 10-20-23 1,304
------------
94,580,054
------------
TOTAL U.S.GOVERNMENT AND AGENCIES
SECURITIES (98.36%)
(Cost $194,814,671) 167,668,799
------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (7.69%)
Investment in a joint repurchase
agreement transaction with Swiss
Bank Corp. Dated 5-30-97, Due 6-02-97
(Secured by U.S. Treasury Notes,
6.375%, Due 5-15-99 and U.S. Treasury
Bonds, 6.25% thru 11.25%, Due
11-15-08 thru 8-15-23) Note A 5.560 06-02-97 12,313 12,313,000 2,904
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%
TOTAL SHORT-TERM INVESTMENTS (7.69%) 12,313,000
------------
TOTAL INVESTMENTS (106.05%) $179,981,799
============
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
COMBINED
-----------
PAR VALUE
ISSUER, DESCRIPTION MARKET VALUE (000'S OMITTED) MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
30 Yr Pass thru Ctf 43,344 37 43,344
30 Yr Pass thru Ctf 1,884,070 1,882 1,884,070
30 Yr Pass thru Ctf 5,710,858 5,602 5,710,858
Adjustable Rate Mortgage 1,336,714 1,304 1,336,714
----------- ------------
14,523,164 109,103,218
----------- ------------
TOTAL U.S.GOVERNMENT AND AGENCIES
SECURITIES (98.36%)
(Cost $194,814,671) 27,006,672 194,675,471
----------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (7.69%)
Investment in a joint repurchase
agreement transaction with Swiss
Bank Corp. Dated 5-30-97, Due 6-02-97
(Secured by U.S. Treasury Notes,
6.375%, Due 5-15-99 and U.S. Treasury
Bonds, 6.25% thru 11.25%, Due
11-15-08 thru 8-15-23) Note A 2,904,000 15,217 15,217,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 473 473
TOTAL SHORT-TERM INVESTMENTS (7.69%) 2,904,473 15,217,473
----------- ------------
TOTAL INVESTMENTS (106.05%) $29,911,145 $209,892,944
=========== ============
</TABLE>
# Represents rate in effect on May 31, 1997.
The percentage shown for each investment category is the total value of that
category as a percentage of the combined net assets of each Fund.
NET ASSETS $197,916,277
Page 2
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
No change from the information set forth in Item 27 of the Registration
Statement of John Hancock Intermediate Maturity Government Fund (the
"Registrant") on Form N-1A under the Securities Act of 1933 and the Investment
company Act of 1940 (File Nos. 2-66906 and 811-3006), which information is
incorporated herein by reference.
ITEM 16. EXHIBITS:
1. Registrant's Declaration of Trust Filed as Exhibits 1 to
Registrant's Registration
Statement on Form N-1A and
incorporated herein by reference
to post-effective amendment no.31
(file nos. 811-3006 and 2-66906
on July 17, 1995; accession no.
0000950135-95-001528) ("PEA 31")
2 Amended and Restated By-Laws of Filed as Exhibit 2 to
Registrant. Registrant's Registration
Statement on Form N-1A and
incorporated herein by reference
to post-effective amendment no.
36 (file nos. 811-3006 and
2-66906 on February 28, 1997;
accession no.
0001010521-97-000232) ("PEA 36")
3 Not applicable
4 Form of Agreement and Plan of Filed herewith as Exhibit A to
reorganization between the the Proxy Statement and
Registrant and John Hancock Prospectus included as Part A of
Limited Term Government Fund this Registration Statement.
5 Not applicable
<PAGE>
6 Investment Management Contract Filed as Exhibit 5 to PEA 31 and
between the Registrant and John incorporated herein by reference.
Hancock Advisers, Inc.
7 Distribution Agreement between Filed as Exhibit 6 to PEA 31 and
the Registrant and John Hancock incorporated herein by reference.
Funds, Inc. (formerly named John
Hancock Broker Distribution
Services, Inc.)
7.1 Form of Soliciting Dealer Filed as Exhibit 6.1 to PEA 31
Agreement between John Hancock and incorporated herein by
Funds, Inc. and Selected Dealers reference.
