JOHN HANCOCK INVESTMENT QUALITY BOND FUND
101 Huntington Avenue
Boston, Massachusetts 02199
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 8, 1995
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of John Hancock Investment Quality Bond Fund ("Investment Quality
Bond Fund"), a series of John Hancock Bond Fund, a Massachusetts business
trust, will be held at 101 Huntington Avenue, Boston, Massachusetts 02199 on
Friday, September 8, 1995 at 9:00 a.m., Boston time, and at any adjournment
thereof, for the following purposes:
1. To consider and act upon a proposal to approve an Agreement and Plan of
Reorganization (the "Reorganization Agreement") between John Hancock
Bond Fund, on behalf of Investment Quality Bond Fund, and John Hancock
Sovereign Bond Fund ("Sovereign Bond Fund"), providing for Sovereign
Bond Fund's acquisition of all Investment Quality Bond Fund's assets in
exchange solely for: (a) Sovereign Bond Fund's assumption of Investment
Quality Bond Fund's liabilities and (b) the issuance of Sovereign Bond
Fund Class A and Class B shares to Investment Quality Bond Fund for
distribution to its shareholders; and
2. To consider and act upon such other matters as may properly come before
the Meeting or any adjournment of the Meeting.
The Board of Trustees has fixed the close of business on July 14, 1995 as
the record date for determination of shareholders who are entitled to notice
of and to vote at the Meeting and any adjournment of the Meeting.
If you cannot attend the Meeting in person, please complete, date and sign
the enclosed proxy and return it to John Hancock Investor Services
Corporation, 101 Huntington Avenue, Boston, Massachusetts 02199 in the
enclosed envelope. It is important that you exercise your right to vote. THE
ENCLOSED PROXY IS BEING SOLICITED BY THE BOARD OF TRUSTEES OF JOHN HANCOCK
BOND FUND.
By order of the Board of Trustees,
THOMAS H. DROHAN, Secretary
Boston, Massachusetts
July 21, 1995
470PX 7/95
<PAGE>
JOHN HANCOCK INVESTMENT QUALITY BOND FUND
PROXY STATEMENT
JOHN HANCOCK SOVEREIGN BOND FUND
PROSPECTUS
This Proxy Statement and Prospectus sets forth the information you should
know before voting on the proposed reorganization of John Hancock Investment
Quality Bond Fund ("Investment Quality Bond Fund") into John Hancock
Sovereign Bond Fund ("Sovereign Bond Fund"). Investment Quality Bond Fund is
a series of John Hancock Bond Fund, a Massachusetts business trust (the
"Trust"). Sovereign Bond Fund is a Massachusetts business trust.
This Proxy Statement and Prospectus relates to Class A and Class B shares
of beneficial interest, no par value per share (collectively, the "Sovereign
Bond Fund Shares"), of Sovereign Bond Fund which will be issued in exchange
for all of Investment Quality Bond Fund's assets. In exchange for these
assets, Sovereign Bond Fund will also assume all of the liabilities of
Investment Quality Bond Fund.
The Sovereign Bond Fund Class A Shares issued to Investment Quality Bond
Fund for distribution to Investment Quality Bond Fund's Class A shareholders
will have an aggregate net asset value equal to the aggregate net asset value
of Investment Quality Bond Fund's Class A shares. The Sovereign Bond Fund
Class B Shares issued to Investment Quality Bond Fund for distribution to
Investment Quality Bond Fund's Class B shareholders will have an aggregate
net asset value equal to the aggregate net asset value of Investment Quality
Bond Fund's Class B shares. The asset values of Investment Quality Bond Fund
and Sovereign Bond Fund will be determined at the close of business (4:00
p.m. Eastern Time) on the Closing Date (as defined below) for purposes of the
proposed reorganization.
Following the receipt of Sovereign Bond Fund Shares (1) Investment Quality
Bond Fund will be liquidated, (2) the Sovereign Bond Fund Shares will be
distributed to Investment Quality Bond Fund's shareholders pro rata in
exchange for their shares of Investment Quality Bond Fund and (3) Investment
Quality Bond Fund will be terminated. Consequently, Class A Investment
Quality Bond Fund shareholders will become Class A shareholders of Sovereign
Bond Fund, and Class B Investment Quality Bond Fund shareholders will become
Class B shareholders of Sovereign Bond Fund. These transactions are
collectively referred to in this Proxy Statement and Prospectus as the
"Reorganization."
The Reorganization is being structured as a tax-free reorganization so
that, in the opinion of tax counsel, no gain or loss will be recognized by
Sovereign Bond Fund, Investment Quality Bond Fund or the shareholders of
Investment Quality Bond Fund. The terms and conditions of the Reorganization
are more fully
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<PAGE>
described in this Proxy Statement and Prospectus, and in the Agreement and
Plan of Reorganization that is attached as Exhibit A.
Sovereign Bond Fund is a diversified open-end management investment
company organized as a Massachusetts business trust in 1984. Sovereign Bond
Fund seeks to generate a high level of current income, consistent with
prudent investment risk, through investment in a diversified portfolio of
freely marketable debt securities. Sovereign Bond Fund pursues its objective
by investing primarily in investment grade debt securities.
The principal place of business of both the Trust and Sovereign Bond Fund
is 101 Huntington Avenue, Boston, Massachusetts 02199. Their toll-free
telephone number is 1-800-225-5291.
Please read this Proxy Statement and Prospectus carefully and retain it
for future reference. This Proxy Statement and Prospectus, which is
accompanied by the Prospectus of Sovereign Bond Fund for Class A and Class B
shares dated May 1, 1995 (Exhibit B), sets forth information that you should
know before approving the Reorganization. The Prospectus of Investment
Quality Bond Fund for Class A and Class B shares is incorporated herein by
reference and is available upon oral or written request and at no charge from
the Trust.
A Statement of Additional Information dated July 21, 1995 relating to this
Proxy Statement and Prospectus, and containing additional information about
each of Sovereign Bond Fund and Investment Quality Bond Fund, including
historical financial statements, is on file with the Securities and Exchange
Commission ("SEC"). It is available, upon oral or written request and at no
charge, from Sovereign Bond Fund. The Statement of Additional Information is
incorporated by reference into this Prospectus.
Shares of Sovereign Bond Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank or other depository institution, and the
shares of Sovereign Bond Fund are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other
government agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement and Prospectus is July 21, 1995.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
-----
INTRODUCTION 1
SUMMARY 2
RISK FACTORS AND SPECIAL CONSIDERATIONS 13
INFORMATION CONCERNING THE MEETING 14
PROPOSAL TO APPROVE AGREEMENT AND PLAN OF
REORGANIZATION 16
CAPITALIZATION 23
COMPARATIVE PERFORMANCE INFORMATION 24
BUSINESS OF SOVEREIGN BOND FUND 26
General 26
Investment Objective and Policies 26
Portfolio Management 26
Trustees 26
Investment Adviser and Distributor 26
Expenses 26
Custodian and Transfer Agent 26
Sovereign Bond Fund Shares 26
Purchase of Sovereign Bond Fund Shares 26
Redemption of Sovereign Bond Fund Shares 27
Dividends, Distributions and Taxes 27
BUSINESS OF INVESTMENT QUALITY BOND FUND 27
General 27
Investment Objective and Policies 27
Portfolio Management 27
Trustees 27
Investment Adviser and Distributor 27
Expenses 27
Custodian and Transfer Agent 28
Investment Quality Bond Fund Shares 28
Purchase of Investment Quality Bond Fund Shares 28
Redemption of Investment Quality Bond Fund Shares 28
Dividends, Distributions and Taxes 28
EXPERTS 28
AVAILABLE INFORMATION 29
</TABLE>
i
<PAGE>
EXHIBITS
A--Agreement and Plan of Reorganization by and between John Hancock Bond
Fund, on behalf of John Hancock Investment Quality Bond Fund, and John
Hancock Sovereign Bond Fund (attached hereto).
B--Prospectus of John Hancock Sovereign Bond Fund for Class A and Class B
shares, dated May 1, 1995 (attached hereto).
C--Annual Report to Shareholders of John Hancock Sovereign Bond Fund,
dated December 31, 1994 (included herewith).
ii
<PAGE>
PROXY STATEMENT AND PROSPECTUS
FOR SPECIAL MEETING OF SHAREHOLDERS OF
JOHN HANCOCK INVESTMENT QUALITY BOND FUND
TO BE HELD ON SEPTEMBER 8, 1995
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies by the Board of Trustees of the Trust (the "Board of
Trustees"). The proxies will be voted at the Special Meeting of Shareholders
(the "Meeting") of Investment Quality Bond Fund to be held at 101 Huntington
Avenue, Boston, Massachusetts 02199 on Friday, September 8, 1995 at 9:00
a.m., Boston time, and at any adjournment or adjournments of the Meeting. The
purposes of the Meeting are set forth in the accompanying Notice of Special
Meeting of Shareholders.
This Proxy Statement and Prospectus incorporates by reference the
prospectus of Investment Quality Bond Fund for Class A and Class B shares
(the "Investment Quality Bond Fund Prospectus"), and includes the prospectus
of Sovereign Bond Fund for Class A and Class B shares, dated May 1, 1995 (the
"Sovereign Bond Fund Prospectus"). The Annual Report to Shareholders of
Sovereign Bond Fund, dated December 31, 1994, is included with this Proxy
Statement and Prospectus. These materials will be mailed to shareholders of
Investment Quality Bond Fund on or after July 21, 1995. Investment Quality
Bond Fund's Annual Report to Shareholders was previously sent to shareholders
on or about May 31, 1995.
As of June 30, 1995, 10,669,445.949 shares of beneficial interest of
Investment Quality Bond Fund were outstanding.
All properly executed proxies received by management prior to the Meeting,
unless revoked, will be voted at the Meeting according to the instructions on
the proxies. If no instructions are given, shares of Investment Quality Bond
Fund represented by proxies will be voted FOR the proposal (the "Proposal")
to approve the Agreement and Plan of Reorganization (the "Agreement") between
the Trust, on behalf of Investment Quality Bond Fund, and Sovereign Bond
Fund.
The Trust's Board of Trustees knows of no business that will be presented
for consideration at the Meeting other than that mentioned in the immediately
preceding paragraph. If other business is properly brought before the
Meeting, proxies will be voted according to the best judgment of the persons
named as proxies.
In addition to the mailing of these proxy materials, proxies may be
personally solicited by Trustees, officers and employees of Investment
Quality Bond Fund; by personnel of Investment Quality Bond Fund's investment
adviser, John Hancock Advisers, Inc., Investment Quality Bond Fund's transfer
agent, John Hancock Investor Services Corporation ("Investor Services"); by
broker-dealer
1
<PAGE>
firms or by a professional solicitation organization, in person or by
telephone. Investment Quality Bond Fund and Sovereign Bond Fund (each, a
"Fund" and collectively, the "Funds") will each bear its own fees and
expenses in connection with the Reorganization discussed in this Proxy
Statement and Prospectus.
The information concerning Sovereign Bond Fund in this Proxy Statement and
Prospectus has been supplied by Sovereign Bond Fund. The information
regarding Investment Quality Bond Fund in this Proxy Statement and Prospectus
has been supplied by the Trust.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus. The summary is qualified by reference to
the more complete information contained in this Proxy Statement and
Prospectus, and in the Exhibits attached and included with this document.
Please read this entire Proxy Statement and Prospectus carefully.
Reasons for the Proposed Reorganization
The Trust's Board of Trustees has determined that the proposed
Reorganization is in the best interests of Investment Quality Bond Fund and
its shareholders. In making this determination, the Trustees considered
several relevant factors, including (1) the fact that the investment
objectives and policies of Investment Quality Bond Fund and Sovereign Bond
Fund are generally similar, (2) the likelihood that the Reorganization will
result in improved economies of scale and a corresponding decrease in the
expenses currently borne by Investment Quality Bond Fund's shareholders, and
(3) the fact that combining the Funds' assets into a single portfolio will
enable Sovereign Bond Fund to achieve greater diversification than either
Fund is now able to achieve. The Trust's Board of Trustees believes that the
Sovereign Bond Fund Shares received in the Reorganization will provide
existing Investment Quality Bond Fund shareholders with substantially the
same investment advantages that they currently enjoy at a comparable level of
risk. For a more detailed discussion of the reasons for the proposed
Reorganization, see "Proposal to Approve the Agreement and Plan of
Reorganization--Reasons For The Proposed Reorganization."
The Funds' Expenses
Both Funds and their shareholders are subject to various fees and
expenses. The two tables set forth below show the shareholder transaction and
operating expenses of Class A and Class B shares of the Funds. These expenses
are based on fees and expenses incurred during the Funds' most recently
completed fiscal years, adjusted to reflect current fees and expenses.
2
<PAGE>
Investment Quality Bond Fund
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
------- ---------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% None
Maximum sales charge imposed on reinvested
dividends None None
Maximum deferred sales charge None* 5.00%
Redemption fee+ None None
Exchange fee None None
Annual Fund Operating Expenses
(as a percentage of net assets)
Management fee 0.62% 0.62%
12b-1 fee** 0.25% 1.00%
Other expenses*** 0.45% 0.45%
----- -------
Total Fund Operating Expenses 1.32% 2.07%
===== =======
</TABLE>
* No sales charge is payable at the time of purchase on investments in
Class A shares of $1 million or more, but for these investments a
contingent deferred sales charge may be imposed in the event of certain
redemption transactions within one year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average net assets, and the remaining portion will be
used to cover distribution expenses.
*** Other expenses include transfer agent, legal, audit, custody and other
expenses.
+Redemption by wire fee (currently $4.00) not included.
Sovereign Bond Fund
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
------- ---------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% None
Maximum sales charge imposed on reinvested
dividends None None
Maximum deferred sales charge None* 5.00%
Redemption fee+ None None
Exchange fee None None
Annual Fund Operating Expenses
(as a percentage of net assets)
Management fee 0.50% 0.50%
12b-1 fee** 0.30% 1.00%
Other expenses*** 0.38% 0.25%
----- -----
Total Fund Operating Expenses 1.18% 1.75%
===== =====
</TABLE>
3
<PAGE>
* No sales charge is payable at the time of purchase on investments in
Class A shares of $1 million or more, but a contingent deferred sales
charge may be imposed on these investments in the event of certain
redemption transactions within one year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average daily net assets, and the remaining portion
will be used to cover distribution expenses.
*** Other expenses include transfer agent, legal, audit, custody and other
expenses.
+Redemption by wire fee (currently $4.00) not included.
The table set forth below shows the pro forma operating expenses of Class
A and Class B shares of Sovereign Bond Fund, which assume that the
Reorganization took place on December 31, 1994, adjusted to reflect current
fees and expenses.
Sovereign Bond Fund (Pro Forma)
<TABLE>
<CAPTION>
Class
A Class B
Shares Shares
----- -------
<S> <C> <C>
Annual Fund Operating Expenses
(as a percentage of net assets)
Management fee 0.50% 0.50%
12b-1 fee* 0.30% 1.00%
Other expenses** 0.37% 0.25%
--- -----
Total Fund Operating Expenses 1.17% 1.75%
--- -----
</TABLE>
* The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average net assets, and the remaining portion will be
used to cover distribution expenses.
** Other expenses include transfer agent, legal, audit, custody and other
expenses.
If the proposed Reorganization is consummated, the actual total operating
expenses of Class A and Class B shares of Sovereign Bond Fund may vary from
the pro forma operating expenses indicated above.
The Funds' Investment Adviser
John Hancock Advisers, Inc. (the "Adviser") acts as investment adviser to
both Funds.
Business of John Hancock Investment Quality Bond Fund
Investment Quality Bond Fund is a diversified series of the Trust, an
open-end management investment company organized as a Massachusetts business
trust in 1984. As of December 31, 1994, Investment Quality Bond Fund's net
assets were approximately $87,906,893.
All investment decisions for Investment Quality Bond Fund are made by Mr.
James Ho, the Fund's portfolio manager. Mr. Ho is also the portfolio manager
of
4
<PAGE>
Sovereign Bond Fund. Mr. Ho will continue to make all investment decisions
for Investment Quality Bond Fund until the Reorganization.
Business of John Hancock Sovereign Bond Fund
Sovereign Bond Fund is a diversified, open-end management investment
company organized as a Massachusetts business trust. Sovereign Bond Fund's
predecessor was organized in 1973. As of December 31, 1994, Sovereign Bond
Fund's net assets were approximately $1,368,027,206.
All investment decisions for Sovereign Bond Fund are made by Mr. James Ho,
the Fund's portfolio manager. Mr. Ho will continue to make all investment
decisions for Sovereign Bond Fund after the Reorganization.
Comparison of the Investment Objectives and Policies of John Hancock
Investment Quality Bond Fund and John Hancock Sovereign Bond Fund
Investment Quality Bond Fund. The investment objective of Investment
Quality Bond Fund is to earn a high level of income, consistent with prudent
risk and safety of principal, primarily through investing in a diversified
portfolio of investment quality fixed income securities. Investment Quality
Bond Fund pursues this objective by normally investing at least 65% of its
total assets in investment quality fixed income securities. Investment
Quality Bond Fund may invest in mortgage-related derivatives, including
collateralized mortgage obligations ("CMOs") and stripped mortgage-backed
securities ("SMBSs"). Investment Quality Bond Fund may also enter into
repurchase agreements and reverse repurchase agreements and may invest in
lower rated securities, foreign securities, and asset-backed securities,
enter into mortgage dollar rolls and engage in hedging transactions in
various derivative instruments.
Sovereign Bond Fund. The investment objective of Sovereign Bond Fund is to
generate a high level of current income, consistent with prudent investment
risk, through investment in a diversified portfolio of freely marketable debt
securities. Under normal market conditions, at least 65% of Sovereign Bond
Fund's total assets will be invested in bonds and/or debentures. In addition,
at least 75% of Sovereign Bond Fund's investments in debt securities (other
than commercial paper) will be represented by (1) securities rated within the
four highest rating categories of Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Ratings Group ("S&P"), (2) U.S. Government securities,
(3) debt securities of banks and (4) debt securities of other issuers which,
although not rated as a matter of policy by either Moody's or S&P, are
considered by the Adviser to have investment quality comparable to securities
receiving ratings within the four highest categories. Sovereign Bond Fund may
also invest in mortgage-related derivatives, including CMOs and SMBSs, and
may lend securities, enter into repurchase agreements and engage in hedging
and nonhedging transactions in various derivative instruments.