7.2 Form of Financial Institution Filed as Exhibit 6.2 to PEA 31
Sales and Service Agreement and incorporated herein by
reference.
8 Not applicable.
9 Master Custodian Agreement Filed as Exhibit 8 to PEA 31 and
between John Hancock Mutual Funds incorporated herein by reference.
(including Registrant) and
Investors Bank & Trust Company.
10 Class A and Class B Distribution Filed as Exhibit 15 to PEA and
Plans between Registrant and John incorporated herein by reference.
Hancock Funds, Inc.
11 Opinion as to legality of shares Filed herewith as Exhibit 11
and consent.
12 Form of opinion as to tax matters Filed herewith as Exhibit 12
and consent.
<PAGE>
13 Not applicable
14 Consent of Ernst & Young LLP Filed herewith as Exhibit 14
regarding the audited financial
statements of Registrant and John
Hancock Limited Term Government
Fund.
15 Not applicable
16 Powers of Attorney Filed as addendum to signature
pages of post-effective amendment
no. 35 (file nos. 811-3006 and
2-66906 on August 28, 1997;
accession no.
0001010521-96-000148) ("PEA 35")
and incorporated herein by
reference.
17 Declaration of the Registrant Filed herewith as Exhibit 17.
pursuant to Rule 24f-2 under the
Investment Company Act of 1940
18 Prospectus of John Hancock Included in Part A as part of the
Limited Term Government Fund combined Prospectus with
dated October 1, 1997 Intermediate Maturity Gov't Fund.
18.1 Statement of Additional Filed herewith as Exhibit B to
Information of John Hancock Part B of this Registration
Limited Term Government Fund Statement.
dated October 1, 1997
18.2 Statement of Additional Filed herewith as Exhibit A to
Information of John Hancock Part B of this Registration
Intermediate Maturity Government Statement.
Fund dated October 1, 1997
ITEM 17
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a propectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) under the Securities Act of 1933,
as amended (the "1933 Act"), the reoffering prospectus will contain the
information called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and The
Commonwealth of Massachusetts, on the 14th day of August, 1997.
JOHN HANCOCK LIMITED TERM GOVERNMENT FUND
By: *
-----------------------------
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the
Registration has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman
- ----------------------- (Principal Executive Officer)
Edward J. Boudreau, Jr.
/s/James B. Little Senior Vice President and Chief August 14, 1997
- ----------------------- Financial Officer (Principal
James B. Little Financial and Accounting Officer)
* Trustee
- -----------------------
James F. Carlin
* Trustee
- -----------------------
William H. Cunningham
* Trustee
- -----------------------
Charles F. Fretz
* Trustee
- -----------------------
Harold R. Hiser, Jr.
* Trustee
- -----------------------
Anne C. Hodsdon
* Trustee
- -----------------------
Charles L. Ladner
* Trustee
- -----------------------
Leo E. Linbeck, Jr.
* Trustee
- -----------------------
Patricia P. McCarter
<PAGE>
Signature Title Date
--------- ----- ----
* Trustee
- -----------------------
Stephen R. Pruchansky
* Trustee
- -----------------------
Richard S. Scipione
* Trustee
- -----------------------
Norman H. Smith
* Trustee
- -----------------------
John P. Toolan
*By: /s/Susan S. Newton August 14, 1997
-------------------
Susan S. Newton,
Attorney-in-Fact under
Powers of Attorney dated
June 25, 1996.
</TABLE>
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement:
Exhibit No. Description
- ----------- -----------
4. Agreement and Plan of Regorganization between the Registrant
and John Hancock Limited-Term Government Fund (filed as
EXHIBIT A to Part A of this Registration Statement).
11. Opinion as to legality of shares and consent.
12. Form of opinion as to tax matters and consent.
14. Consent of Ernst & Young, LLP regarding the audited
financial statements and highlights of the Registrant and
John Hancock Limited-Term Government Fund.
17. Declaration of the Registrant pursuant to Rule 24f-2 under
the Investment Company Act of 1940.
August 4, 1997
John Hancock Bond Trust
on behalf of John Hancock Intermediate Maturity Government Fund
101 Huntington Avenue
Boston, MA 02199
Ladies and Gentlemen:
In connection with the filing of a registration statement under the Securities
Act of 1933, as amended (the "Act"), on Form N-14, with respect to the shares of
beneficial interest of John Hancock Intermediate Maturity Government Fund (the
"Fund"), a series of John Hancock Bond Trust, a Massachusetts business trust
(the "Trust"), it is the opinion of the undersigned that these shares when
legally issued, will be legally issued, fully paid and non-assessable.
In connection with this opinion it should be noted that the Trust is an entity
of the type generally known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of a Massachusetts business trust may be held
personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust disclaims shareholder liability for obligations of the
Trust and indemnifies any shareholder of the Fund, with this indemnification to
be paid solely out of the assets of the Fund. Therefore, a shareholders' risk is
limited to circumstances in which the assets of the Fund are insufficient to
meet the obligations asserted against the Fund's assets.
The undersigned hereby consents to the filing of a copy of this opinion as an
exhibit to the Trust's registration statement on Form N-14 and with the
Securities and Exchange Commission.
Sincerely,
/s/ Avery P. Maher
Avery P. Maher
Second Vice President and
Assistant Secretary
John Hancock Advisers, Inc.
DRAFT: 7/22/97
HADL
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 o fax 617-526-5000
December 5, 1997
Board of Trustees
John Hancock Limited-Term Government Fund
101 Huntington Avenue
Boston, Massachusetts 02199
Board of Trustees
John Hancock Bond Fund, on behalf of
John Hancock Intermediate Maturity Government Fund
101 Huntington Avenue
Boston, Massachusetts 02199
Dear Members of the Boards of Trustees:
You have requested our opinion regarding the federal income tax
consequences described below of the acquisition by John Hancock Intermediate
Maturity Government Fund ("Acquiring Fund"), a series of John Hancock Bond Fund
("Trust"), of all of the assets of John Hancock Limited-Term Government Fund
("Acquired Fund"), in exchange solely for (i) the assumption by Acquiring Fund
of all of the liabilities of Acquired Fund and (ii) the issuance of Class A and
Class B voting shares of beneficial interest of Acquiring Fund (the "Acquiring
Fund Shares") to Acquired Fund, followed by the distribution by Acquired Fund,
in liquidation of Acquired Fund, of the Acquiring Fund Shares to the
shareholders of Acquired Fund and the termination of Acquired Fund (the
foregoing together constituting the "reorganization" or the "transaction").
<PAGE>
In rendering this opinion, we have examined and relied upon the facts
stated and representations made in (i) the combined prospectus for Acquiring
Fund, Acquired Fund, and certain other John Hancock mutual funds, dated May 1,
1997 and supplemented for Acquiring Fund on July 15, 1997, (ii) the statement of
additional information for Acquiring Fund, dated July 15, 1997, (iii) the
statement of additional information for Acquired Fund, dated June 20, 1997, (iv)
the registration statement on Form N-14 of Acquiring Fund relating to the
transaction (the "Registration Statement") filed with the Securities and
Exchange Commission (the "SEC") on ____________, 1997, (v) the proxy statement
and prospectus relating to the transaction dated September 29, 1997 (the "Proxy
Statement"), (vi) the Agreement and Plan of Reorganization, made September 22,
1997, between Acquiring Fund and Acquired Fund (the "Agreement"), (vii) the
representation letters on behalf of Acquiring Fund and Acquired Fund referred to
below and (viii) such other documents as we deemed appropriate.
In our examination of documents, we have assumed the authenticity of
original documents, the accuracy of copies, the genuineness of signatures, and
the legal capacity of signatories. We have assumed that all parties to the
Agreement have acted and will act in accordance with the terms of the Agreement
and all other documents relating to the transaction and that the transaction
will be consummated pursuant to the terms and conditions set forth in the
Agreement without the waiver or modification of any such terms and conditions.