Both Funds' investment objectives are designated as fundamental policies
and therefore cannot be changed without shareholder approval.
5
<PAGE>
In considering whether to approve the Reorganization, you should consider
the differences between the two Funds' investment objectives and policies.
For a discussion of the risks associated with an investment in the Funds, see
"Risk Factors and Special Considerations."
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Quality Bond Sovereign Bond Fund
Fund
Investment Objective is to earn a high level Objective is to generate a high
Objective of income, consistent with level of current income, consistent
prudent risk, and safety of with prudent investment risk,
principal, primarily through through investment in a diversified
investing in a diversified portfolio of freely marketable debt
portfolio of investment quality securities.
fixed income securities.
Primary Normally at least 65% of Under normal market conditions, at
Investments Investment Quality Bond Fund's least 65% of Sovereign Bond Fund's
assets in the following assets in bonds and debentures. At
"investment quality" fixed income least 75% of Sovereign Bond Fund's
securities: (1) U.S. dollar debt investments (other than
denominated debt securities of commercial paper) will be (1)
foreign and U.S. issuers rated securities rated within the top 4
within the 3 highest rating rating categories by Moody's or S&P,
categories by Moody's or S&P, (2) (2) unrated debt securities
U.S. Government securities, (3) determined by the Adviser to be of
high quality money market comparable quality, and (3) U.S.
instruments, including short-term Government securities. All debt
U.S. Government securities, investments will be U.S. dollar
investment grade certificates of denominated securities of U.S. and
deposit and bankers' acceptances foreign issuers, subject to a 25%
and commercial paper rated at limit on investments in foreign
least A-1 by S&P or P-1 by securities.
Moody's, and (4) unrated debt
securities determined by the
Adviser to be of comparable
quality.
6
<PAGE>
Other Up to 35% of Investment Quality Up to 25% of Sovereign Bond Fund's
Investments Bond Fund's total assets may be assets may be invested in fixed
held in cash or invested in (1) income securities rated below the
publicly offered fixed income top 4 rating categories or
securities which are rated below determined by the Adviser to be of
"investment quality", (2) comparable below investment grade
non-dollar denominated quality. Sovereign Bond Fund may
"investment quality" foreign invest in illiquid and restricted
fixed income securities, (3) securities, subject to a 15% limit
private placement fixed income on illiquid securities. Sovereign
securities not exceeding 20% of Bond Fund may also lend portfolio
the Fund's assets, (4) taxable securities and enter into repurchase
municipal securities and agreements.
convertible fixed income
securities, in each case rated in
the 4 highest rating categories
applicable to such securities,
and (5) money market instruments
that do not meet the credit
quality standards described
above, not exceeding 5% of the
Fund's assets. Not more than 34%
of Investment Quality Bond Fund's
assets may be invested in
securities rated below the top 4
rating categories. Investment
Quality Bond Fund may invest up
to 10% of its assets in illiquid
securities, and up to 5% of its
assets in restricted securities.
Investment Quality Bond Fund may
lend portfolio securities and
enter into repurchase and reverse
repurchase agreements.
7
<PAGE>
Permitted Mortgage-related derivatives, Futures contracts and options on
Transactions in asset-backed securities, mortgage futures contracts traded on a U.S.
Derivative dollar rolls, forward currency exchange.
Instruments contracts, put and call options
on debt securities, interest rate
futures contracts and options on
such futures.
Diversifi- Investment Quality Bond Fund is Sovereign Bond Fund is diversified
cation and diversified and does not and does not concentrate more than
Industry Concen- concentrate more than 25% of its 25% of its assets in any one
tration assets in any one industry. industry.
</TABLE>
(No Change)
Form of Organization
Investment Quality Bond Fund is one of six separate series of the Trust, a
Massachusetts business trust. Sovereign Bond Fund is a Massachusetts business
trust. Both Funds have authorized and outstanding Class A and Class B shares.
Each share of a Fund represents an equal proportionate interest in the
assets belonging to that Fund. The liabilities attributable to Investment
Quality Bond Fund are not charged against the assets of any other series of
the Trust. Shares of Investment Quality Bond Fund and each other series of
the Trust are voted separately with respect to matters pertaining to the Fund
or any such series, but all shares vote together for the election of the
Trust's Trustees and the ratification of the Trust's independent accountants.
The shares of each class of Investment Quality Bond Fund and Sovereign
Bond Fund represent an interest in the same portfolio of investments of that
Fund. Except as stated below, each class of each Fund has equal rights as to
voting, redemption, dividends and liquidation. Each class bears different
distribution and transfer agent fees, and may bear other expenses properly
attributable to the particular class. Class A and Class B shareholders of
each Fund have exclusive voting rights with regard to the Rule 12b-1
distribution plan covering their class of shares.
Class A shares of each Fund are offered with a front-end sales charge.
They are also subject to a Rule 12b-1 fee. The Rule 12b-1 fee for Class A
shares of Investment Quality Bond Fund is 0.25% of the average daily net
assets attributable to Class A shares, of which up to 0.25% of these average
daily net assets is for service expenses and the remainder is for
distribution expenses. The Rule 12b-1 fee for Class A shares of Sovereign
Bond Fund is 0.30% of the average daily net assets attributable to Class A
shares, of which up to 0.25% of these average daily net assets is for service
expenses and the remainder is for distribution expenses.
Class B shares of each Fund are offered with a contingent deferred sales
charge ("CDSC") payable upon redemption of these shares. They are also
subject to a Rule 12b-1 fee. The Rule 12b-1 fee for Class B shares of both
Funds is 1.00%
8
<PAGE>
of the average daily net assets attributable to Class B shares, of which up
to 0.25% of these average daily net assets is for service expenses and up to
0.75% is for distribution expenses.
As part of the Reorganization, Class A shares of Sovereign Bond Fund will
be issued to Investment Quality Bond Fund and then distributed by it to
Investment Quality Bond Fund's Class A shareholders. Similarly, Class B
shares of Sovereign Bond Fund will be issued to Investment Quality Bond Fund
and then distributed by it to Investment Quality Bond Fund's Class B
shareholders.
Sales Charges and Distribution and Service Fees
Class A Shares. Both Funds impose an initial sales charge on Class A
shares as described above in the table under the caption "The Fund's
Expenses". An initial sales charge does not apply to Class A shares acquired
through the reinvestment of dividends from net investment income or capital
gain distributions.
Class A shares of Sovereign Bond Fund acquired by Investment Quality Bond
Fund's Class A shareholders pursuant to the Reorganization will not be
subject to any initial sales charge or CDSC. However, the CDSC imposed upon
certain redemptions within one year of purchase (referred to above) will
continue to apply to the Class A shares of Sovereign Bond Fund issued in the
Reorganization. The holding period for determining the application of this
CDSC will be calculated from the date the Investment Quality Bond Fund Class
A shares were issued.
Class B Shares. Sovereign Bond Fund and Investment Quality Bond Fund do
not impose an initial sales charge on Class B shares. However, Class B shares
redeemed within six years of purchase will be subject to a CDSC at the rates
set forth below. This CDSC will be assessed on an amount equal to the lesser
of the current market value or the original purchase cost of the Class B
shares being redeemed. Accordingly, Class B shareholders will not be assessed
a CDSC on increases in account value above the initial purchase price,
including shares derived from reinvested dividends. The amount of the CDSC,
if any, will vary depending on the number of years from the time the Class B
shares were purchased until the time they are redeemed, as follows:
<TABLE>
<CAPTION>
The Contingent Deferred Sales
Year in Which Class B Shares Charge as a Percentage of
Redeemed Following Purchase Dollar Amount Subject to CDSC
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
Class B shares of Sovereign Bond Fund acquired by Investment Quality Bond
Fund's Class B shareholders pursuant to the Reorganization will not be
subject
9
<PAGE>
to any CDSC at the time of the Reorganization, but will remain subject to any
CDSC applicable upon redemption of these shares. For purposes of computing
the CDSC payable upon redemption of Class B shares of Sovereign Bond Fund
acquired pursuant to the Reorganization and the schedule for automatic
conversion of Class B shares into Class A shares, the holding period of the
Investment Quality Bond Fund Class B shares will be added to that of the
Sovereign Bond Fund Class B shares acquired in the Reorganization.
Distribution and Service Fees. Both Funds have adopted distribution plans
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). Under these plans, each Fund may pay fees to
John Hancock Funds, Inc. ("John Hancock Funds") to reimburse distribution and
service expenses incurred in connection with Class A shares. These fees are
payable at an annual rate of up to 0.25% and 0.30%, respectively, of the
average daily net assets attributable to the Class A shares of Investment
Quality Bond Fund and Sovereign Bond Fund. Of the fee payable by each Fund,
up to 0.25% of net assets may be for service expenses and the remainder will
be for distribution expenses.
In addition, under the plans, each Fund may pay fees to John Hancock Funds
to reimburse it for distribution and service expenses incurred in connection
with Class B shares. These fees are payable at an annual rate of 1.00% of
each Fund's average daily net assets attributable to its Class B shares. Of
this fee, up to 0.25% of net assets may be for service expenses and up to
0.75% will be for distribution expenses. With respect to Class B shares only,
if John Hancock Funds is not fully reimbursed for payments made or expenses
incurred in any fiscal year, it is entitled to carry forward these expenses
to subsequent fiscal years for submission to the applicable Fund for payment,
subject always to the maximum annual distribution fee for Class B shares
described above.
The Board of Trustees of Sovereign Bond Fund has determined that, if the
Reorganization is consummated, unreimbursed distribution and shareholder
service expenses originally incurred in connection with Investment Quality
Bond Fund's shares will be reimbursable under Sovereign Bond Fund's Rule
12b-1 Plans. As of December 31, 1994, the unreimbursed distribution and
shareholder service expenses for Class A shares of Sovereign Bond Fund and
Investment Quality Bond Fund were $1,073,364 and $0, respectively. The
unreimbursed distribution and shareholder service expenses for Class B shares
of Sovereign Bond Fund and Investment Quality Bond Fund were $1,752,030 and
$264,130, respectively. See "Unreimbursed Distribution and Shareholder
Expenses" below.
Purchases and Exchanges
Shares of Sovereign Bond Fund may be purchased through certain
broker-dealers and through John Hancock Funds at the public offering price,
which is based on the next determined net asset value per share, plus any
applicable sales charge. The minimum initial investment in Sovereign Bond
Fund is $1,000 ($250 for group investments and retirement plans). In
anticipation of the Reorganization,
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after the Record Date, no new accounts may be opened in Investment Quality
Bond Fund. Existing shareholders of Investment Quality Bond Fund may continue
to purchase shares of the Fund after the Record Date.
Shareholders of both Funds may exchange their shares at net asset value
for shares of the same class, if applicable, of certain other funds managed
by the Adviser. Shares of any fund acquired in this manner that are subject
to a CDSC will incur the CDSC, if still applicable, upon redemption. The
exchange privilege is available only in those states where exchanges can be
made legally.
Distribution Procedures
It is the policy of both Funds to pay dividends monthly from net
investment income. Each Fund also distributes annually all of its other
taxable income, including both net realized short-term and long-term capital
gains, if any. Investment Quality Bond Fund will make, immediately prior to
the Closing Date (as defined below), a distribution of all of its net income
and net realized capital gains, if any, not previously distributed.
Reinvestment Options
Unless an election is made to receive cash, the shareholders of both Funds
automatically reinvest all of their respective dividends and capital gain
distributions in additional shares of the same class of the same Fund. These
reinvestments are made at the net asset value per share and are not subject
to any sales charge.
Redemption Procedures
Shares of both Funds may be redeemed on any business day at a price equal
to the net asset value of the shares next determined after receipt of a
redemption request in good order, less any applicable CDSC. Alternatively,
shareholders of both Funds may sell their shares through securities dealers,
who may charge a fee. Redemptions and repurchases of Class B shares and
certain Class A shares of Investment Quality Bond Fund and Sovereign Bond
Fund are subject to the applicable CDSC, if any. Class A and Class B shares
of Investment Quality Bond Fund may be redeemed up to and including the
Closing Date (as defined below).
Reorganization
Effect of the Reorganization. Pursuant to the terms of the Agreement, the
proposed Reorganization will consist of the acquisition by Sovereign Bond
Fund of all the assets of Investment Quality Bond Fund in exchange solely for
(i) the assumption by Sovereign Bond Fund of all the liabilities of
Investment Quality Bond Fund and (ii) the issuance of Sovereign Bond Fund
shares equal to the value of these assets, less the amount of these
liabilities (the "Sovereign Bond Fund Shares"), to Investment Quality Bond
Fund. As part of the liquidation process, Investment Quality Bond Fund will
immediately distribute to its shareholders these Sovereign Bond Fund Shares
in exchange for their shares of Investment Quality Bond Fund. Consequently,
Class A shareholders of Investment Quality Bond Fund will become Class A
shareholders of Sovereign Bond Fund and Class
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B shareholders of Investment Quality Bond Fund will become Class B
shareholders of Sovereign Bond Fund. After completion of the Reorganization,
the existence of Investment Quality Bond Fund will be terminated.
The Reorganization will become effective as of 5:00 p.m. on the closing
date, scheduled for September 15, 1995, or another date on or before December
31, 1995 as authorized representatives of the Funds may agree (the "Closing
Date"). The Sovereign Bond Fund Class A Shares issued to Investment Quality
Bond Fund for distribution to Investment Quality Bond Fund's Class A
shareholders will have an aggregate net asset value equal to the aggregate
net asset value of Investment Quality Bond Fund's Class A shares. Similarly,
the Sovereign Bond Fund Class B Shares issued to Investment Quality Bond Fund
for distribution to Investment Quality Bond Fund's Class B shareholders will
have an aggregate net asset value equal to the aggregate net asset value of
Investment Quality Bond Fund's Class B shares. For purposes of the
Reorganization, the Funds' respective asset values will be determined as of
the close of business (4:00 p.m. Eastern Time) on the Closing Date.
The Trust's Board of Trustees, including the Trustees not affiliated with
either Fund, unanimously approved the Reorganization, and determined that it
is in the best interests of Investment Quality Bond Fund and that the
interests of Investment Quality Bond Fund's shareholders will not be
materially diluted as a result of the Reorganization. Similarly, Sovereign
Bond Fund's Board of Trustees, including the Trustees not affiliated with
either Fund, unanimously approved the Reorganization, and determined that it
is in the best interests of Sovereign Bond Fund and that the interests of
Sovereign Bond Fund's shareholders will not be materially diluted as a result
of the Reorganization. For a discussion of the factors considered by the
Trust's Board of Trustees, see "Proposal to Approve the Agreement and Plan of
Reorganization--Reasons for the Proposed Reorganization."
Tax Considerations
The consummation of the Reorganization is subject to the receipt of an
opinion of Hale and Dorr, counsel to the Funds, satisfactory to the Trust and
Sovereign Bond Fund and substantially to the effect that:
(a) the acquisition by Sovereign Bond Fund of all of Investment Quality
Bond Fund's assets solely in exchange for the issuance of Sovereign Bond Fund
Shares to Investment Quality Bond Fund and the assumption of all of
Investment Quality Bond Fund's liabilities by Sovereign Bond Fund, followed
by the distribution by Investment Quality Bond Fund, in liquidation of
Investment Quality Bond Fund, of Sovereign Bond Fund Shares to the
shareholders of Investment Quality Bond Fund in exchange for their shares of
beneficial interest of Investment Quality Bond Fund and the termination of
Investment Quality Bond Fund, will constitute a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and Investment Quality Bond Fund and Sovereign Bond Fund will
each be "a party to a reorganization" within the meaning of Section 368(b) of
the Code;
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(b) no gain or loss will be recognized by Investment Quality Bond Fund
upon (i) the transfer of all of its assets to Sovereign Bond Fund (in the
exchange described above) and (ii) the distribution by Investment Quality
Bond Fund of Sovereign Bond Fund Shares to Investment Quality Bond Fund's
shareholders;
(c) no gain or loss will be recognized by Sovereign Bond Fund upon the
receipt of Investment Quality Bond Fund's assets in the exchange described
above;
(d) the basis of the assets of Investment Quality Bond Fund acquired by
Sovereign Bond Fund will be, in each instance, the same as the basis of those
assets in the hands of Investment Quality Bond Fund immediately prior to the
transfer;
(e) the tax holding period of the assets of Investment Quality Bond Fund
in the hands of Sovereign Bond Fund will, in each instance, include
Investment Quality Bond Fund's tax holding period for those assets;
(f) the shareholders of Investment Quality Bond Fund will not recognize
gain or loss upon the exchange of all of their Investment Quality Bond Fund
shares for Sovereign Bond Fund Shares as part of the Reorganization;
(g) the basis of the Sovereign Bond Fund Shares received by Investment
Quality Bond Fund shareholders in the Reorganization will be the same as the
basis of the Investment Quality Bond Fund shares surrendered in exchange
therefor; and
(h) the tax holding period of the Sovereign Bond Fund Shares received by
Investment Quality Bond Fund shareholders will include, for each shareholder,
the tax holding period for the Investment Quality Bond Fund shares
surrendered in exchange therefor, provided the Investment Quality Bond Fund
shares were held as capital assets on the date of the exchange.
The Meeting
Time, Place and Date. The Meeting will be held on Friday, September 8,
1995, at 101 Huntington Avenue, Boston, Massachusetts 02199, at 9:00 a.m.
Boston time.
Record Date. The Record Date for determining shareholders entitled to
notice of and to vote at the Meeting is July 14, 1995.
Vote Required for Approval. Approval of the Agreement by the shareholders
of Investment Quality Bond Fund requires the affirmative vote of a majority
of the shares of Investment Quality Bond Fund represented in person or by
proxy and entitled to vote at a meeting of shareholders at which a quorum is
present. The Reorganization does not require the approval of Sovereign Bond
Fund's shareholders. See "Proposal to Approve the Agreement and Plan of
Reorganization--Voting Rights and Required Vote."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Please see the Sovereign Bond Fund Prospectus and the Investment Quality
Bond Fund Prospectus for a more complete description of each Fund's
investment objectives and policies, as well as their risk factors.
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In deciding whether to approve the Reorganization, you should consider the
similarities and differences between the investment objectives and policies
and risk factors of the Funds.
Given the similarity of their investment objectives and policies, the
Funds are subject to substantially identical investment risks. The value of
the securities held by both Funds, and therefore both Funds' per share net
asset values, will fluctuate with interest rate changes. Generally, a rise in
interest rates will result in a decrease in the Funds' net asset values,
while a decline will result in an increase in the Funds' net asset values.
INFORMATION CONCERNING THE MEETING
Solicitation, Revocation and Use of Proxies
The presence (in person or by proxy) of a majority of Investment Quality
Bond Fund's outstanding shares that are entitled to vote at the Meeting will
be a quorum for the transaction of business. An Investment Quality Bond Fund
shareholder executing and returning a proxy has the power to revoke it at any
time before it is exercised, by filing a written notice of revocation with
Investment Quality Bond Fund's transfer agent, John Hancock Investor Services
Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116, or by returning
a duly executed proxy with a later date before the time of the Meeting. Any
shareholder who has executed a proxy but is present at the Meeting and wishes
to vote in person may revoke his or her proxy by notifying the Secretary of
the Trust (without complying with any formalities) at any time before it is
voted. Presence at the Meeting alone will not serve to revoke a previously
executed and returned proxy.
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 with respect to the
Proposal. Any adjournment will require the affirmative vote of a majority of
the shares of Investment Quality Bond Fund represented in person or by proxy
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
Reorganization, even though a quorum is present at the Meeting, the persons
named as proxies will vote those proxies in favor of the Reorganization in
favor of adjournment, and will vote those proxies against the Reorganization
against adjournment.
In addition to the solicitation of proxies by mail or in person, the Trust
may also arrange to have votes recorded by telephone by officers and
employees of the Trust or by personnel of the Adviser or Investor Services.
The telephone voting procedure is designed to authenticate a shareholder's
identity, to allow a shareholder to authorize the voting of shares in
accordance with the shareholder's
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instructions and to confirm that the voting instructions have been properly
recorded. If these procedures were subject to a successful legal challenge,
such votes would not be counted at the Meeting. The Trust has not sought to
obtain an opinion of counsel on this matter and is unaware of any such
challenge at this time. A shareholder would be called on a recorded line at
the telephone number the Trust has in its records for the account and would
be asked the shareholder's Social Security number or other identifying
information. The shareholder would then be given an opportunity to authorize
proxies to vote his shares at the Meeting in accordance with the
shareholder's instructions. To ensure that the shareholder's instructions
have been recorded correctly, the shareholder will also receive a
confirmation of the voting instructions in the mail. A special toll-free
number will be available in case the voting information contained in the
confirmation is incorrect. 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.
Record Date and Outstanding Shares
Only Investment Quality Bond Fund shareholders of record at the close of
business on July 14, 1995 (the "Record Date") are entitled to notice of and
to vote at the Meeting and any adjournment of the Meeting. At the close of
business on June 30, 1995, 9,792,224.5590 Class A and 274,668.875 Class B
shares of beneficial interest of Investment Quality Bond Fund were
outstanding. As of June 30, 1995, 95,330,157.236 Class A and 4,026,143.395
Class B shares of beneficial interest of Sovereign Bond Fund were
outstanding.
Security Ownership of Certain Beneficial Owners and Management of
Investment Quality Bond Fund and Sovereign Bond Fund
To the knowledge of the Trust, as of June 30, 1995, no person owned of
record or beneficially 5% or more of the outstanding Class A shares of
beneficial interest of Investment Quality Bond Fund and only Merrill Lynch
Pierce Fenner & Smith Inc., Jacksonville, FL (17.08%) owned of record or
beneficially 5% or more of the outstanding Class B shares of beneficial
interest of Investment Quality Bond Fund. On the basis of their present
holdings, Merrill Lynch Pierce Fenner & Smith Inc. will own approximately
3.58% of Sovereign Bond Fund's outstanding Class B shares immediately after
the Reorganization (if the Reorganization is consummated). To the knowledge
of Sovereign Bond Fund, as of June 30, 1995, no person owned of record or
beneficially 5% or more of its outstanding Class A or Class B shares of
beneficial interest.
As of June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding Class A and Class B
shares of beneficial interest of Investment Quality Bond Fund. As of June 30,
1995, the Trustees and officers of Sovereign Bond Fund, as a group, owned in
the aggregate less than 1% of the outstanding Class A and Class B shares of
beneficial interest of Sovereign Bond Fund.
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<PAGE>
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
General
The shareholders of Investment Quality Bond Fund are being asked to
approve the Agreement, a copy which is attached as Exhibit A. The
Reorganization will consist of: (A) the transfer of all of Investment Quality
Bond Fund's assets to Sovereign Bond Fund, in exchange solely for the
issuance of Sovereign Bond Fund Shares to Investment Quality Bond Fund and
the assumption of Investment Quality Bond Fund's liabilities by Sovereign
Bond Fund, (B) the subsequent distribution by Investment Quality Bond Fund,
as part of its liquidation, of the Sovereign Bond Fund Shares to Investment
Quality Bond Fund's shareholders and (C) the termination of Investment
Quality Bond Fund's existence. The Sovereign Bond Fund Class A Shares issued
upon the consummation of the Reorganization will have an aggregate net asset
value equal to the aggregate value of the assets attributable to Investment
Quality Bond Fund's Class A shares, less liabilities attributable to
Investment Quality Bond Fund's Class A shares. Similarly, the Sovereign Bond
Fund Class B Shares issued upon consummation of the Reorganization will have
an aggregate net asset value equal to the aggregate value of the assets
attributable to Investment Quality Bond Fund's Class B shares, less the
liabilities attributable to Investment Quality Bond Fund's Class B shares. As
noted above, the asset values of Investment Quality Bond Fund and Sovereign
Bond Fund will be determined at the close of business (4:00 p.m. Eastern
Time) on the Closing Date for purposes of the Reorganization. See
"Description of Agreement" below.
Pursuant to the Agreement, Investment Quality Bond Fund will liquidate and
distribute the Sovereign Bond Fund Shares received, as described above, pro
rata to the shareholders of record of each class determined as of the close
of regular trading on the New York Stock Exchange on the Closing Date. The
result of the transfer of assets will be that Sovereign Bond Fund will add to
its portfolio the net assets of Investment Quality Bond Fund. Class A
shareholders of Investment Quality Bond Fund will become Class A shareholders
of Sovereign Bond Fund, and Class B shareholders of Investment Quality Bond
Fund will become Class B shareholders of Sovereign Bond Fund.
The Agreement and the Reorganization were unanimously approved by the
Trust's Board of Trustees on behalf of Investment Quality Bond Fund at a
meeting held on May 16, 1995. The Agreement and the Reorganization were
unanimously approved by the Board of Trustees of Sovereign Bond Fund at a
meeting held on May 1, 1995.
Reasons for the Proposed Reorganization
The Trust's Board of Trustees believes that the proposed Reorganization
will be advantageous to the shareholders of Investment Quality Bond Fund in
several respects. The Board of Trustees considered the following matters,
among others, in approving the Proposal.
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First, the Board of Trustees believes that it is not advantageous to
operate and market Investment Quality Bond Fund separately from Sovereign
Bond Fund because their investment objectives and policies are substantially
identical. For a complete description of Sovereign Bond Fund's investment
objectives and policies, see the Sovereign Bond Fund Prospectus attached as
Exhibit B.
Second, the Board of Trustees considered the fact that Investment Quality
Bond Fund is substantially smaller than Sovereign Bond Fund. The Board of
Trustees determined that the existence of a larger competing fund within the
same fund complex and with substantially identical investment characteristics
is likely to impede the marketing and asset growth of Investment Quality Bond
Fund.
Third, the Board of Trustees considered that shareholders may be better
served by a fund offering greater diversification. To the extent that the
Funds' assets are combined into a single portfolio and a larger asset base is
created as a result of the Reorganization, greater diversification of
Sovereign Bond Fund's investment portfolio can be achieved than is currently
possible in either Fund. Greater diversification is expected to be beneficial
to shareholders of both Funds, because it may reduce the negative effect
which the adverse performance of any one security may have on the performance
of the entire portfolio.
Fourth, the Board of Trustees believes that the Sovereign Bond Fund Shares
received in the Reorganization will provide existing Investment Quality Bond
Fund shareholders with substantially the same investment advantages that they
currently enjoy at a comparable level of risk. The Board of Trustees also
considered the performance history of each Fund.
Fifth, a combined fund offers economies of scale that should have a
positive effect on the expenses currently borne by Investment Quality Bond
Fund and hence, indirectly, its shareholders. Both Funds incur substantial
costs for accounting, legal, transfer agency services, insurance, and
custodial and administrative services. The Board of Trustees expects that the
Reorganization will result in a decrease in the expenses currently borne by
Investment Quality Bond Fund's shareholders. See expense information in
"Summary--the Funds' Expenses."
In determining that the Reorganization is in the best interests of
Investment Quality Bond Fund and the interests of its shareholders, the Board
of Trustees considered the fact that the Adviser will receive certain
benefits from the Reorganization. The Reorganization will result in a
consolidated portfolio management effort and may result in time savings to
the Adviser by reducing the number of reports and regulatory filings that it
needs to prepare.
Capital Loss Carryovers
As of December 31, 1994, Investment Quality Bond Fund had capital loss
carryovers, as determined for federal income tax purposes, in the aggregate
amount of approximately $17,734,441, of which $3,512,860 expires on December
31, 1996, $1,409,609 expires on December 31, 1997, $1,909,995 expires on
17
<PAGE>
December 31, 1998, $755,945 expires on December 31, 2000, and $10,146,032
expires on December 31, 2002. If the Reorganization does not occur,
Investment Quality Bond Fund may use these capital loss carryovers to offset
any net capital gain, which would reduce the amount of net capital gain
Investment Quality Bond Fund would be required to distribute to its
shareholders in order to avoid fund-level income and/or excise taxes on
undistributed capital gain.
If the Reorganization is consummated, Sovereign Bond Fund will succeed to
and take into account Investment Quality Bond Fund's capital loss carryovers
and will be able to use such carryovers, along with any carryovers it may
have, to offset any net capital gain, subject to certain limitations under
the Code that may be applicable because of the Reorganization and certain
other changes in the past or future share ownership of Sovereign Bond Fund.
These limitations could result in the expiration of all or portions of such
carryovers before they are fully used. However, Investment Quality Bond Fund
did not, as of December 31, 1994, have net unrealized gains that, when
realized, its capital loss carryovers could be used to offset, and
accordingly all or substantial portions of Investment Quality Bond Fund's
capital loss carryovers may also expire unused if the Reorganization is not
consummated.
Unreimbursed Distribution and Shareholder Service Expenses
The Board of Trustees has determined that, if the Reorganization is
consummated, distribution and shareholder service expenses incurred in
connection with shares of Investment Quality Bond Fund, and not reimbursed
under Investment Quality Bond Fund's Rule 12b-1 Plans or through CDSCs, will
be reimbursable expenses under Sovereign Bond Fund's Rule 12b-1 Plans (the
"assumption"). However, the maximum aggregate amounts payable during any
fiscal year under Sovereign Bond Fund's Rule 12b-1 Plans (0.30% of average
daily net assets attributable to Class A shares and 1.00% of average daily
net assets attributable to Class B shares) will not be affected by the
assumption.
With respect to Sovereign Bond Fund's Class A and Class B shares, the
percentage of net assets on a pro forma combined basis that the unreimbursed
expenses represent will decrease as a result of the Reorganization and the
assumption. As of December 31, 1994, the unreimbursed distribution and
shareholder service expenses of Sovereign Bond Fund attributable to Class A
and Class B shares were $1,073,364 (.081% of Sovereign Bond Fund's net assets
attributable to Class A shares) and $1,752,030 (4.348% of Sovereign Bond
Fund's net assets attributable to Class B shares), respectively. As of the
same date, the unreimbursed distribution and shareholder service expenses of
Investment Quality Bond Fund attributable to Class A and Class B shares were
$0 attributable to Class A shares and $264,130 (3.833% of Investment Quality
Bond Fund's net assets attributable to Class B shares), respectively.
After the Reorganization, on a pro forma combined basis, the unreimbursed
distribution and shareholder service expenses of Sovereign Bond Fund
attributable
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<PAGE>
to Class A and Class B shares will be $1,073,364 (.076% of Sovereign Bond
Fund's pro forma net assets attributable to Class A shares) and $2,016,160
(4.273% of Sovereign Bond Fund's pro forma net assets attributable to Class B
shares), respectively.
The assumption will have no immediate effect upon the payments made under
Sovereign Bond Fund's Rule 12b-1 Plans. While John Hancock Funds hopes to
recover unreimbursed distribution and shareholder service expenses over an
extended period of time, Sovereign Bond Fund is not obligated to assure that
these amounts are recouped by John Hancock Funds.
Unreimbursed distribution and shareholder service expenses do not
currently appear as an expense or liability in the financial statements of
either Fund, nor will they appear in the financial statements of Sovereign
Bond Fund after the Reorganization until paid or accrued. Even in the event
of termination or noncontinuance of Sovereign Bond Fund's Rule 12b-1 Plans,
Sovereign Bond Fund is not legally committed, and is not required to commit,
to the payment of any unreimbursed distribution and shareholder service
expenses. For this reason, unreimbursed expenses do not enter into the
calculation of 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.
Board's Evaluation and Recommendation
On the basis of the factors described above and other factors, the Trust's
Board of Trustees, including a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act) of the Funds,
determined that the Reorganization is in the best interests of Investment
Quality Bond Fund and that the interests of Investment Quality Bond Fund's
shareholders will not be materially diluted as a result of the
Reorganization. On the same basis, the Board of Trustees of Sovereign Bond
Fund, including a majority of the Trustees who are not "interested persons"
(as defined in the Investment Company Act) of the Funds, determined that the
Reorganization is in the best interests of Sovereign Bond Fund and that the
interests of Sovereign Bond Fund's shareholders will not be materially
diluted as a result of the Reorganization.
THE TRUSTEES OF INVESTMENT QUALITY BOND FUND RECOMMEND THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
Description of Agreement
The following description of the Agreement is a summary, does not purport
to be complete, and is subject in all respects to the provisions of the
Agreement, and is qualified in its entirety by reference to the Agreement. A
copy of the Agreement is attached to this Proxy Statement and Prospectus as
Exhibit A and should be read in its entirety. Paragraph references are to
appropriate provisions of the Agreement.
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Method of Carrying Out Reorganization. If Investment Quality Bond Fund
shareholders approve the Agreement, the Reorganization will be consummated
promptly after the various conditions to the obligations of each of the
parties are satisfied (see Agreement, paragraphs 6 through 8). The
Reorganization will be completed on the Closing Date (as defined above).
On the Closing Date, Investment Quality Bond Fund will transfer all of its
assets to Sovereign Bond Fund in exchange for Sovereign Bond Fund Shares with
an aggregate net asset value equal to the value of the assets delivered, less
the liabilities of Investment Quality Bond Fund assumed, as of the close of
business on the Closing Date (see Agreement, paragraphs 1 and 2).
The value of Investment Quality Bond Fund's assets and Sovereign Bond
Fund's net asset values per Class A share and per Class B share will be
determined according to the valuation procedures set forth in Sovereign Bond
Fund's Declaration of Trust, By-laws and Prospectus (see "Share Price" in the
Sovereign Bond Fund Prospectus). No initial sales charge or CDSC will be
imposed upon delivery of the Sovereign Bond Fund Shares in exchange for the
assets of Investment Quality Bond Fund.
Surrender of Share Certificates. Investment Quality Bond Fund shareholders
whose Class A or Class B shares are represented by one or more share
certificates should, prior to the Closing Date, either surrender their
certificates to Investment Quality Bond Fund or deliver to Investment Quality
Bond Fund an affidavit with respect to lost certificates, in such form and
accompanied by such surety bonds as Investment Quality Bond Fund may require
(collectively, an "Affidavit"). On the Closing Date, all certificates which
have not been surrendered will be deemed to be cancelled, will no longer
evidence ownership of Investment Quality Bond Fund's shares and will evidence
ownership of Sovereign Bond Fund Shares. Shareholders may not redeem or
transfer Sovereign Bond Fund Shares received in the Reorganization until they
have surrendered their Investment Quality Bond Fund share certificates or
delivered an Affidavit relating to them. Unless a shareholder specifically
requests a share certificate, Sovereign Bond Fund will not issue share
certificates in the Reorganization.
Conditions Precedent to Closing. The obligation of Investment Quality Bond
Fund to consummate the Reorganization is subject to the satisfaction of
certain conditions precedent, including the performance by Sovereign Bond
Fund of all acts and undertakings required under the Agreement and the
receipt of all consents, orders and permits necessary to consummate the
Reorganization (see Agreement, paragraphs 6 through 8).
The obligation of Sovereign Bond Fund to consummate the Reorganization is
subject to the satisfaction of certain conditions precedent, including the
performance by the Trust and Investment Quality Bond Fund of all acts and
undertakings to be performed under the Agreement, the receipt of certain
documents and finan-
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cial statements from Investment Quality Bond Fund and the receipt of all
consents, orders and permits necessary to consummate the Reorganization (see
Agreement, paragraphs 6 through 8).
The obligations of both parties are subject to the receipt of approval and
authorization of the Agreement by the vote of not less than a majority of the
shares of beneficial interest of Investment Quality Bond Fund represented in
person or by proxy and entitled to vote at a meeting at which a quorum is
present (as described in the section captioned "Voting Rights and Required
Vote"), and the receipt of a favorable opinion of Hale and Dorr as to the
federal income tax consequences of the Reorganization (see Agreement,
paragraph 8.6).
Termination of Agreement. The Agreement may be terminated, whether or not
approval of Investment Quality Bond Fund's shareholders has been obtained, by
mutual agreement of the parties. In addition, either party may terminate its
obligations under the Agreement at or prior to the Closing Date, because of a
material breach by the other party of any representations, warranties or
agreements contained in the Agreement, or if a condition precedent in the
Agreement has not been met.
Expenses of the Reorganization. Sovereign Bond Fund and Investment Quality
Bond 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 is consummated.