Furthermore, we have assumed that all representations contained in the
Agreement, as well as those representations contained in the representation
letters referred to below are, on the date hereof, true and complete in all
material respects, and that any representation made in any of the documents
referred to herein "to the best of the knowledge and belief" (or similar
qualification) of any person or party is correct without such qualification. We
have not attempted to verify independently such representations, but in the
course of our representation, nothing has come to our attention that would cause
us to question the accuracy thereof.
The conclusions expressed herein represent our judgment regarding the
proper treatment of certain aspects of the transaction affecting Acquiring Fund,
Acquired Fund and the shareholders of Acquired Fund on the basis of our analysis
of the Internal Revenue Code of 1986, as amended (the "Code"), case law,
Treasury regulations and the rulings and other pronouncements of the Internal
Revenue Service (the "Service") which exist at the time this opinion is
rendered. Such authorities are subject to prospective or retroactive change, and
we do not undertake any responsibility to advise you of any such change. Our
opinion represents our best judgment regarding how a court would decide if
presented with the issues addressed herein and is not binding upon the Service
WASHINGTON, DC BOSTON, MA MANCHESTER, NH
HALE AND DORR IS A PARTNERSIP INCLUDING PROFESSIONAL CORPORATIONS
<PAGE>
Boards of Trustees
John Hancock Bond Fund
John Hancock Limited-Term Government Fund
December 5, 1997
Page 3
or any court. Moreover, our opinion does not provide any assurance that a
position taken in reliance on such opinion will not be challenged by the Service
and does not constitute any representation or warranty that such position, if so
challenged, will not be rejected by a court.
This opinion addresses only the specific United States federal income
tax consequences of the transaction set forth below, and does not address any
other federal, state, local, or foreign income, estate, gift, transfer, sales,
or other tax consequences that may result from the transaction or any other
transaction.
FACTS
We understand the facts relating to the transaction to be as described
hereinafter.
Acquiring Fund is the only series of Trust, a business trust
established under the laws of The Commonwealth of Massachusetts in 1984. Trust
is registered as an open-end investment company under the 1940 Act. Acquiring
Fund commenced operations in 1991 under the name Transamerica Adjustable U.S.
Government Trust, changed its name to John Hancock Adjustable U.S. Government
Trust on December 22, 1994, and changed to its present name on September 22,
1995. Transamerica Adjustable U.S. Government Trust and John Hancock Adjustable
U.S. Government Trust are referred to herein individually as a predecessor and
collectively as the predecessors of Acquiring Fund.
The investment objective of Acquiring Fund is to seek to achieve a high
level of current income, consistent with preservation of capital and maintenance
of liquidity. Acquiring Fund seeks to achieve its investment objective by
investing primarily in U.S. Government securities of any maturity, including
U.S. Treasury bills, notes and bonds and mortgage-backed securities issued or
guaranteed by U.S. Government agencies. Acquiring Fund may also invest in
asset-backed securities, corporate debt securities, and certain other
investments described in its prospectus or statement of additional information.
<PAGE>
Boards of Trustees
John Hancock Bond Fund
John Hancock Limited-Term Government Fund
December 5, 1997
Page 4
Acquired Fund is a business trust established under the laws of The
Commonwealth of Massachusetts in 1984. Acquired Fund is registered as an
open-end investment company under the Investment Company Act of 1940, as amended
(the "1940 Act"). Acquired Fund commenced operations in 1984 and changed its
name from John Hancock U.S. Government Securities Fund (referred to herein as
Acquired Fund's predecessor) to its present name on July 1, 1993.
The investment objective of Acquired Fund is to provide current income
and security of principal through investment primarily in securities of the
United States Government and its agencies ("Government Obligations"). Under
normal circumstances, Acquired Fund invests at least 80% of its assets in
Government Obligations, which may include Treasury bills, notes and bonds and
mortgage-backed securities. Acquired Fund may also invest up to 20% of its
assets (under normal circumstances) in investment-grade short-term securities
and certain other investments described in its prospectus or statement of
additional information.