Tax Considerations
The consummation of the Reorganization is subject to the receipt of a
favorable opinion of Hale and Dorr, counsel to the Funds, satisfactory to the
Trust and Sovereign Bond Fund and substantially to the effect that:
(i) The acquisition by Sovereign Bond Fund of all of the assets of
Investment Quality Bond Fund solely in exchange for the issuance of
Sovereign Bond Fund Shares to Investment Quality Bond Fund and the
assumption of all of Investment Quality Bond Fund's liabilities by
Sovereign Bond Fund, followed by the distribution by Investment Quality
Bond Fund, in liquidation of Investment Quality Bond Fund, of Sovereign
Bond Fund Shares to the shareholders of Investment Quality Bond Fund in
exchange for their shares of beneficial interest of Investment Quality
Bond Fund and the termination of Investment Quality Bond Fund, will
constitute a "reorganization" within the meaning of Section 368(a) of the
Code, and Investment Quality Bond Fund and Sovereign Bond Fund will each
be "a party to a reorganization" within the meaning of Section 368(b) of
the Code;
(ii) no gain or loss will be recognized by Investment Quality Bond Fund
upon (a) the transfer of all of its assets to Sovereign Bond Fund solely
in exchange for the issuance of Sovereign Bond Fund Shares to Investment
Quality Bond Fund, and the assumption of all of Investment Quality Bond
Fund's liabilities by Sovereign Bond Fund; and (b) the distribution by
Invest-
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ment Quality Bond Fund of these Sovereign Bond Fund Shares to the
shareholders of Investment Quality Bond Fund;
(iii) no gain or loss will be recognized by Sovereign Bond Fund upon the
receipt of Investment Quality Bond Fund's assets solely in exchange for
the issuance of Sovereign Bond Fund Shares to Investment Quality Bond Fund
and the assumption of all of Investment Quality Bond Fund's liabilities by
Sovereign Bond Fund;
(iv) the basis of the assets of Investment Quality Bond Fund acquired by
Sovereign Bond Fund will be, in each instance, the same as the basis of
those assets in the hands of Investment Quality Bond Fund immediately
prior to the transfer;
(v) the tax holding period of the assets of Investment Quality Bond Fund
in the hands of Sovereign Bond Fund will, in each instance, include
Investment Quality Bond Fund's tax holding period for those assets;
(vi) the shareholders of Investment Quality Bond Fund will not recognize
gain or loss upon the exchange of all their Investment Quality Bond Fund
shares solely for Sovereign Bond Fund Shares as part of the
Reorganization;
(vii) the basis of the Sovereign Bond Fund Shares received by the
Investment Quality Bond Fund shareholders in the Reorganization will be
the same as the basis of the Investment Quality Bond Fund shares
surrendered in exchange therefor; and
(viii) the tax holding period of the Sovereign Bond Fund Shares received
by the Investment Quality Bond Fund shareholders will include, for each
shareholder, the tax holding period for the Investment Quality Bond Fund
shares surrendered therefor in exchange, provided the Investment Quality
Bond Fund shares were held as capital assets on the date of the exchange.
Voting Rights and Required Vote
Each Investment Quality Bond Fund share is entitled to one vote. Class A
and Class B shareholders of Investment Quality Bond Fund vote together with
respect to the Proposal. Approval of the Proposal requires the affirmative
vote of a majority of the shares of Investment Quality Bond Fund represented
in person or by proxy and entitled to vote at a meeting of shareholders at
which a quorum is present.
Shares of beneficial interest of Investment Quality Bond 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
a quorum is present 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 as
22
<PAGE>
present and entitled to vote with respect to the Proposal. Accordingly, a
"broker non-vote" has no effect on the voting in determining whether the
Proposal has been adopted, provided that the holders of that number of shares
constituting a quorum (excluding the "broker non-votes") are present or
represented.
If the requisite approval of shareholders is not obtained, Investment
Quality Bond Fund will continue to engage in business as a series of a
registered open-end, management investment company and the Trust's Board of
Trustees will consider what further action may be appropriate.
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of
December 31, 1994, and the pro forma combined capitalization of both Funds as
if the Reorganization had occurred on that date. The table reflects pro forma
exchange ratios of approximately 0.57933 Class A Sovereign Bond Fund Shares
being issued for each Class A share of Investment Quality Bond Fund and
approximately 0.57939 Class B Sovereign Bond Fund Shares being issued for
each Class B share of Investment Quality Bond Fund. If the Reorganization is
consummated, the actual exchange ratios on the Closing Date may vary from the
exchange ratios indicated due to changes in the market value of the portfolio
securities of both Sovereign Bond Fund and Investment Quality Bond Fund
between December 31, 1994 and the Closing Date, changes in the amount of
undistributed net investment income and net realized capital gains of
Sovereign Bond Fund and Investment Quality Bond Fund during that period
resulting from income and distributions, and changes in the accrued
liabilities of Sovereign Bond Fund and Investment Quality Bond Fund during
the same period.
DECEMBER 31, 1994
<TABLE>
<CAPTION>
Investment
Quality Sovereign
Bond Bond Pro Forma
Fund Fund Combined
---------- ------------ ----------------
<S> <C> <C> <C>
Net Assets $87,906,893 $1,366,356,991* $1,454,263,884
Net Asset Value Per
Share:
Class A $8.05 $13.90 $13.90
Class B $8.05 $13.90 $13.90
Shares Outstanding:
Class A 10,060,420 95,399,448 101,227,726(1)
Class B 855,477 2,898,886 3,394,540(1)
</TABLE>
(1) If the Reorganization had taken place on December 31, 1994, Investment
Quality Bond Fund would have received 5,828,278 Class A shares and
495,654 Class B shares of Sovereign Bond Fund which would have been
available for distribution to shareholders of the applicable class of
Investment Quality Bond Fund. No assurance can be given as to the number
of Class A
23
<PAGE>
Shares or Class B shares of Sovereign Bond Fund that will be received by
Investment Quality Bond Fund on the Closing Date. The foregoing is merely
an example of what Investment Quality Bond Fund would have received and
distributed had the Reorganization been consummated on December 31, 1994
and should not be relied upon to reflect the amount that will actually be
received on the Closing Date.
* Excludes net assets of Class C shares of Sovereign Bond Fund, which were
outstanding on December 31, 1994.
COMPARATIVE PERFORMANCE INFORMATION
Total Return
The average annual total return at public offering price on Investment
Quality Bond Fund's Class A shares for the one-year, five-year and ten-year
periods ended December 31, 1994 was (10.21)%, 5.72% and 8.18%, respectively.
The average annual total return on Investment Quality Bond Fund's Class B
shares for the one-year period ended December 31, 1994 was (11.40)%. The
average annual total return on Investment Quality Bond Fund's Class B shares
for the period from June 30, 1993 (commencement of operations) through
December 31, 1994 was (5.47)%. Total returns on Class B shares reflect the
applicable contingent sales charge.
The average annual total return at public offering price on Sovereign Bond
Fund's Class A shares for the one-year, five-year and ten-year periods ended
December 31, 1994 was (7.12)%, 6.90% and 9.28%, respectively. The average
annual total return on Sovereign Bond Fund's Class B shares for the one-year
period ended December 31, 1994 was (7.97)%. The average annual total return
on Sovereign Bond Fund's Class B shares for the period from November 23, 1993
(commencement of operations) through December 31, 1994 was (8.12)%. Total
returns on Class B shares reflect the applicable contingent deferred sales
charge.
The average annual total return of each class of the Funds is determined
by multiplying a hypothetical initial investment of $1,000 in a class by the
average annual compound rate of return (including capital
appreciation/depreciation, and dividends and distributions paid and
reinvested) attributable to that class for the stated period and annualizing
the result.
The table below indicates the total return (capital changes plus
reinvestment of all dividends and distributions) on a hypothetical investment
of $1,000 in each class of each Fund covering the indicated periods ending
December 31, 1994. The data below represent historical performance which
should not be considered indicative of future performance of either Fund.
Each Fund's performance and net asset value will fluctuate such that shares,
when redeemed, may be worth more or less than their original cost.
24
<PAGE>
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK INVESTMENT QUALITY BOND FUND
(UNAUDITED)
<TABLE>
<CAPTION>
Value of
Investment on Total Return Total Return
Dec. 31, 1994 Including Sales Charge Excluding Sales Charge
Investment Amount of Including ------------------------ -------------------------
Investment Period Date Investment Sales Charge Cumulative Annualized Cumulative Annualized
----------------- ---------- ----------- ------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Shares:
10 years ended
December 31,
1994 12/31/84 $1,000 $2,194 119.43% 8.18% 130.49% 8.71%
5 years ended
December 31,
1994 12/31/89 $1,000 $1,321 32.08% 5.72% 38.72% 6.76%
1 year ended
December 31,
1994 12/31/93 $1,000 $ 898 (10.21)% (10.21)% (5.73)% (5.73)%
Class B Shares:
From Inception
(June 30, 1993)
to December 31,
1994 6/30/93 $1,000 $ 919 (8.10)% (5.47)% (4.10)% (2.75)%
1 year ended
December 31,
1994 12/31/93 $1,000 $ 886 (11.40)% (11.40)% (6.40)% (6.40)%
</TABLE>
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK SOVEREIGN BOND FUND
(UNAUDITED)
<TABLE>
<CAPTION>
Value of
Investment on Total Return Total Return
Dec. 31, 1994 Including Sales Charge Excluding Sales Charge
Investment Amount of Including ------------------------ -------------------------
Investment Period Date Investment Sales Charge Cumulative Annualized Cumulative Annualized
----------------- ---------- ----------- ------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Shares:
10 years ended
December 31,
1994 12/31/84 $1,000 $2,429 142.85% 9.28% 154.35% 9.79%
5 years ended
December 31,
1994 12/31/89 $1,000 $1,396 39.59% 6.90% 46.21% 7.89%
1 year ended
December 31,
1994 12/31/93 $1,000 $ 929 (7.12)% (7.12)% (2.75)% (2.75)%
Class B Shares:
From Inception
(November 23,
1993) to
December 31,
1994 11/23/93 $1,000 $ 911 (8.90)% (8.12)% (5.12)% (4.65)%
1 year ended
December 31,
1994 12/31/93 $1,000 $ 920 (7.97)% (7.97)% (3.13)% (3.13)%
</TABLE>
25
<PAGE>
BUSINESS OF SOVEREIGN BOND FUND
General
For a discussion of the organization and operation of Sovereign Bond Fund,
see "Investment Objectives and Policies" and "Organization and Management of
the Fund" in the Sovereign Bond Fund Prospectus.
Investment Objective and Policies
For a discussion of Sovereign Bond Fund's investment objectives and
policies, see "Investment Objectives and Policies" in the Sovereign Bond Fund
Prospectus.
Portfolio Management
Day-to-day management of Sovereign Bond Fund is carried out by James Ho
with the assistance of a co-manager and a team of credit analysts. Mr. Ho is
a Senior Vice President of the Adviser and directs all taxable fixed-income
investment management for the Adviser. Mr. Ho has been associated with the
Adviser since 1985. He will continue to act as portfolio manager of Sovereign
Bond Fund after the Reorganization.
Trustees
For a discussion of the responsibilities of Sovereign Bond Fund's Board of
Trustees, see "Organization and Management of the Fund" in the Sovereign Bond
Fund Prospectus.
Investment Adviser and Distributor
For a discussion regarding Sovereign Bond Fund's investment adviser and
distributor, see "Organization and Management of the Fund," "How to Buy
Shares" and "Share Price" in the Sovereign Bond Fund Prospectus.
Expenses
For a discussion of Sovereign Bond Fund's expenses, see "Expense
Information" and "The Fund's Expenses" in the Sovereign Bond Fund Prospectus.
Custodian and Transfer Agent
Sovereign Bond Fund's custodian is Investors Bank & Trust Company.
Sovereign Bond Fund's transfer agent is John Hancock Investor Services
Corporation.
Sovereign Bond Fund Shares
For a discussion of the Sovereign Bond Fund Shares, see "Organization and
Management of the Fund" in the Sovereign Bond Fund Prospectus.
Purchase of Sovereign Bond Fund Shares
For a discussion of how Class A and Class B shares of Sovereign Bond Fund
may be purchased or exchanged, see "How to Buy Shares," "Alternative Purchase
Arrangements" and "Additional Services and Programs" in the Sovereign Bond
Fund Prospectus.
26
<PAGE>
Redemption of Sovereign Bond Fund Shares
For a discussion of how Class A and Class B shares of Sovereign Bond Fund
may be redeemed, see "How to Redeem Shares" in the Sovereign Bond Fund
Prospectus. Former shareholders of Investment Quality Bond Fund whose shares
are represented by share certificates will be required to surrender their
certificates for cancellation or deliver an affidavit of loss accompanied by
an adequate surety bond to Investor Services in order to redeem Sovereign
Bond Fund Shares received in the Reorganization.
Dividends, Distributions and Taxes
For a discussion of Sovereign Bond Fund's policy with respect to
dividends, distributions and taxes, see "Dividends and Taxes" in the
Sovereign Bond Fund Prospectus.
BUSINESS OF INVESTMENT QUALITY BOND FUND
General
For a discussion of the organization and operation of Investment Quality
Bond Fund, see "Investment Objective and Policies" and "Organization and
Management of the Fund" in the Investment Quality Bond Fund Prospectus.
Investment Objective and Policies
For a discussion of Investment Quality Bond Fund's investment objectives
and policies, see "Investment Objective and Policies" in the Investment
Quality Bond Fund Prospectus.
Portfolio Management
All investment decisions for Investment Quality Bond Fund are made by Mr.
James Ho. For a description of Mr. Ho's business experience, see "Business of
Sovereign Bond Fund--Portfolio Management" above.
Trustees
For a discussion of the responsibilities of the Board of Trustees, see
"Organization and Management of the Fund" in the Investment Quality Bond Fund
Prospectus.
Investment Adviser and Distributor
For a discussion regarding Investment Quality Bond Fund's investment
adviser and distributor, see "Organization and Management of the Fund," "How
to Buy Shares" and "Share Price" in the Investment Quality Bond Fund
Prospectus.
Expenses
For a discussion of the Investment Quality Bond Fund's expenses, see
"Expense Information" and "The Fund's Expenses" in the Investment Quality
Bond Fund Prospectus.
27
<PAGE>
Custodian and Transfer Agent
Investment Quality Bond Fund's custodian is Investors Bank & Trust
Company. Investment Quality Bond Fund's transfer agent is John Hancock
Investor Services Corporation.
Investment Quality Bond Fund Shares
For a discussion of Investment Quality Bond Fund's shares of beneficial
interest, see "Organization and Management of the Fund" in the Investment
Quality Bond Fund Prospectus.
Purchase of Investment Quality Bond Fund Shares
For a discussion of how shares of Investment Quality Bond Fund may be
purchased or exchanged, see "How to Buy Shares," "Alternative Purchase
Arrangements" and "Additional Services and Programs" in the Investment
Quality Bond Fund Prospectus. In anticipation of the Reorganization,
Investment Quality Bond Fund has stopped offering its shares to all investors
other than existing shareholders.
Redemption of Investment Quality Bond Fund Shares
For a discussion of how Class A and Class B shares of Investment Quality
Bond Fund may be redeemed (other than in the Reorganization), see "How to
Redeem Shares" in the Investment Quality Bond Fund Prospectus. Investment
Quality Bond Fund shareholders whose shares are represented by share
certificates will be required to surrender their certificates for
cancellation or deliver an affidavit of loss accompanied by an adequate
surety bond to Investor Services in order to redeem Sovereign Bond Fund
Shares received in the Reorganization.
Dividends, Distributions and Taxes
For a discussion of the Investment Quality Bond Fund's policy with respect
to dividends, distributions and taxes, see "Distributions and Taxes" in the
Investment Quality Bond Fund Prospectus.
EXPERTS
The respective financial statements and the respective financial
highlights of Sovereign Bond Fund and Investment Quality Bond Fund as of
December 31, 1994 and March 31, 1995, respectively, and for the respective
fiscal years then ended, incorporated by reference into this Proxy Statement
and Prospectus, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their respective reports thereon appearing in the Statement
of Additional Information, and are included in reliance upon the authority of
such firm as experts in accounting and auditing.
28
<PAGE>
AVAILABLE INFORMATION
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act, and in accordance
therewith files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information filed by Sovereign Bond
Fund and the Trust, on behalf of Investment Quality Bond Fund, 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.
29
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this
14th day of July, 1995, by and between John Hancock Sovereign Bond Fund (the
"Acquiring Fund"), a Massachusetts business trust, and John Hancock
Investment Quality Bond Fund (the "Acquired Fund"), a series of John Hancock
Bond Fund (the "Trust"), a Massachusetts business trust. The principal place
of business of the Acquiring Fund and the Trust is 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 Class A and Class B
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
A-1
<PAGE>
of business on the closing date (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 corresponding class of the Acquired Fund so transferred,
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, and shall be recomputed by Ernst & Young LLP, the
independent accountants of the Acquiring Fund. The determination of the
Custodian, as recomputed by said accountants, shall, absent manifest error,
be conclusive and binding on all parties in interest.
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 of the applicable class (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
Investor Services Corporation prior to the Closing Date. Any Acquired Fund
share certificate which remains outstanding
A-2
<PAGE>
on the Closing Date shall be deemed to be cancelled, shall no longer evidence
ownership of shares of beneficial interest of the Acquired Fund and shall
evidence ownership of Acquiring Fund Shares. Unless and until any such
certificate shall be so surrendered or an Affidavit relating thereto shall be
delivered, dividends and other distributions payable by the Acquiring Fund
subsequent to the Liquidation Date with respect to Acquiring Fund Shares
shall be paid to the holder of such certificate(s), but such shareholders may
not redeem or transfer Acquiring Fund Shares received in the Reorganization.
The Acquiring Fund will not issue share certificates in the Reorganization.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquired Fund shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
1.7 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Trust with respect to 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 Trust.
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 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, 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
respective 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
A-3
<PAGE>
shall be determined by dividing the value of the Acquired Fund's assets
attributable to a class, less the liabilities attributable to that class
assumed by the Acquiring Fund, by the Acquiring Fund's net asset value per
share of the same class, all as determined in accordance with Paragraph 2.1
hereof.