The steps comprising the reorganization, as set forth in the Agreement,
are as follows:
(i) Acquired Fund will transfer to Acquiring Fund all of its
assets (consisting, without limitation, of portfolio securities and instruments,
dividend and interest receivables, cash and other assets). In exchange for the
assets transferred to it, Acquiring Fund will (A) assume all of the liabilities
of Acquired Fund (comprising all of its known and unknown liabilities and
referred to hereinafter as the "Acquired Fund Liabilities") and (B) issue
Acquiring Fund Shares to Acquired Fund that have an aggregate net asset value
equal to the value of the assets transferred to Acquiring Fund by Acquired Fund,
less the value of the Acquired Fund Liabilities assumed by Acquiring Fund.
(ii) Promptly after the transfer of its assets to Acquiring Fund,
Acquired Fund will distribute in liquidation the Acquiring Fund Shares it
receives in the exchange to Acquired Fund shareholders pro rata in exchange for
their surrender of their shares of beneficial interest of Acquired Fund
("Acquired Fund Shares"). In these exchanges, holders of Acquired Fund Shares
designated as Class A ("Class A Acquired Fund Shares") will receive Acquiring
<PAGE>
Boards of Trustees
John Hancock Bond Fund
John Hancock Limited-Term Government Fund
December 5, 1997
Page 5
Fund Shares designated as Class A ("Class A Acquiring Fund Shares"), and holders
of Acquired Fund Shares designated as Class B ("Class B Acquired Fund Shares")
will receive Acquiring Fund Shares designated as Class B ("Class B Acquiring
Fund Shares").
(iii) After such exchanges, liquidation and distribution, the
existence of Acquired Fund will be promptly terminated in accordance with
Massachusetts law.
The Agreement and the transactions contemplated thereby were approved
by the Board of Trustees of Trust, on behalf of Acquiring Fund, at a meeting
held on September 10, 1997. Acquiring Fund shareholders are not required and
were not asked to approve the transaction. The Agreement and the transactions
contemplated thereby were approved by the Board of Trustees of Acquired Fund at
a meeting held on September 9, 1997. Acquired Fund shareholders approved the
transaction at a meeting held on November 12, 1997.
Massachusetts law does not provide dissenters' rights for Acquired Fund
shareholders in the transaction. Additionally, it is the position of the
Division of Investment Management of the SEC that appraisal rights, in contexts
such as the reorganization, are inconsistent with Rule 22c-1 under the 1940 Act
and are therefore preempted and invalidated by such rule. Consequently, Acquired
Fund shareholders will not have dissenters' or appraisal rights in the
transaction.
Our opinions set forth below are subject to the following factual
assumptions being true and correct (including statements relating to future
actions and facts represented to be to the best knowledge of management, whether
or not known). Authorized representatives of Acquiring Fund and Acquired Fund
have represented to us by letters of even date herewith that the following
assumptions are true and correct:
(a) Acquiring Fund has no plan or intention to redeem or otherwise
reacquire any of the Acquiring Fund Shares received by shareholders of Acquired
Fund in the transaction except in the ordinary course of its business in
connection with its legal obligation under Section 22(e) of the 1940 Act as a
registered open-end investment company to redeem its own shares.
<PAGE>
Boards of Trustees
John Hancock Bond Fund
John Hancock Limited-Term Government Fund
December 5, 1997
Page 6
(b) After the transaction, Acquiring Fund will continue the
historic business of Acquired Fund and will use all of the assets acquired from
Acquired Fund, which are Acquired Fund's historic business assets, i.e., assets
not acquired as part of or in contemplation of the transaction, in the ordinary
course of a business.
(c) Acquiring Fund has no plan or intention to sell or otherwise
dispose of any assets of Acquired Fund acquired in the transaction, except for
dispositions made in the ordinary course of its business (i.e., dispositions
resulting from investment decisions made after the reorganization on the basis
of investment considerations independent of the reorganization) or to maintain
its qualification as a regulated investment company under Subchapter M of the
Code.
(d) The shareholders of Acquiring Fund and the shareholders of
Acquired Fund will bear their respective expenses, if any, in connection with
the transaction.