2.3 All computations of value shall be made by the Custodian in accordance
with its regular practice as pricing agent for the Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be September 15, 1995 or such other date on or
before December 31, 1995, as the parties may agree. The Closing shall be held
as of 5:00 p.m. at the offices of the Acquiring Fund and the Trust, 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 five
business days preceding the Closing Date. Portfolio securities which are not
held in book-entry form shall be delivered by the Acquired Fund to the
Custodian for the account of the Acquiring Fund on the Closing Date, duly
endorsed in proper form for transfer, in such condition as to constitute good
delivery thereof in accordance with the custom of brokers, and shall be
accompanied by all necessary federal and state stock transfer stamps or a
check for the appropriate purchase price thereof. Portfolio securities held
of record by the Custodian in book-entry form on behalf of the Acquired Fund
shall be delivered to the Acquiring Fund by the Custodian by recording the
transfer of beneficial ownership thereof on its records. The cash delivered
shall be in the form of currency or by the Custodian crediting the Acquiring
Fund's account maintained with the Custodian with immediately available
funds.
3.3 In the event that on the Closing Date (a) the New York Stock Exchange
shall be closed to trading or trading thereon shall be restricted or (b)
trading or the reporting of trading on said Exchange or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall
be postponed until the first business day after the day when trading shall
have been fully resumed and reporting shall have been restored; provided that
if trading shall not be fully resumed and reporting restored on or before
December 31, 1995, 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
A-4
<PAGE>
Fund owned by each such shareholder, all as of the close of business on the
Closing Date, certified by its Treasurer, Secretary or other authorized
officer (the "Shareholder List"). The Acquiring Fund shall issue and deliver
to the Acquired Fund a confirmation evidencing the Acquiring Fund Shares to
be credited on the Closing Date, or provide evidence satisfactory to the
Acquired Fund that such Acquiring Fund Shares have been credited to the
Acquired Fund's account on the books of the Acquiring Fund. At the Closing,
each party shall deliver to the other such bills of sale, checks,
assignments, stock certificates, receipts or other documents as such other
party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Trust on behalf of the Acquired Fund represents, warrants and
covenants to the Acquiring 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, subject to
approval by the shareholders of the Acquired Fund, to carry out the
transactions contemplated by this Agreement. Neither the Trust nor the
Acquired Fund is required to qualify to do business in any jurisdiction in
which it is not so qualified or where failure to qualify would not 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 Investment Company Act of 1940, as amended
(the "1940 Act"), is in full force and effect. The Acquired Fund is a
diversified series of the Trust;
(c) The Trust and the Acquired Fund are not, and the execution, delivery
and performance of their obligations under this Agreement will not result,
in violation of any provision of the Trust's Declaration of Trust, as
amended and restated, or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Trust or the
Acquired Fund is a party or by which it is bound;
(d) Except as otherwise disclosed in writing and accepted by the
Acquiring Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Trust or the Acquired Fund or any of the
Acquired 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 Acquired Fund is a party to or subject to the provisions
of any order, decree
A-5
<PAGE>
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 March 31, 1995, the related
statement of operations for the year then ended, and the statement of
changes in net assets for the years ended March 31, 1995 and 1994 (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 March 31, 1995, and the results of
its operations and changes in net assets for the respective stated periods
in accordance with generally accepted accounting principles consistently
applied, and there were no actual or contingent liabilities of the
Acquired Fund as of March 31, 1995 not disclosed therein;
(g) Since March 31, 1995, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquired Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquiring Fund;
(h) At the date hereof and by the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the Acquired Fund required by law to have been filed or
furnished by such dates shall have been filed or furnished, and all
federal, state and other taxes, interest and penalties shall have been
paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge no such return
is currently under audit and no assessment has been asserted with respect
to such returns or reports;
(i) The Acquired Fund has elected to be treated as a regulated
investment company for federal income tax purposes, has qualified as such
for each taxable year of its operation and will qualify as such as of the
Closing Date with respect to its final taxable year ending on the Closing
Date;
(j) The authorized capital of the Trust consists of an unlimited number
of shares of beneficial interest, $0.01 par value per share. 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
A-6
<PAGE>
nonassessable by the Trust. 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 Trust on behalf
of the Acquired Fund, and this Agreement constitutes a valid and binding
obligation of the Trust and the Acquired Fund enforceable in accordance
with its terms, subject to the approval of the Acquired Fund's
shareholders;
(m) The information to be furnished by the Acquired Fund to the
Acquiring Fund for use in applications for orders, registration
statements, proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete and shall comply in all material respects with federal securities
and other laws and regulations thereunder applicable thereto;
(n) The proxy statement of the Acquired Fund (the "Proxy Statement") to
be included in the Registration Statement referred to in Paragraph 5.7
hereof (other than written information furnished by the Acquiring Fund for
inclusion therein, as covered by the Acquiring Fund's warranty in
Paragraph 4.2(m) hereof), on the effective date of the Registration
Statement, on the date of the meeting of the Acquired Fund shareholders
and on the Closing Date, shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated by this Agreement;
(p) All of the issued and outstanding shares of beneficial interest of
the Acquired Fund have been offered for sale and sold in conformity with
all applicable federal and state securities laws;
A-7
<PAGE>
(q) The prospectus of the Acquired Fund, dated May 15, 1995 (the
"Acquired Fund Prospectus"), previously furnished to the Acquiring Fund,
does not contain any untrue statements 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 Acquiring Fund represents, warrants and covenants to the Acquired
Fund as follows:
(a) The Acquiring 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 to carry out the Agreement. The Acquiring 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 not subject it to any material liability
or disability. The Acquiring 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 Acquiring Fund 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 investment company under the 1940 Act;
(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 May 1, 1995, and any amendments or supplements thereto on
or prior to the Closing Date, and the Registration Statement on Form N-14
to be 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 Acquiring Fund will have good and
marketable title to the assets of the Acquiring Fund;
(e) The Acquiring Fund is not, and the execution, delivery and
performance its obligations under this Agreement will not result, in
violation of any
A-8
<PAGE>
provisions of the Acquiring Fund's Declaration of Trust, as amended and
restated, or By-laws or of any agreement, indenture, instrument, contract,
lease or other undertaking to which the Acquiring Fund is a party or by
which 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 Acquiring Fund or any of the Acquiring
Fund's properties or assets. The Acquiring Fund knows of no facts which
might form the basis for the institution of such proceedings, and the
Acquiring 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 Acquiring Fund's business or its
ability to consummate the transactions herein contemplated;
(g) The statement of assets and liabilities of the Acquiring Fund, as of
June 30, 1995, and the related statement of operations for the period then
ended and the schedule of investments (unaudited) (copies of which have
been furnished to the Acquired Fund), present fairly in all material
respects the financial position of the Acquiring Fund as of June 30, 1995
and the results of its operations for the period then ended in accordance
with generally accepted accounting principles consistently applied and
there are no known actual or contingent liabilities of the Acquiring Fund
as of the respective dates thereof not disclosed herein;
(h) Since June 30, 1995, 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 Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred;
(i) The Acquiring Fund has elected to be treated as a regulated
investment company for federal income tax purposes, has qualified as such
for each taxable year of its operation and will qualify as such as of the
Closing Date;
(j) The authorized capital of the Acquiring Fund 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 Acquiring Fund. 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 have been
duly authorized by all necessary action on the part of the Acquiring
A-9
<PAGE>
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
Acquiring Fund;
(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, the 1940 Act
and under state securities laws.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary, the Acquiring
Fund and the Trust on behalf of the Acquired Fund will operate their
respective businesses in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of business will
include customary dividends and distributions and any other distributions
necessary or desirable to avoid federal income or excise taxes.
5.2 The Trust will call a meeting of the Acquired Fund shareholders to
consider and act upon this Agreement and to take all other action necessary
to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be
issued hereunder are not being acquired by the Acquired Fund for the purpose
of making any distribution thereof other than in accordance with the terms of
this Agreement.
5.4 The Trust on behalf of the Acquired Fund will provide such information
within its possession or reasonably obtainable as 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
A-10
<PAGE>
to be done, all things reasonably necessary, proper or advisable to
consummate the transactions contemplated by this Agreement.
5.6 The Trust on behalf of the Acquired Fund shall furnish to 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 Trust'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 Acquiring Fund, 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 Acquiring Fund will prepare and file with the Commission the
Registration Statement in compliance with the 1933 Act and the 1940 Act in
connection with the issuance of the Acquiring Fund Shares as contemplated
herein.
5.8 The Trust on behalf of the Acquired Fund will prepare a Proxy
Statement, to be included in the Registration Statement in compliance with
the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934
Act"), and the 1940 Act and the rules and regulations thereunder
(collectively, the "Acts") in connection with the special meeting of
shareholders of the Acquired Fund to consider approval of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
TRUST ON BEHALF OF THE ACQUIRED FUND
The obligations of the Trust on behalf of the Acquired Fund to complete
the transactions provided for herein shall be, at its election, subject to
the performance by 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 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 Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by the Acquiring Fund'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 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 trans-
A-11
<PAGE>
actions contemplated by this Agreement, and as to such other matters as the
Trust on behalf of the Acquired Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be, at its election, subject to the performance by
the Trust on behalf of the Acquired Fund of all the obligations to be
performed by it hereunder on or before the Closing Date and, in addition
thereto, the following further conditions:
7.1 All representations and warranties of the Trust on behalf of the
Acquired Fund contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected
by the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date;
7.2 The Trust on behalf of the Acquired Fund shall have delivered to 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 Trust;
7.3 The Trust on behalf of the Acquired Fund shall have delivered to 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
Treas-urer of the Trust, 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 Trust on behalf 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 Acquiring Fund shall reasonably request; and
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 or
state-imposed expense limitation.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
TRUST, THE ACQUIRING FUND AND THE ACQUIRED FUND
The obligations hereunder of the Trust, 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
A-12
<PAGE>
interest of the Acquired Fund in accordance with the provisions of the
Trust's Declaration of Trust, as amended and restated, 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
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 of state Blue Sky and securities authorities, including
"no-action" positions of such federal or state authorities) deemed necessary
by the Trust or the Acquiring Fund 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 all of
its investment company taxable income (as defined in Section 852(b)(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 Section 852(b)(3)(C) of the Code),
after reduction by any available capital loss carryforward, for its taxable
year ending on the Closing Date; and
8.6 The parties shall have received an opinion of Messrs. Hale and Dorr,
satisfactory to the Acquiring Fund and the Trust on behalf of the Acquired
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;
A-13
<PAGE>
(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
holding period for his shares of beneficial interest of the Acquired Fund
surrendered in exchange therefor, provided that such Acquired Fund shares
were held as capital assets on the date of the exchange.
The Acquiring Fund and the Trust on behalf of the Acquired Fund agree to
make and provide representations which are reasonably necessary to enable
Hale and Dorr to deliver an opinion substantially as set forth in this
Paragraph 8.6. Notwithstanding anything herein to the contrary, neither the
Trust nor the Acquiring Fund may waive the conditions set forth in this
Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Acquiring Fund and the Trust on behalf of the Acquired Fund
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.
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<PAGE>
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Trust on behalf of the Acquired Fund agree
that neither party has made any representation, warranty or covenant not set
forth herein or referred to in Paragraph 4 hereof and that this Agreement
constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Trust
and the Acquiring Fund. In addition, either party may at its option terminate
this Agreement at or prior to the Closing Date:
(a) because of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be performed at or
prior to the Closing Date;
(b) because of a condition herein expressed to be precedent to the
obligations of the terminating party which has not been met and which
reasonably appears will not or cannot be met;
(c) by resolution of the Trust's Board of Trustees if circumstances
should develop that, in the good faith opinion of such Board, make
proceeding with the Agreement not in the best interest of the Acquired
Fund's shareholders; or
(d) by resolution of the Acquiring 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 interest of the
Acquiring 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 Acquiring 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 in writing by the authorized officers of the
Trust and the Acquiring 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
A-15
<PAGE>
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 Trust, each at 101 Huntington Avenue, Boston, Massachusetts 02199,
Attention:
President, and, in either case, with copies to Hale and Dorr, 60 State
Street, Boston, Massachusetts 02109, Attention: Pamela J. Wilson, Esq.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW;
ASSIGNMENT
14.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by
any party without the prior written consent of the other party. Nothing
herein expressed or implied is intended or shall be construed to confer upon
or give any person, firm or corporation, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
14.5 All persons dealing with the Trust or the Acquiring Fund must look
solely to the property of the Trust or the Acquiring Fund, respectively, for
the enforcement of any claims against the Trust or the Acquiring Fund as
neither the Trustees, officers, agents or shareholders of the Trust or the
Acquiring Fund assume any personal liability for obligations entered into on
behalf of the Trust or the Acquiring Fund, respectively. None of the other
series of the Trust shall be responsible for any obligations assumed by or on
behalf of the Acquired Fund under this Agreement.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its President or Vice President and has caused its
corporate seal to be affixed hereto.
JOHN HANCOCK SOVEREIGN
BOND FUND
By: /s/ Anne C. Hodsdon
Anne C. Hodsdon
President
JOHN HANCOCK BOND FUND,
on behalf of
JOHN HANCOCK INVESTMENT
QUALITY BOND FUND
By: /s/ Thomas H. Drohan
Thomas H. Drohan
Senior Vice President
and Secretary
A-17
<PAGE>
EXHIBIT B
John Hancock
Sovereign
Bond Fund
Class A and Class B Shares
Prospectus
May 1, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-------
<S> <C>
Expense Information B-2
The Fund's Financial Highlights B-4
Investment Objective and Policies B-6
Organization and Management of the Fund B-10
Alternative Purchase Arrangements B-12
The Fund's Expenses B-13
Dividends and Taxes B-14
Performance B-15
How to Buy Shares B-16
Share Price B-18
How to Redeem Shares B-24
Additional Services and Programs B-26
Institutional Investors B-30
Appendix B-31
</TABLE>
This Prospectus sets forth information about John Hancock Sovereign Bond
Fund (the "Fund") a diversified fund, that you should know before investing.
Please read and retain it for future reference.
Additional information about the Fund has been filed with the Securities
and Exchange Commission (the "SEC"). You can obtain a copy of the Fund's
Statement of Additional Information, dated May 1, 1995, and incorporated by
reference in this Prospectus, free of charge by writing or telephoning: John
Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts
02205-9116, 1-800-225-5291, (1-800-554-6713 TDD).
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THE FUND MAY INVEST UP TO 25% OF ITS ASSETS IN LOWER RATED BONDS, COMMONLY
KNOWN AS "JUNK BONDS," THAT ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS,
THAN THOSE FOUND IN HIGHER RATED SECURITIES. INVESTORS SHOULD CAREFULLY
CONSIDER THESE RISKS BEFORE INVESTING. SEE "INVESTMENT OBJECTIVE AND
POLICIES, P. B-6."
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.
B-1
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you understand the
various fees and expenses that you will bear directly or indirectly, when you
purchase Fund shares. The operating expenses included in the table and
hypothetical example below are based on fees and expenses of the Fund's Class
A and Class B shares for the fiscal year ended December 31, 1994, adjusted to
reflect current fees and expenses. Actual fees and expenses in the future may
be greater or less than those indicated.
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
------- ---------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 4.50% None
Maximum sales charge imposed on
reinvested dividends None None
Maximum deferred sales charge None* 5.00%
Redemption fee+ None None
Exchange fee None None
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Management fee 0.50% 0.50%
12b-1 fee** 0.30% 1.00%
Other expenses 0.38% 0.25%
Total Fund operating expenses 1.18% 1.75%
</TABLE>
*No sales charge is payable at the time of purchase on investments of $1
million or more, but a contingent deferred sales charge may be imposed on
these investments, as described under the caption "Share Price," in the
event of certain redemption transactions within one year of purchase.
**The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average daily net assets, and the remaining portion
will be used to cover distribution expenses. See "The Fund's Expenses."
+Redemption by wire fee (currently $4.00) not included.
<TABLE>
<CAPTION>
Example: 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
You would pay the following expenses for the
indicated period of years on a
hypothetical $1,000 investment, assuming
5% annual return:
Class A Shares $57 $83 $111 $189
Class B Shares
-- Assuming complete redemption at end of
period $67 $85 $115 $191
-- Assuming no redemption $17 $55 $ 95 $191
</TABLE>
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.)
The Fund's payment of a distribution fee may result in a long-term
shareholder indirectly paying more than the economic equivalent of the
maximum front-end sales charge permitted under the National Association of
Securities Dealers Rules of Fair Practice.
B-2
<PAGE>
The management and 12b-1 fees referred to above are more fully explained
in this Prospectus under the caption "The Fund's Expenses" and in the
Statement of Additional Information under the captions "Investment Advisory
and Other Services" and "Distribution Contract."
B-3
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following table of Financial Highlights has been audited by Ernst &
Young LLP, the Fund's independent auditors, whose unqualified report is
included in the Fund's 1994 Annual Report and is included in the Statement of
Additional Information. Further information about the performance of the Fund
is contained in the Fund's Annual Report to Shareholders, that may be
obtained free of charge by writing or telephoning John Hancock Investor
Services Corporation ("Investor Services") at the address or telephone number
listed on the front page of this Prospectus.
Selected data for each class of shares outstanding throughout each period
indicated is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of
Period $15.53 $15.29 $15.31 $14.33 $14.77
-------- -------- -------- -------- ----------
Net Investment Income 1.12 1.14 1.20 1.29 1.32
Net Realized & Unrealized Gain
(Loss) on Investments and
Financial Futures Contracts (1.55) 0.62 (0.01) 0.98 (0.40)
-------- -------- -------- -------- ----------
Total from Investment Operations (0.43) 1.76 1.19 2.27 0.92
-------- -------- -------- -------- ----------
Less Distributions:
Dividends from Net Investment
Income (1.12) (1.14) (1.21) (1.29) (1.35)
Distributions to Shareholders from
Capital Paid-In -- -- -- -- (0.01)
Distributions from Net Realized
Gain on Investments Sold and
Financial Futures Contracts (0.08) (0.38) -- -- --
-------- -------- -------- -------- ----------
Total Distributions (1.20) (1.52) (1.21) (1.29) (1.36)
-------- -------- -------- -------- ----------
Net Asset Value, End of Period $13.90 $15.53 $15.29 $15.31 $14.33
======== ======== ======== ======== ==========
Total Investment Return at Net
Asset Value (2.75%) 11.80% 8.08% 16.59% 6.71%
Ratios and Supplemental Data
Net Assets, End of period
(000,000's omitted) $1,326 $1,506 $1,386 $1,250 $1,103
Ratio of Expenses to Average Net
Assets 1.26% 1.41% 1.44% 1.27% 1.31%
Ratio of Net Investment Income to
Average Net Assets 7.74% 7.18% 7.89% 8.81% 9.18%
Portfolio Turnover Rate 85% 107% 87% 90% 92%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1989 1988 1987 1986 1985
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of
Period $14.51 $14.53 $15.89 $15.85 $14.36
-------- -------- -------- -------- ----------
Net Investment Income 1.43 1.44 1.40 1.55 1.62
Net Realized & Unrealized Gain
(Loss) on Investments and
Financial Futures Contracts 0.27 (0.06) (1.17) 0.52 1.40
-------- -------- -------- -------- ----------
Total from Investment Operations 1.70 1.38 0.23 2.07 3.02
-------- -------- -------- -------- ----------
Less Distributions:
Dividends from Net Investment
Income (1.44) (1.40) (1.53) (1.53) (1.53)
Distributions to Shareholders from
Capital Paid-In -- -- -- -- --
Distributions from Net Realized
Gain on Investments Sold and
Financial Futures Contracts -- -- (0.06) (0.50) --
-------- -------- -------- -------- ----------
Total Distributions (1.44) (1.40) (1.59) (2.03) (1.53)
-------- -------- -------- -------- ----------
Net Asset Value, End of Period $14.77 $14.51 $14.53 $15.89 $15.85
======== ======== ======== ======== ==========
Total Investment Return at Net
Asset Value 12.13% 9.82% 1.58% 13.67% 22.35%
Ratios and Supplemental Data
Net Assets, End of period
(000,000's omitted) $1,110 $1,104 $1,095 $1,152 $1,016
Ratio of Expenses to Average Net
Assets 0.80% 0.82% 0.82% 0.72% 0.79%
Ratio of Net Investment Income to
Average Net Assets 9.68% 9.77% 9.32% 9.65% 10.95%
Portfolio Turnover Rate 64% 66% 159% 163% 100%
</TABLE>
B-4
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
1994 1993
------ ----------
<S> <C> <C>
CLASS B(a)
Per Share Operating Performance
Net Asset Value, Beginning of Period $15.52 $15.90(b)
---- --------
Net Investment Income 1.04 0.11
Net Realized & Unrealized Loss on Investments and Financial
Futures Contracts (1.54) --
---- --------
Total from Investment Operations (0.50) 0.11
---- --------
Less Distributions:
Dividends from Net Investment Income (1.04) (0.11)
Distributions from Net Realized Gain on Investments Sold and
Financial Futures Contracts (0.08) (0.38)
---- --------
Total Distributions (1.12) (0.49)
---- --------
Net Asset Value, End of Period $13.90 $15.52
==== ========
Total Investment Return at Net Asset Value (3.13%) 0.90%
Ratios and Supplemental Data
Net Assets, End of period (000's omitted) $40,299 $4,125
Ratio of Expenses to Average Net Assets 1.78% 1.63%*
Ratio of Net Investment Income to Average Net Assets 7.30% 0.57%*
Portfolio Turnover Rate 85% 107%
</TABLE>
<TABLE>
<CAPTION>
1994 1993
------ ----------
<S> <C> <C>
CLASS C(c)
Per Share Operating Performance
Net Asset Value, Beginning of Period $15.52 $15.86(b)
---- --------
Net Investment Income 1.19 0.81
Net Realized & Unrealized Gain (Loss) on Investments and
Financial Futures Contracts (1.54) 0.04
---- --------
Total from Investment Operations (0.35) 0.85
---- --------
Less Distributions:
Dividends from Net Investment Income (1.19) (0.81)
Distributions from Net Realized Gain on Investments Sold and
Financial Futures Contracts (0.08) (0.38)
---- --------
Total Distributions (1.27) (1.19)
----
Net Asset Value, End of Period $13.90 $15.52
==== ========
Total Investment Return at Net Asset Value (2.19%) 5.45%
Ratios and Supplemental Data
Net Assets, End of period (000's omitted) $1,670 $867
---- --------
Ratio of Expenses to Average Net Assets 0.73% 0.90%*
Ratio of Net Investment Income to Average Net Assets 8.28% 4.90%*
Portfolio Turnover Rate 85% 107%
</TABLE>
* On an annualized basis.
(a) Class B shares commenced operations on November 23, 1993.
(b) Initial price to commence operations.
(c) Class C shares commenced operations on May 7, 1993.
(d) Class C shares were no longer offered for sale after March 31, 1995.
B-5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to generate a high level of current
income consistent with prudent investment risk.
The Fund's investment objective is to generate a high level of current
income, consistent with prudent investment risk, through investment in a
diversified portfolio of freely marketable debt securities. The Fund's
Adviser seeks high current income consistent with the moderate level of risk
associated with a portfolio consisting primarily of investment grade debt
securities.
Under normal market conditions, at least 65% of the value of the Fund's
assets will be in bonds and/or debentures. In addition, the Fund contemplates
that at least 75% of the value of its total investments in debt securities
(other than commercial paper) will be represented by those securities that
have, at the time of purchase, a rating within the four highest grades as
determined by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A or Baa)
or Standard & Poor's Ratings Group ("S&P") (AAA, AA, A, or BBB) and debt
securities of banks, the U.S. Government and its agencies or
instrumentalities and other issuers which, although not rated as a matter of
policy by either Moody's or S&P, are considered by the Fund to have
investment quality comparable to securities receiving ratings within the four
highest grades. Debt securities rated Baa or BBB are considered medium-grade
obligations with speculative characteristics and adverse economic conditions
or changing circumstances may weaken their issuers' capacity to pay interest
and repay principal. The Fund will diversify its investments among a number
of industry groups without concentration in any particular industry. The
Fund's investments, and consequently its net asset value, will be subject to
the market fluctuations and risks inherent in all securities. There is no
assurance that the Fund will achieve its investment objective.
Securities of domestic and foreign issuers. The Fund may invest in U.S.
dollar-denominated securities of foreign and United States issuers that are
issued in or outside of the U.S. Foreign companies may not be subject to
accounting standards and government supervision comparable to U.S. companies,
and there is often less publicly available information about their
operations. Foreign markets generally provide less liquidity than U.S.
markets (and thus potentially greater price volatility) and typically provide
fewer regulatory protections for investors. Foreign securities can also be
affected by political or financial instability abroad. It is anticipated that
under normal conditions, the Fund will not invest more than 25% of its total
assets in foreign securities (excluding U.S. dollar-denominated Canadian
securities).
Mortgage-Backed and Derivative Securities. Mortgage-backed securities
represent participation interests in pools of adjustable and fixed 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 mort-
B-6
<PAGE>
gage 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 but are not limited to
sequential and parallel pay CMOs, including planned amortization class
("PAC") and target amortization class ("TAC") securities.
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."
The Fund may invest in structured debt obligations indexed to various
financial assets or rates.
Structured Securities. The Fund may invest in structured 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
B-7
<PAGE>
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.
Futures and Option Contracts. The Fund may engage in transactions in
futures contracts and options on futures contracts for hedging and
speculative purposes. The Fund's ability to hedge successfully will depend on
the ability of John Hancock Advisers, Inc. (the "Adviser") to predict
accurately the future direction of interest rate changes, the degree of
correlation between the futures and securities markets and other market
factors. There is no assurance that a liquid market for futures and options
will always exist. In addition, the Fund could be prevented from opening, or
realizing the benefits of closing out, a futures or options position because
of position limits or limits on daily price fluctuations imposed by an
exchange.
All of the Fund's futures contracts and options on futures contracts will
be traded on a U.S. or foreign commodity exchange or board of trade. The Fund
will not engage in a transaction in futures or options on futures for
speculative purposes if, immediately thereafter, the sum of initial margin
deposits and premiums required to establish speculative positions in futures
contracts and options on futures exceeds 5% of the Fund's net assets.
Lower-Rated Securities. The Fund may invest up to 25% of the value of its
total assets in fixed income securities rated below Baa by Moody's, or below
BBB by S&P, or in securities which are unrated. The Fund may invest in
securities rated as low as Ca by Moody's or CC by S&P, which may indicate
that the obligations are highly speculative and in default. Lower rated
securities are generally referred to as junk bonds. See the Appendix attached
to this Prospectus and the Statement of Additional Information, respectively,
for the distribution of securities in the various ratings categories and a
description of the characteristics of the categories. The Fund is not
obligated to dispose of securities whose issuers subsequently are in default
or which are downgraded below the above-stated ratings. The Fund may invest
in unrated securities which, in the opinion of the Adviser, offer comparable
yields and risks to those securities which are rated.
Debt obligations rated in the lower ratings categories, or which are
unrated, involve greater volatility of price and risk of loss of principal
and income. In addition, lower ratings reflect a greater possibility of an
adverse change in financial condition affecting the ability of the issuer to
make payments of interest and principal.
The market price and liquidity of lower rated fixed income securities
generally respond to short-term economic, corporate and market developments
to a greater extent than do higher rated securities. In the case of
lower-rated securities, these developments are perceived to have a more
direct relationship to the ability of an issuer of lower rated securities to
meet its ongoing debt obligations.
B-8
<PAGE>
Reduced volume and liquidity in the high yield bond market, or the reduced
availability of market quotations, will make it more difficult to dispose of
the bonds and value accurately the Fund's assets. The reduced availability of
reliable, objective data may increase the Fund's reliance on management's
judgment in valuing the high yield bonds. To the extent that the Fund invests
in these securities, the achievement of the Fund's objective will depend more
on the Adviser's judgment and analysis than would otherwise be the case. In
addition, the Fund's investments in high yield securities may be susceptible
to adverse publicity and investor perceptions, whether or not the perceptions
are justified by fundamental factors. In the past, economic downturns and
increases in interest rates have caused a higher incidence of default by the
issuers of lower-rated securities and may do so in the future, particularly
with respect to highly leveraged issuers. The market prices of zero coupon
and payment-in-kind bonds are affected to a greater extent by interest rate
changes, and thereby tend to be more volatile than securities that pay
interest periodically and in cash. Increasing rate note securities are
typically refinanced by the issuers within a short period of time. The Fund
accrues income on these securities for tax and accounting purposes, which is
required to be distributed to shareholders. Because no cash is received while
income accrues on these securities, the Fund may be forced to liquidate other
investments to make the distributions.
The Fund may acquire individual securities of any maturity and is not
subject to any limits as to the average maturity of its overall portfolio.
The longer the Fund's average portfolio maturity, the more the value of the
portfolio and the net asset value of the Fund's shares will fluctuate in
response to changes in interest rates. An increase in interest rates will
generally reduce the value of the Fund's portfolio securities and the Fund's
shares, while a decline in interest rates will generally increase their
value.
Restricted Securities. The Fund may purchase restricted securities,
including those eligible for resale to "qualified institutional buyers"
pursuant to Rule 144A under the Securities Act of 1933 (the "Securities
Act"). The Trustees will monitor the Fund's investments in these securities,
focusing on certain factors, including valuation, liquidity and availability
of information. Purchases of other restricted securities are subject to an
investment restriction limiting all the Fund's illiquid securities to not
more than 15% of its net assets.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements.
The Fund may reinvest any cash collateral in short-term securities. When the
Fund lends portfolio securities, there is a risk that the borrower may fail
to return the securities. As a result, the Fund may incur a loss or, in the
event of the borrower's bankruptcy, may be delayed in or prevented from
liquidating the collateral. It is a fundamental policy of the Fund not to
lend portfolio securities having a total value exceeding 33-1/3% of its total
assets.
B-9
<PAGE>
Repurchase Agreements, Forward Commitments and When-Issued Securities. The
Fund may enter into repurchase agreements and may purchase securities on a
forward or when-issued basis. In a repurchase agreement, the Fund buys a
security subject to the right and obligation to sell it back at a higher
price. These transactions must be fully collateralized at all times, but
involve some credit risk to the Fund if the other party defaults on its
obligation and the Fund is delayed in or prevented from liquidating the
collateral. The Fund will segregate in a separate account cash or liquid,
high grade debt securities equal in value to its forward commitments and
when-issued securities. Purchasing securities for future delivery or on a
when-issued basis may increase the Fund's overall investment exposure and
involves a risk of loss if the value of the securities declines before the
settlement date.
Short-term Trading. Short-term trading means the purchase and subsequent
sale of a security after it has been held for a relatively brief period of
time. The Fund engages in short-term trading in response to changes in
interest rates or other economic trends and developments, or to realize
capital gain or improve income by taking advantage of yield disparities
between various fixed-income securities.
The Fund follows certain policies, which may help to reduce investment
risk.
Investment Restrictions. The Fund has adopted certain fundamental
investment restrictions that are detailed in the Statement of Additional
Information, where they are classified as fundamental or nonfundamental. The
Fund's investment objective and those investment restrictions designated as
fundamental may not be changed without shareholder approval. All other
investment policies and restrictions, however, are nonfundamental and can be
changed by a vote of the Trustees without shareholder approval. The Fund's
portfolio turnover rates for recent years are shown in the section "The
Fund's Financial Highlights."
Brokers are chosen based on best price and execution.
When choosing brokerage firms to carry out the Fund's transactions, the
Adviser gives primary consideration to execution at the most favorable price,
taking into account the broker's professional ability and quality of service.
Consideration may also be given to the broker's sale of Fund shares. Pursuant
to procedures established by the Trustees, the Adviser may place securities
transactions with brokers affiliated with the Adviser. These brokers include
Tucker Anthony Incorporated, John Hancock Distributors, Inc. and Sutro &
Company, Inc. which are indirectly owned by John Hancock Mutual Life
Insurance Company, which in turn indirectly owns the Adviser.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Trustees elect officers and retain the investment adviser who is
responsible for the day-to-day operations of the Fund, subject to the
Trustees' policies and supervision.
The Fund is a diversified open-end management investment company organized
as a Maryland corporation in 1973 and reorganized as a Massachusetts business
B-10
<PAGE>
trust in 1984. The Fund has an unlimited number of authorized shares of
beneficial interest. The Fund's Declaration of Trust permits the Trustees,
without shareholder approval, to create and classify shares of beneficial
interest into separate series of the Fund. As of the date of this Prospectus,
the Trustees have not authorized the creation of any new series of the Fund.
Additional series may be added in the future. The Trust's Declaration of
Trust also permits the Trustees to classify and reclassify any series or
portfolio of shares into one or more classes. Accordingly, the Trustees have
authorized the issuance of three classes of the Fund, designated Class A,
Class B and Class C. The shares of each class represent an interest in the
same portfolio of investments of the Fund and have equal rights as to voting,
redemption, dividends and liquidation. However, each class bears different
distribution and transfer agent fees, and Class A and Class B shareholders
have exclusive voting rights with respect to their distribution plans.
Shareholders have certain rights to remove Trustees. The Fund is not
required and does not intend to hold annual shareholder meetings, although
special meetings may be held for such purposes as electing or removing
Trustees, changing fundamental investment restrictions or approving a
management contract. The Fund, under certain circumstances, will assist in
shareholder communications with other shareholders.
John Hancock Advisers, Inc. advises investment companies having a total
asset value of more than $13 billion.
The Adviser was organized in 1968 and is a wholly-owned indirect
subsidiary of the John Hancock Mutual Life Insurance Company, a financial
services company. It provides the Fund, and other investment companies in the
John Hancock group of funds, with investment research and portfolio
management services. John Hancock Funds, Inc. ("John Hancock Funds")
distributes shares for all of the John Hancock funds through selected
broker-dealers ("Selling Brokers"). Certain Fund officers are also officers
of the Adviser and John Hancock Funds. Pursuant to an order granted by the
Securities and Exchange Commission, the Fund has adopted a deferred
compensation plan for its independent Trustees which allows Trustees' fees to
be invested by the Fund in other John Hancock funds.
James Ho is a Senior Vice President and the portfolio manager of the Fund.
Mr. Ho is assisted in the day-to-day management of the Fund's investment
portfolio by a co-manager and a team of credit analysts. Mr. Ho also directs
all taxable fixed-income investment management for the Adviser and has been
associated with the Adviser since 1985.
In order to avoid any conflict with portfolio trades for the Fund, the
Adviser and the Fund have adopted extensive restrictions on personal
securities trading by personnel of the Adviser and its affiliates. Some of
these restrictions are: 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.
B-11
<PAGE>
ALTERNATIVE PURCHASE ARRANGEMENTS
An alternative purchase plan allows you to choose the method of purchase
that is best for you.
You can purchase shares of the Fund at a price equal to their net asset
value per share, plus a sales charge. At your election, this charge may be
imposed either at the time of the purchase (see "Initial Sales Charge
Alternative--Class A shares") or on a contingent deferred basis (see
"Contingent Deferred Sales Charge Alternative--Class B shares"). If you do
not specify on your account application the class of shares you are
purchasing, it will be assumed that you are investing in Class A shares.
Investments in Class A shares are subject to an initial sales charge.
Class A Shares. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount of your purchase is $1 million or
more. If you purchase $1 million or more of Class A shares you will not be
subject to an initial sales charge, but you will incur a sales charge if you
redeem your shares within one year of purchase. Class A shares are subject to
ongoing distribution and service fees at a combined annual rate of up to
0.30% of the Fund's average daily net assets attributable to the Class A
shares. Certain purchases of Class A shares qualify for reduced initial sales
charges. See "Share Price--Qualifying for a Reduced Sales Charge."
Investments in Class B shares are subject to a contingent deferred sales
charge.
Class B Shares. You will not incur a sales charge when you purchase Class
B shares, but the shares are subject to a sales charge if you redeem them
within six years of purchase (the "contingent deferred sales charge" or the
"CDSC"). Class B shares are subject to ongoing distribution and service fees
at a combined annual rate of up to 1.00% of the Fund's average daily net
assets attributable to the Class B shares. Investing in Class B shares
permits all of your dollars to work from the time you make your investment,
but the higher ongoing distribution fee will cause these shares to have
higher expenses than that of Class A shares. To the extent that any dividends
are paid by the Fund, these higher expenses will also result in lower
dividends than those paid on Class A shares.