(e) Acquiring Fund and Acquired Fund will each bear its own
expenses incurred in connection with the transaction. Any liabilities of
Acquired Fund attributable to such expenses that remain unpaid on the closing
date of the transaction and are assumed by Acquiring Fund in the transaction are
attributable to Acquired Fund's expenses that are solely and directly related to
the transaction in accordance with the guidelines established in Rev. Rul.
73-54, 1973-1 C.B. 187.
(f) There is no indebtedness between Acquiring Fund and Acquired
Fund.
(g) Acquired Fund or its predecessor has elected to be treated as
a regulated investment company under Subchapter M of the Code. Each of Acquired
Fund and its predecessor has qualified as a regulated investment company for
each taxable year since inception, and Acquired Fund qualifies as such for its
taxable year ending on the closing date of the transaction.
(h) Acquiring Fund or a predecessor has elected to be treated as a
regulated investment company under Subchapter M of the Code. Each of Acquiring
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Boards of Trustees
John Hancock Bond Fund
John Hancock Limited-Term Government Fund
December 5, 1997
Page 7
Fund and its predecessors has qualified as a regulated investment company for
each taxable year since inception, and Acquiring Fund qualifies as such as of
the date of the transaction.
(i) Neither Acquiring Fund nor Acquired Fund is under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
(j) Acquiring Fund does not own and neither it nor any of its
predecessors has ever owned, directly or indirectly, any shares of Acquired Fund
or its predecessor.
(k) Acquiring Fund will not pay cash in lieu of fractional shares
in connection with the transaction.
(l) As of the date of the transaction, the fair market value of
the Acquiring Fund Shares issued to Acquired Fund in exchange for the assets of
Acquired Fund is approximately equal to the fair market value of the assets of
Acquired Fund received by Acquiring Fund, minus the value of the Acquired Fund
Liabilities assumed by Acquiring Fund.
(m) Acquired Fund shareholders will be in control (within the
meaning of Sections 368(a)(2)(H) and 304(c) of the Code, which provide that
control means the ownership of shares possessing at least 50% of the total
combined voting power of all classes of shares that are entitled to vote or at
least 50% of the total value of shares of all classes) of Acquiring Fund after
the transaction, and to the best knowledge of management of Acquired Fund, there
is no intention on the part of any shareholders of Acquired Fund to redeem,
sell, exchange or otherwise dispose of a number of the shares of Acquiring Fund
received in the transaction that would affect the retention of control of
Acquiring Fund by former shareholders of Acquired Fund after consummation of the
transaction.
(n) At the time of the transaction, Acquiring Fund does not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares of Acquiring Fund that,
if exercised or converted, would affect the acquisition or retention of control
<PAGE>
Boards of Trustees
John Hancock Bond Fund
John Hancock Limited-Term Government Fund
December 5, 1997
Page 8
(within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code) of
Acquiring Fund by the shareholders of Acquired Fund.
(o) The principal business purposes of the transaction are to
combine the assets of Acquiring Fund and Acquired Fund in order to capitalize on
economies of scale in expenses, including the costs of accounting, legal,
transfer agency, insurance, custodial, and administrative services, to eliminate
the potential adverse effects on each fund's asset growth of competing with the
other fund, and to increase diversification.
(p) As of the date of the transaction, the fair market value of
the Class A Acquiring Fund Shares received by each holder of Class A Acquired
Fund Shares is approximately equal to the fair market value of the Class A
Acquired Fund Shares surrendered by such shareholder, and the fair market value
of the Class B Acquiring Fund Shares received by each holder of Class B Acquired
Fund Shares is approximately equal to the fair market value of the Class B
Acquired Fund Shares surrendered by such shareholder.