Class B shares are not available to full-service defined contribution
plans administered by Investor Services or John Hancock Mutual Life Insurance
Company that had more than 100 eligible employees at the inception of the
Fund account.
Factors to Consider in Choosing an Alternative
You should consider which class of shares would be more beneficial for
you.
The alternative purchase arrangement allows you to choose the most
beneficial way to buy shares given the amount of your purchase, the length of
time you expect to hold your shares and other circumstances. You should
consider whether, during
B-12
<PAGE>
the anticipated life of your Fund investment, the CDSC and the accumulated
fees on Class B shares would be less than the initial sales charge and
accumulated fees on Class A shares purchased at the same time; and to what
extent this differential would be offset by the Class A shares' lower
expenses. To help you make this determination, the table under the caption
"Expense Information" on page 2 of this Prospectus gives examples of the
charges applicable to each class of shares. Class A shares will normally be
more beneficial if you qualify for a reduced sales charge. See "Share
Price--Qualifying for a Reduced Sales Charge".
Class A shares are subject to lower distribution and service fees and,
accordingly, pay correspondingly higher dividends per share, to the extent
any dividends are paid. However, because initial sales charges are deducted
at the time of purchase, you would not have all of your funds invested
initially and, therefore, would initially own fewer shares. If you do not
qualify for reduced initial sales charges and expect to maintain your
investment for an extended period of time, you might consider purchasing
Class A shares. This is because the accumulated distribution and service
charges on Class B shares may exceed the initial sales charge and accumulated
distribution and service charges on Class A shares during the life of your
investment.
Alternatively, you might determine that it is more advantageous to
purchase Class B shares to have all your funds invested initially. However
you will be subject to higher distribution fees and, for a six-year period, a
CDSC.
In the case of Class A shares, distribution expenses that John Hancock
Funds incurs in connection with the sale of shares will be paid from the
proceeds of the initial sales charge and the ongoing distribution and service
fees. In the case of Class B shares, expenses will be paid from the proceeds
of the ongoing distribution and service fees, as well as from the CDSC
incurred upon redemption within six years of purchase. The purpose and
function of the Class B shares' CDSC and ongoing distribution and service
fees are the same as those of the Class A shares' initial sales charge and
ongoing distribution and service fees. Sales personnel distributing the
Fund's shares may receive different compensation for selling each class of
shares.
Dividends, if any, on Class A and Class B shares will be calculated in the
same manner, at the same time and on the same day. They will also be in the
same amount, except for differences resulting in each class bearing only its
own distribution and service fees, shareholder meeting expenses and
incremental transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a fee to
the Adviser which for the 1994 fiscal year, was 0.50% of the Fund's average
daily net asset value.
The Fund pays distribution and service fees for marketing and
sales-related shareholder servicing.
B-13
<PAGE>
The Class A and Class B shareholders have adopted distribution plans (each
a "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940.
Under these Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of 0.30% of the Class A shares' average daily net
assets and an aggregate annual rate of 1.00% of the Class B shares' average
daily net assets. In each case, up to 0.25% is for service expenses and the
remaining amount is for distribution expenses. The distribution fees are used
to reimburse John Hancock Funds for its distribution expenses, including but
not limited to: (i) initial and ongoing sales compensation to Selling Brokers
and others (including affiliates of John Hancock Funds) engaged in the sale
of Fund shares; (ii) marketing, promotional and overhead expenses incurred in
connection with the distribution of Fund shares; and (iii) with respect to
Class B shares only, interest expenses on unreimbursed distribution expenses.
The service fees will be used to compensate Selling Brokers for providing
personal and account maintenance services to shareholders. In the event John
Hancock Funds is not fully reimbursed for payments it makes or expenses it
incurs under the Class A Plan, these expenses will not be carried beyond one
year from the date they were incurred. These unreimbursed expenses under the
Class B Plan will be carried forward together with interest on the balance of
these unreimbursed expenses. For the fiscal year ended December 31, 1994 an
aggregate of $1,752,030 of distribution expenses, or 7.14% 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.
Information on the Fund's total expenses is in the Fund's Financial
Highlights section of this Prospectus.
DIVIDENDS AND TAXES
Dividends. Dividends from the Fund's net investment income are generally
declared daily and distributed monthly. Capital gains, if any, are generally
distributed annually. Dividends are reinvested in additional shares of your
class unless you elect the option to receive them in cash. If you elect the
cash option and the U.S. Postal Service cannot deliver your checks, your
election will be converted to the reinvestment option. Because of the higher
expenses associated with Class B shares, any dividend on these shares will be
lower than on the Class A shares. See "Share Price."
Taxation. Dividends from the Fund's net investment income and net
short-term capital gains are taxable to you as ordinary income. Dividends
from the Fund's net long-term capital gains are taxable as long-term capital
gain. These dividends are taxable whether received in cash or reinvested in
additional shares. Certain dividends paid in January of a given year, but
they may be taxable as if you received them the previous December. The Fund
will send you a statement by January 31 showing the tax status of the
dividends you received for the prior year.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). As a regulated investment company, the Fund will not
be subject to Federal income tax on any net investment income and net
realized capital
B-14
<PAGE>
gains that are distributed to its shareholders at least annually. When you
redeem (sell) or exchange shares, you may realize a taxable gain or loss.
On the account application, you must certify that your social security or
other taxpayer identification number is correct and that you are not subject
to backup withholding of Federal income tax. If you do not provide this
information, or are otherwise subject to backup withholding, the Fund may be
required to withhold 31% of your dividends and the proceeds of redemptions
and exchanges.
In addition to Federal taxes, you may be subject to state, local or
foreign taxes with respect to your investment in and distributions from the
Fund. In some states, a portion of the Fund's dividends that represents
interest received by the Fund on direct U.S. government obligations may be
exempt from tax. Non-U.S. shareholders and tax-exempt shareholders are
subject to different tax treatment not described above. You should consult
your tax adviser for specific advice.
PERFORMANCE
The Fund may advertise its yield and total return.
Yield reflects the Fund's rate of income on portfolio investments as a
percentage of its share price. Yield is computed by annualizing the result of
dividing the net investment income per share over a 30 day period by the
maximum offering price per share on the last day of that period. Yield is
calculated according to accounting methods that are standardized for all
stock and bond funds. Because yield accounting methods differ from the
methods used for other accounting purposes, the Fund's yield may not equal
the income paid on Fund shares or the income reported in the Fund's financial
statements.
The Fund's total return shows the overall change in value of a hypothetical
investment in the Fund, assuming the reinvestment of all dividends.
Cumulative total return shows the Fund's performance over a period of time.
Average annual total return shows the cumulative return of the Fund shares
divided over the number of years included in the period. Because average
annual total return tends to smooth out variations in the Fund's performance,
you should recognize that it is not the same as actual year-to-year results.
Both total return and yield calculations for Class A shares generally include
the effect of paying the maximum sales charge (except as shown in "The Fund's
Financial Highlights"). Investments at a lower sales charge would result in
higher performance figures. Yield and total return for the Class B shares
reflect deduction of the applicable CDSC imposed on a redemption of shares
held for the applicable period. All calculations assume that all dividends
are reinvested at net asset value on the reinvestment dates during the
periods. Yield and total return of Class A and Class B shares will be
calculated separately and, because each class is subject to different
expenses, the yield or total return with respect to that class for the same
period may differ. The relative performance of the Class A and Class B shares
will be affected by a variety of factors, including the higher operating
expenses attributable to the
B-15
<PAGE>
Class B shares, whether the Fund's investment performance is better in the
earlier or later portions of the period measured and the level of net assets
of the classes during the period. The Fund will include the total return of
Class A and Class B shares in any advertisement or promotional materials
including the Fund's performance data. The value of the Fund's shares, when
redeemed, may be more or less than their original cost. Both yield and total
return are historical calculations and are not an indication of future
performance. See "Factors to Consider in Choosing an Alternative."
HOW TO BUY SHARES
Opening an account
The minimum initial investment in Class A and Class B shares is $1,000 ($250
for group investments and retirement plans).
Complete the Account Application attached to this Prospectus. Indicate
whether you are purchasing Class A or Class B shares. If you do not specify
which class of shares you are purchasing, Investor Services will assume you
are investing in Class A shares.
By Check
1. Make your check payable to John Hancock Investor Services Corporation.
("Investor Services").
2. Deliver the completed application and check to your registered
representative or Selling Broker, or mail it directly to Investor
Services.
By Wire
1. Obtain an account number by contacting your registered representative or
Selling Broker, or by calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Sovereign Bond Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered representative or
Selling Broker, or mail it directly to Investor Services.
Buying additional Class A and Class B shares
Monthly Automatic
Accumulation
Program (MAAP)
1. Complete the "Automatic Investing" and "Bank Information" sections on the
Account Privileges Application, designating a bank account from which
funds may be drawn.
2. The amount you elect to invest will be automatically withdrawn from your
bank or credit union account.
B-16
<PAGE>
By Telephone
1. Complete the "Invest-By-Phone" and "Bank Information" sections on the
Account Privileges Application, designating a bank account from which your
funds may be drawn. Note that in order to invest by phone, your account
must be in a bank or credit union that is a member of the Automated
Clearing House system (ACH).
2. After your authorization form has been processed, you may purchase
additional Class A and Class B shares by calling Investor Services
toll-free at 1-800-225-5291.
3. Give the Investor Services representative the name(s) in which your
account is registered, the Fund name, the class of shares you own, your
account number and the amount you wish to invest.
4. Your investment normally will be credited to your account the business day
following your phone request.
By Check
1. Either fill out the detachable stub included on your account statement or
include a note with your investment listing the name of the Fund, the
class of shares you own, your account number and the name(s) in which the
account is registered.
2. Make your check payable to John Hancock Investor Services Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation.
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling Broker.
By Wire
Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Sovereign Bond Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
Other Requirements: All purchases must be made in U.S. dollars. Checks
written on foreign banks will delay purchases until U.S. funds are received,
and a collection charge may be imposed. Shares of the Fund are priced at the
offering price based on the net asset value computed after John Hancock Funds
receives notification of the dollar equivalent from the Fund's custodian
bank. Wire purchases normally take two or more hours to complete and, to be
accepted the same day, must be received by 4:00 p.m., New York time. Your
bank may charge a fee to wire funds. Telephone transactions are recorded to
verify information. Certificates are not issued unless a request is made in
writing to Investor Services.
B-17
<PAGE>
You will receive account statements, which you should keep to help with
your personal recordkeeping.
You will receive a statement of your account after any transaction that
affects your share balance or registration (statements related to
reinvestment of dividends and automatic investment/withdrawal plans will be
sent to you quarterly). A tax information statement will be mailed to you by
January 31 of each year.
SHARE PRICE
The offering price of your shares is their net asset value plus a sales
charge, if applicable, which will vary with the purchase alternative you
choose.
The net asset value per share ("NAV") is the value of one share. The NAV
is calculated by dividing the net assets of each class by the number of
outstanding shares of that class. The NAV of each class can differ.
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services, or fair
value as determined in good faith according to procedures approved by the
Trustees. Short-term debt investments maturing within 60 days are valued at
amortized cost, which approximates market value. Foreign securities are
valued on the basis of quotations from the primary market in which they are
traded. If quotations are not readily available, or the value has been
materially affected by events occurring after the closing of a foreign
market, assets are valued by a method that the Trustees believe accurately
reflects fair value. The NAV is calculated once daily as of the close of
regular trading on the New York Stock Exchange (generally at 4:00 P.M., New
York time) on each day that the Exchange is open.
Shares of the Fund are sold at the offering price based on the NAV
computed after your investment request is received in good order by John
Hancock Funds. If you buy shares of the Fund through a Selling Broker, the
Selling Broker must receive your investment before the close of regular
trading on the New York Stock Exchange, and transmit it to John Hancock Funds
before its close of business, to receive that day's offering price.
Initial Sales Charge Alternative--Class A Shares. The offering price you
pay for Class A shares of the Fund equals the NAV plus a sales charge as
follows:
<TABLE>
<CAPTION>
Combined
Sales Sales Reallowance
Charge Charge and Service Reallowance
as a as a Fee as a to Selling
Percentage Percentage Percentage Brokers as a
Amount invested of of the of Percentage of
(Including Sales Offering Amount Offering Offering
Charge) Price Invested Price(+) Price(*)
- --------------------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00% 3.76%
$100,000 to $249,999 3.75% 3.90% 3.25% 3.01%
$250,000 to $499,999 2.75% 2.83% 2.30% 2.06%
$500,000 to $999,999 2.00% 2.04% 1.75% 1.51%
$1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
</TABLE>
B-18
<PAGE>
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales
charge. In addition to the reallowance allowed to all Selling Brokers,
John Hancock Funds will pay the following: round trip airfare to a
resort will be given to each registered representative of a Selling
Broker (if the Selling Broker has agreed to participate) who sells
certain amounts of shares of John Hancock funds. John Hancock Funds
will make these incentive payments out of its own resources. Other than
distribution fees, the Fund does not bear distribution expenses. A
Selling Broker to whom substantially the entire sales charge is
reallowed or who receives these incentives may be deemed to be an
underwriter under the Securities Act of 1933.
(**) No sales charge is payable at the time of purchase of Class A shares of
$1 million or more, but a contingent deferred sales charge may be
imposed in the event of certain redemption transactions within one year
of purchase.
(***) John Hancock Funds may pay a commission and first year's service fee
(as described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of $1 million or more in aggregate, as
follows: 1% on sales to $4,999,999, 0.50% on the next $5 million and
0.25% on $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the
first year's service fee in advance, in an amount equal to 0.25% of the
net assets invested in the Fund. Thereafter it pays the service fee
periodically in arrears in an amount up to 0.25% of the Fund's average
annual net assets. Selling Brokers receive the fee as compensation for
providing personal and account maintenance services to shareholders.
Sales charges ARE NOT APPLIED to any dividends that are reinvested in
additional Class A shares of the Fund.
John Hancock Funds will pay certain affiliated Selling Brokers at an
annual rate of up to 0.05% of the daily net assets of the accounts
attributable to these brokers.
Under certain circumstances described below, investors in Class A shares
may be entitled to pay reduced sales charges. See "Qualifying For a Reduced
Sales Charge."
Contingent Deferred Sales Charge--Investments of $1 Million or More in
Class A Shares. Purchases of $1 million or more in Class A shares will be
made at net asset value with no initial sales charge, but if the shares are
redeemed within 12 months after the end of the calendar month in which the
purchase was made (the contingent deferred sales charge period), a contingent
deferred sales charge ("CDSC") will be imposed. The rate of the CDSC will
depend on the amount invested as follows:
<TABLE>
<CAPTION>
Amount Invested CDSC Rate
- ---------------------------------- ----------
<S> <C>
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
</TABLE>
Existing full service clients of John Hancock Mutual Life Insurance
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.
B-19
<PAGE>
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a contingent deferred sales
charge will be imposed at the above rate.
The charge will be assessed on an amount equal to the lesser of the
current market value or the original purchase cost of the redeemed Class A
shares. Accordingly, no CDSC will be imposed on increases in account value
above the initial purchase price, including any dividends which have been
reinvested in additional Class A shares.
In determining whether a CDSC applies to a redemption, the calculation
will be determined in a manner that results in the lowest possible rate being
charged. Therefore, it will be assumed that the redemption is first made from
any shares in your account that are not subject to the CDSC. The CDSC is
waived on redemption in certain circumstances. See the discussion under
"Waiver of Contingent Deferred Sales Charges."
You may qualify for a reduced sales charge on your investments in Class A
shares.
Qualifying for a Reduced Sales Charge. If you invest more than $100,000 in
Class A shares of the Fund or a combination of funds in the John Hancock
funds (except money market funds), you may qualify for a reduced sales charge
on your investments in Class A shares through a LETTER OF INTENTION. You may
also be able to use the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE to
take advantage of the value of your previous investments in Class A shares of
John Hancock funds when meeting the breakpoints for a reduced sales charge.
For the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE, the applicable
sales charge will be based on the total of:
1. Your current purchase of Class A shares of the Fund;
2. The net asset value (at the close of business on the previous day) of
(a) all Class A shares of the Fund you hold, and (b) all Class A shares of
any other John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible
to combine his or her holdings with you into a single "purchase."
Example:
If you hold Class A shares of a John Hancock fund with a net asset value
of $80,000 and, subsequently, invest $20,000 in Class A shares of the Fund,
the sales charge on this subsequent investment would be 3.75% and not 4.50%.
This rate is the rate that would otherwise be applicable to investments of
less than $100,000. See "Initial Sales Charge Alternative--Class A Shares."
Class A shares may be available without a sales charge to certain
individuals and organizations.
B-20
<PAGE>
If you are in one of the following categories, you may purchase Class A
shares of the Fund without paying a sales charge:
(bullet) 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 of any of
the foregoing; or any fund, pension, profit sharing or other benefit plan for
the individuals described above.
(bullet) Any state, county, city or any instrumentality, department,
authority or agency of these entities that is prohibited by applicable
investment laws from paying a sales charge or commission when it purchases
shares of any registered investment management company.*
(bullet) A bank, trust company, credit union, savings institution or other
type of depository institution, its trust departments or common trust funds
if it is purchasing $1 million or more for non-discretionary customers or
accounts.*
(bullet) A broker, dealer or registered investment adviser that has
entered into an agreement with John Hancock Funds providing specifically for
the use of Fund shares in fee-based investment products made available to
their clients.
(bullet) A former participant in an employee benefit plan with John
Hancock funds, when he/she withdraws from his/her plan and transfers any or
all of his/her plan distributions directly to the Fund.
* For investments made under these provisions, John Hancock funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Fund may 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.
Contingent Deferred Sales Charge Alternative--Class B Shares. Class B
shares are offered at net asset value per share without a sales charge, so
that your entire initial investment will go to work at the time of purchase.
However, Class B shares redeemed within six years of purchase will be subject
to a CDSC at the rates set forth below. This charge will be assessed on an
amount equal to the lesser of the current market value or the original
purchase cost of the shares being redeemed. Accordingly, you will not be
assessed a CDSC on increases in account value above the initial purchase
price, including shares derived from dividend reinvestments.
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 reinvestment, and next from the shares you have held the
longest during the six-year period. The CDSC is waived on redemptions in
certain circumstances. See the discussion "Waiver of Contingent Deferred
Sales Charges" below.