(q) There is no plan or intention on the part of any shareholder
of Acquired Fund that owns beneficially 5% or more of the Acquired Fund Shares
and, to the best knowledge of management of Acquired Fund, there is no plan or
intention on the part of the remaining shareholders of Acquired Fund to sell,
redeem, exchange or otherwise dispose of a number of the Acquiring Fund Shares
received in the transaction that would reduce the aggregate ownership of the
Acquiring Fund Shares by former Acquired Fund shareholders to a number of shares
having a value, as of the date of the transaction, of less than fifty percent
(50%) of the value of all of the formerly outstanding Acquired Fund Shares as of
the same date. Shares of Acquired Fund and Acquiring Fund held by Acquired Fund
shareholders and sold, redeemed, exchanged or otherwise disposed of prior or
subsequent to the transaction as part of the plan of reorganization are taken
into account for purposes of this representation.
(r) Acquired Fund assets transferred to Acquiring Fund comprise at
least ninety percent (90%) of the fair market value of the net assets and at
least seventy percent (70%) of the fair market value of the gross assets held by
Acquired Fund immediately prior to the transaction. For purposes of this
representation, amounts used by Acquired Fund to pay its outstanding
<PAGE>
Boards of Trustees
John Hancock Bond Fund
John Hancock Limited-Term Government Fund
December 5, 1997
Page 9
liabilities, including reorganization expenses, and all redemptions and
distributions (except for redemptions in the ordinary course of business upon
demand of a shareholder that Acquired Fund is required to make as an open-end
investment company pursuant to Section 22(e) of the 1940 Act and regular, normal
dividends, which dividends include any final distribution of previously
undistributed investment company taxable income and net capital gain for
Acquired Fund's final taxable year ending on the closing date of the
transaction) made by Acquired Fund immediately preceding the transaction are
taken into account as assets of Acquired Fund held immediately prior to the
transaction.
(s) The Acquired Fund Liabilities assumed by Acquiring Fund plus
the liabilities, if any, to which the transferred assets are subject were
incurred by Acquired Fund in the ordinary course of its business or are expenses
of the transaction.
(t) The fair market value of the Acquired Fund assets transferred
to Acquiring Fund equals or exceeds the sum of the Acquired Fund Liabilities
assumed by Acquiring Fund and the amount of liabilities, if any, to which the
transferred assets are subject.
(u) The total adjusted basis of the Acquired Fund assets
transferred to Acquiring Fund equals or exceeds the sum of the Acquired Fund
Liabilities assumed by Acquired Fund and the amount of liabilities, if any, to
which the transferred assets are subject.
(v) Acquired Fund does not pay compensation to any
shareholder-employee.
OPINION
On the basis of and subject to the foregoing and in reliance upon the
representations described above, we are of the opinion that
(a) The acquisition by Acquiring Fund of all of the assets of
Acquired Fund solely in exchange for the issuance of Acquiring Fund Shares to
Acquired Fund and the assumption of all of the Acquired Fund Liabilities by
Acquiring
<PAGE>
Boards of Trustees
John Hancock Bond Fund
John Hancock Limited-Term Government Fund
December 5, 1997
Page 10
Fund, followed by the distribution by Acquired Fund, in liquidation of Acquired
Fund, of Acquiring Fund Shares to Acquired Fund shareholders in exchange for
their Acquired Fund Shares and the termination of Acquired Fund, will constitute
a "reorganization" within the meaning of Section 368(a)(1)(D) of the Code.
Acquiring Fund and Acquired Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by Acquired Fund upon (i)
the transfer of all of its assets to Acquiring Fund solely in exchange for the
issuance of Acquiring Fund Shares to Acquired Fund and the assumption of all of
the Acquired Fund Liabilities by Acquiring Fund and (ii) the distribution by
Acquired Fund of such Acquiring Fund Shares to the shareholders of Acquired Fund
(Sections 361(a) and 361(c) of the Code).
(c) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Acquired Fund solely in exchange for the issuance of
Acquiring Fund Shares to Acquired Fund and the assumption of all of the Acquired
Fund Liabilities by Acquiring Fund (Section 1032(a) of the Code).
(d) The basis of the assets of Acquired Fund acquired by Acquiring
Fund will be, in each instance, the same as the basis of those assets in the
hands of Acquired Fund immediately prior to the transfer (Section 362(b) of the
Code).
(e) The tax holding period of the assets of Acquired Fund in the
hands of Acquiring Fund will, in each instance, include Acquired Fund's tax
holding period for those assets (Section 1223(2) of the Code).
(f) The shareholders of Acquired Fund will not recognize gain or
loss upon the exchange of all of their Acquired Fund Shares solely for Acquiring
Fund Shares as part of the transaction (Section 354(a)(1) of the Code).
(g) The basis of the Acquiring Fund Shares received by the
Acquired Fund shareholders in the transaction will be the same as the basis of
the Acquired Fund Shares surrendered in exchange therefor (Section 358(a)(1) of
the Code).
<PAGE>
Boards of Trustees
John Hancock Bond Fund
John Hancock Limited-Term Government Fund
December 5, 1997
Page 11
(h) The tax holding period of the Acquiring Fund Shares received
by Acquired Fund shareholders will include, for each shareholder, the tax
holding period for the Acquired Fund Shares surrendered in exchange therefor,
provided that the Acquired Fund Shares were held as capital assets on the date
of the exchange (Section 1223(1) of the Code).
No opinion is expressed or implied regarding the federal income tax
consequences to Acquiring Fund, Acquired Fund or Acquired Fund shareholders of
any conditions existing at the time of, effects resulting from, or other aspects
of the transaction except as expressly set forth above. This opinion may not be
relied upon except with respect to the consequences specifically discussed
herein nor may it be relied upon by persons or entities to whom it is not
addressed other than with our prior written consent.
Very truly yours,
Hale and Dorr LLP
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Combined Prospectus/Proxy Statement in the Registration Statement on Form N-14,
dated August 14, 1997, of John Hancock Limited-Term Government Fund.
We also consent to the references to our firm under the caption "Financial
Highlights" in the John Hancock Income Funds Prospectus with respect to the John
Hancock Intermediate Maturity Government Fund and John Hancock Limited-Term
Government Fund, dated October 1, 1997, and to the references to our firm under
the caption "Independent Auditors" in the John Hancock Intermediate Maturity
Government Fund Class A and Class B Statement of Additional Information dated
October 1, 1997 and in the John Hancock Limited-Term Government Fund Class A and
Class B Statement of Additional Information dated October 1, 1997, and to the
use of our reports for the periods ended May 31, 1997, dated July 11, 1997 with
respect to the financial statements and financial highlights of the John Hancock
Intermediate Maturity Government Fund and John Hancock Limited-Term Government
Fund, included in the Statement of Additional Information in this Registration
Statement on Form N-14, dated August 14, 1997.
/s/ Ernst & Young LLP
Ernst & Young LLP
Boston, Massachusetts
August 8, 1997
EXHIBIT 17
Registration No. 2-66906
================================================================================
As filed on February 20, 1985
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. __ / /
Post-Effective Amendment No. 9 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 11
CRITERION BOND FUND
(formerly Investment Quality Interest, Inc.)
(Exact Name of Registrant as Specified in Charter)
333 Clay Street, Suity 4300, Houston, Texas 77002
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (713) 751-2400
Thomas R. Powers
333 Clay Street, Suite 4300
Houston, Texas 77002
(Name and Address of Agent for Service)
----------------------
Copies to:
Kenneth S. Gerstein, Esq. Robert L. Stillwell, Esq.
Gordon Hurwitz Butowsky Weitzen Baker & Botts
Shalov & Wein 3000 One Shell Plaza
101 Park Avenue Suite 3121
New York, New York 10178 Houston, Texas 77002
Approximate Date of Proposed Public Offering: As soon as practicable after
this post-effective amendment becomes effective.
It is proposed that this filing will become effective:
___ Immediately upon filing pursuant to paragraph (b)
___ On (date) pursuant to paragraph (b)
_X_ 60 days after filing pursuant to paragraph (a)
___ On (date) pursuant to paragraph (a) of Rule 485
----------------------
Registrant has previously elected, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, to register an indefinite number of shares of
its common stock for sale under the Securities Act of 1933 and filed its Notice
on May 24, 1984.