B-21
<PAGE>
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time, your CDSC will be calculated as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
* Proceeds of 50 shares redeemed at $12 per share $ 600
* Minus proceeds of 10 shares not subject to CDSC because they were acquired
through dividend reinvestment (10 X $12) -120
* Minus appreciation on remaining shares, also not subject to CDSC (40 X $2) - 80
---
* Amount subject to CDSC $ 400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds
uses all or part of them to defray its expenses related to providing the Fund
with distribution services connected to the sale of Class B shares, such as
compensating selected Selling Brokers for selling these shares. The
combination of the CDSC and the distribution and service fees makes it
possible for the Fund to sell Class B shares without deducting a sales charge
at the time of the purchase.
The amount of the CDSC, if any, will vary depending on the number of years
from the time you purchase your Class B shares until the time you redeem
them. Solely for purposes of determining this holding period, any payments
you make during the month will be aggregated and deemed to have been made on
the last day of the month.
<TABLE>
<CAPTION>
Contingent Deferred Sales
Year In Which Class B Shares Charge As a Percentage of
Redeemed Following Purchase Dollar Amount Subject to CDSC
- ------------------------------- --------------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A commission equal to 3.75% of the amount invested and a first year's
service fee equal to 0.25% of the amount invested, are paid to Selling
Brokers. The initial service fee is paid in advance at the time of sale for
the provision of personal and account maintenance services to shareholders
during the twelve months following the sale, and thereafter the service fee
is paid in arrears.
Under certain circumstances, the CDSC on Class B and certain Class A share
redemptions will be waived.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and Class A shares that are subject to the CDSC
unless indicated otherwise, in the following circumstances:
(bullet) Redemptions of Class B shares made under a Systematic Withdrawal
Plan (see "How to Redeem Shares"), as long as your annual redemptions do not
exceed 10%
B-22
<PAGE>
of your account value at the time you established your Systematic Withdrawal
Plan and 10% of the value of your subsequent investments (less redemptions)
in that account at the time you notify Investor Services. This waiver does
not apply to Systematic Withdrawal Plan redemptions of Class A shares that
are subject to a CDSC.
(bullet) Redemptions made to effect distributions from an Individual
Retirement Account either before or after age 59-1/2, as long as the
distributions are based on your life expectancy or the joint-and-last
survivor life expectancy of you and your beneficiary. These distributions
must be free from penalty under the Code.
(bullet) Redemptions made to effect mandatory distributions under the Code
after age 70-1/2 from a tax-deferred retirement plan.
(bullet) Redemptions made to effect distributions to participants or
beneficiaries from certain employer-sponsored retirement plans including
those qualified under Section 401(a) of the Code, custodial accounts under
Section 403(b)(7) of the Code and deferred compensation plans under Section
457 of the Code. The waiver also applies to certain returns of excess
contributions made to these plans. In all cases, the distributions must be
free from penalty under the Code.
(bullet) Redemptions due to death or disability.
(bullet) Redemptions made under the Reinvestment Privilege, as described
in "Additional Services and Programs" of this Prospectus.
(bullet) Redemptions made pursuant to the Fund's right to liquidate your
account if you own fewer than 50 shares.
(bullet) Redemptions made in connection with certain liquidation, merger
or acquisition transactions involving other investment companies or personal
holding companies.
(bullet) Redemptions from certain IRA and retirement plans that purchased
shares prior to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must
notify Investor Services either directly or through your Selling Broker at
the time you make your redemption. The waiver will be granted once Investor
Services has confirmed that you are entitled to the waiver.
Conversion of Class B Shares. Your Class B shares, and an appropriate
portion of reinvested dividends on those shares will be converted into Class
A shares automatically. This will occur at the end of eight years after the
shares were purchased, and will result in lower annual distribution fees. If
you exchanged Class B shares into this Fund from another John Hancock fund,
the calculation will be based on the time you purchased the shares in the
original fund. The Fund has been advised that the conversion of Class B
shares to Class A shares should not be taxable for Federal income tax
purposes, nor should it change your tax basis or tax holding period for the
converted shares.
B-23
<PAGE>
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your
shares will be redeemed at the next NAV calculated after your redemption
request is received in good order by Investor Services, less any applicable
CDSC. The Fund may hold payment until it is reasonably satisfied that
investments recently made by check or Invest-by-Phone have been collected
(which may take up to 10 calendar days).
Once your shares are redeemed, the Fund generally sends you payment on the
next business day. When you redeem your shares, you may realize a taxable
gain or loss depending usually on the difference between what you paid for
them and what you receive for them, subject to certain tax rules. Under
unusual circumstances, the Fund may suspend redemptions or postpone payment
for up to seven days or longer, as permitted by Federal securities laws.
To assure acceptance of your redemption request, please follow these
procedures.
By Telephone
All Fund shareholders are automatically eligible for the telephone redemption
privilege. Call 1-800-225-5291, from 8:00 A.M. to 4:00 P.M. (New York time),
Monday through Friday, excluding days on which the New York Stock Exchange is
closed. Investor Services employs the following procedures to confirm that
instructions received by telephone are genuine. Your name, the account
number, taxpayer identification number applicable to the account and other
relevant information may be requested. In addition, telephone instructions
are recorded.
You may redeem up to $100,000 by telephone, but the address on the account
must not have changed for the last 30 days. A check will be mailed to the
exact name(s) shown on the account.
If reasonable procedures, such as those described above, are not followed,
the Fund may be liable for any loss due to unauthorized or fraudulent
instructions. In all other cases, neither the Fund nor Investor Services will
be liable for any loss or expense for acting upon telephone instructions made
in accordance with the telephone transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other tax-qualified
retirement plans or shares of the Fund that are in certificated form.
During periods of extreme economic conditions or market changes, telephone
requests may be difficult to implement due to a large volume of calls. During
these times you should consider placing redemption requests in writing or
using EASI-Line. EASI-Line's telephone number which is 1-800-338-8080.
By Wire
If you have a telephone redemption form on file with the Fund, redemption
proceeds of $1,000 or more can be wired on the next business day to your
designated bank account, and a fee (currently $4.00) will be deducted. You
may also use electronic funds transfer to your assigned bank account, and the
funds are usually collectable after two business days. Your bank may or may
not charge for this service. Redemptions of less than $1,000 will be sent by
check or electronic funds transfer.
This feature may be elected by completing the "Telephone Redemption" section
on the Account Privileges Application that is included with this Prospectus.
B-24
<PAGE>
In Writing
Send a stock power or "letter of instruction" specifying the name of the
Fund, the dollar amount or the number of shares to be redeemed, your name,
class of shares, your account number and the additional requirements listed
below that apply to your particular account.
<TABLE>
<CAPTION>
Type of Registration Requirements
- ---------------------------------- ---------------------------------------------------------------
<S> <C>
Individual, Joint Tenants, Sole
Proprietorship, Custodial A letter of instruction signed (with titles where applicable)
(Uniform Gifts or Transfer to by all persons authorized to sign for the account, exactly as
Minors Act), General Partners. it is registered with the signature(s) guaranteed.
Corporation, Association A letter of instruction and a corporate resolution, signed by
person(s) authorized to act on the account, with the
signature(s) guaranteed.
Trusts A letter of instruction signed by the Trustee(s) with the
signature(s) guaranteed. (If the Trustee's name is not
registered on your account, also provide a copy of the trust
document, certified within the last 60 days.)
</TABLE>
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
Who may guarantee your signature
A signature guarantee is a widely accepted way to protect you and the Fund
by verifying the signature on your request. It may not be provided by a
notary public. If the net asset value of the shares redeemed is $100,000 or
less, John Hancock Funds may guarantee the signature. The following
institutions may provide you with a signature guarantee, provided that the
institution meets credit standards established by Investor Services: (i) a
bank; (ii) a securities broker or dealer, including a government or municipal
securities broker or dealer, that is a member of a clearing corporation or
meets certain net capital requirements; (iii) a credit union having authority
to issue signature guarantees; (iv) a savings and loan association, a
building and loan association, a cooperative bank, a federal savings bank or
association; or (v) a national securities exchange, a registered securities
exchange or a clearing agency.
Additional information about redemptions
Through Your Broker
Your broker may be able to initiate the redemption. Contact your broker for
instructions.
If you have certificates for your shares, you must submit them with your
stock power or a letter of instruction. Unless you specify to the contrary,
any outstanding Class A shares will be redeemed before Class B shares. You
may not redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining smaller accounts, the
Fund reserves the right to redeem at net asset value all shares in an account
which holds fewer than 50 shares (except accounts under retirement plans) and
to mail the proceeds to the shareholder, or the transfer agent may impose an
annual fee of $10.00. No account will be involuntarily redeemed or additional
fee imposed, if the value of the account is in excess of the Fund's minimum
initial investment. No CDSC will be imposed on involuntary redemptions of
shares.
Shareholders will be notified before these redemptions are to be made or
this fee is imposed, and will have 30 days to purchase additional shares to
bring their account balance up to the required minimum. Unless the number of
shares acquired by further purchases and dividend reinvestments, if any,
exceeds the number of shares redeemed, repeated redemptions from a smaller
account may eventually trigger this policy.
B-25
<PAGE>
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege
You may exchange shares of the Fund only for shares of the same class of
another John Hancock fund.
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of
investment goals. Contact your registered representative or Selling Broker
and request a prospectus for the John Hancock fund that interests you. Read
the prospectus carefully before exchanging your shares. You can exchange
shares of each class of the Fund only for shares of the same class of another
John Hancock fund. For this purpose, John Hancock funds with only one class
of shares will be treated as Class A whether or not they have been so
designated.
Exchanges between funds that are not subject to a CDSC are based on the
respective net asset values. No sales charge or transaction charge is
imposed. Class B shares of the Fund which are subject to a CDSC may be
exchanged for Class B shares of another John Hancock fund without incurring
the CDSC; however these shares will be subject to the CDSC schedule of the
shares acquired (except for exchanges into John Hancock Short-Term Strategic
Income Fund, John Hancock Adjustable U.S. Government Trust and John Hancock
Limited-Term Government Fund will be subject to the initial fund's CDSC). For
purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the
holding period of the shares acquired in an exchange. However if you exchange
Class B shares purchased prior to January 1, 1994 for Class B shares of any
other John Hancock fund, you will continue to be subject to the CDSC schedule
that was in effect at your initial purchase date.
You may exchange Class B shares of the fund into shares of a John Hancock
money market fund at net asset value. However, you will continue to be
subject to a CDSC upon redemption.
The Fund reserves the right to require that you keep previously exchanged
shares (and reinvested dividends) in the Fund for 90 days before you are
permitted a new exchange. The Fund may also terminate or alter the terms of
the exchange privilege upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and
the purchase of shares in another for Federal income tax purposes. An
exchange may result in a taxable gain or loss.
When you make an exchange, your account registration must be identical in
both the existing and new account. The exchange privilege is available only
in states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers,
brokers and investment advisers may exchange their clients' Fund shares,
subject to the
B-26
<PAGE>
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and
other restrictions that do not apply to exchanges requested by shareholders
directly, as described above.
Because Fund performance and shareholders can be hurt by excessive
trading, the Fund reserves the right to terminate the exchange privilege for
any person or group that, in John Hancock Funds' judgment, is involved in a
pattern of exchanges that coincide with a "market timing" strategy that may
disrupt the Fund's ability to invest effectively according to its investment
objective and policies, or might otherwise affect the Fund and its
shareholders adversely. The Fund may also temporarily or permanently
terminate the exchange privilege for any person who makes seven or more
exchanges out of the Fund per calendar year. Accounts under common control or
ownership will be aggregated for this purpose. Although the Fund will attempt
to give you prior notice whenever it is reasonably able to do so, it may
impose these restrictions at any time.
By Telephone
1. When you complete the application for your initial purchase of Fund
shares, you automatically authorize exchanges by telephone unless you
check the box indicating that you do not wish to have the telephone
exchange privilege.
2. Call 1-800-225-5291. Have the account number of your current fund and
the exact name in which it is registered available to give to the
telephone representative.
3. Your name, the account number, taxpayer identification number
applicable to the account and other relevant information may be
requested. In addition, telephone instructions are recorded.
In Writing
1. In a letter request an exchange and list the following:
--the name and class of the Fund whose shares you currently own
--your account number
--the name(s) in which the account is registered
--the name of the Fund in which you wish your exchange to be invested
--the number of shares, all shares or the dollar amount you wish to
exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
B-27
<PAGE>
Reinvestment Privilege
If you redeem shares of the Fund, you may be able to reinvest all or part
of the proceeds in shares of the Fund or another John Hancock fund without
paying an additional sales charge.
1. You will not be subject to a sales charge on Class A shares that you
reinvest in any John Hancock fund that is otherwise subject to a sales
charge, as long as you reinvest within 120 days from the redemption
date. If you paid a CDSC upon a redemption, you may reinvest at net
asset value in the same class of shares from which you redeemed within
120 days. Your account will be credited with the amount of the CDSC
previously charged, and the reinvested shares will continue to be
subject to a CDSC. For purposes of computing the CDSC payable upon a
subsequent redemption, the holding period of the shares acquired
through reinvestment will include the holding period of the redeemed
shares.
2. Any portion of your redemption may be reinvested in Fund shares or in
shares of any of the other John Hancock funds, subject to the minimum
investment limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the
Fund(s) name, account number and class from which your shares were
originally redeemed.
Systematic Withdrawal Plan
You can pay routine bills from your account, or make periodic
disbursements from your retirement account to comply with IRS regulations.
1. You can elect the Systematic Withdrawal Plan at any time by completing
the Account Privileges Application which is attached to this
Prospectus. You can also obtain the application from your registered
representative or by calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly,
semi-annually or annually or on a selected monthly basis, to yourself
or any other designated payee.
4. There is no limit on the number of payees you may authorize, but all
payments must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares
because you may be subject to an initial sales charge on your purchases
of Class A shares or to a CDSC on your redemptions of Class B shares.
In addition, your redemptions are taxable events.
B-28
<PAGE>
6. Redemptions will be discontinued if the U.S. Postal Service cannot
deliver your checks, or if deposits to a bank account are returned for
any reason.
Monthly Automatic Accumulation Program (MAAP)
You can make automatic investments and simplify your investing.
1. You can authorize an investment to be drawn automatically each month
from your bank for investment in Fund shares, under the "Automatic
Investing" and "Bank Information" sections of the Account Privileges
Application.
2. You can also authorize automatic investing through payroll deduction by
completing the "Direct Deposit Investing" section of the Account
Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program at any
time.
4. There is no charge to you for this program, and there is no cost to the
Fund.
5. If you have payments being withdrawn from a bank account and we are
notified that the account has been closed, your withdrawals will be
discontinued.
Group Investment Program
Organized groups of at least four persons may establish accounts.
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate
dollar amount of all participants' investments. To determine how to
qualify for this program, contact your registered representative or
call 1-800-225-5291.
2. The initial aggregate investment of all participants in the group must
be at least $250.
3. There is no additional charge for this program. There is no obligation
to make investments beyond the minimum, and you may terminate the
program at any time.
Retirement Plans
1. You may use the Fund to fund various types of retirement plans,
including Individual Retirement Accounts, Keogh Plans (H.R. 10),
Pension and Profit Sharing Plans (including 401(k) Plans),
Tax-Sheltered Annuity Retirement Plans (403(b) or TSA Plans), and 457
Plans.
2. The initial investment minimum or aggregate minimum for any of the
above plans is $250. However, accounts being established as group IRA,
SEP, SARSEP, TSA, 401(k) and 457 Plans will be accepted without an
initial minimum investment.
B-29
<PAGE>
INSTITUTIONAL INVESTORS
Class C shares of the Fund are available only to the following types of
institutional investors: (i) Benefit plans not affiliated with the Adviser
which have at least $25,000,000 in plan assets, and either have a separate
trustee vested with investment discretion and certain limitations on the
ability of the plan beneficiaries to access their plan investments without
incurring adverse tax consequences or allow their participants to select
among one or more investment options, including the Fund
("participant-directed plans"); (ii) Banks and insurance companies which are
not affiliated with the Adviser purchasing shares for their own account;
(iii) Investment companies not affiliated with the Adviser; (iv) Tax-exempt
retirement plans of the Adviser and its affiliates, including affiliated
brokers; (v) Unit investment trusts sponsored by John Hancock Funds and
certain other sponsors; and (vi) Existing full-service clients of John
Hancock Mutual Life Insurance Company who were group annuity contract holders
as of September 1, 1994. Participant-directed plans include, but are not
limited to, 401(k), TSA and 457 plans.
Class C shares are available to eligible institutional investors at net
asset value without the imposition of a sales charge and are not subject to
ongoing distribution fees imposed under a plan adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940. The minimum initial investment in
Class C shares is $1,000,000, but this requirement may be waived at the
discretion of the Company's officers. Some individuals who are currently
eligible to purchase Class A or Class B shares may also be participants in
plans that are eligible to purchase Class C shares of the Fund.
John Hancock Funds may pay a one-time payment of up to 0.15% of the amount
invested in Class C shares to a selling broker for its sales of Class C
shares. A person entitled to receive compensation for selling shares of the
Fund may receive different compensation with respect to sales of Class A,
Class B or Class C shares or any additional future class of shares.
Class C shares are also available to existing full-service clients of John
Hancock Mutual Life Insurance Company who were group annuity contract holders
as of September 1, 1994. John Hancock Funds, out of its own resources, may
pay to a Selling Broker an annual service fee of up to 0.20% of the amount
invested in Class C shares by these clients.
The Reinvestment Privilege, Systematic Withdrawal Plan, Monthly Automatic
Accumulation Program, Group Investment Program and Retirement Plans are not
available for Class C shares.
If you are considering a purchase of Class C shares of the Fund, please
call John Hancock Investor Services Corporation at 1-800-437-9312 to obtain
information about eligibility, instructions for purchase by check or wire and
an Institutional Account Application.
B-30
<PAGE>
APPENDIX
Moody's describes its lower ratings for corporate bonds as follows.
Bonds which are rated Baa are considered as medium grade obligations, i.e.
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby are well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
S&P describes its lower ratings for corporate bonds as follows:
Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Debt rated BB, B, CCC, or C is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
B-31
<PAGE>
Quality Distribution
The average weighted quality distribution of the portfolio for the fiscal
year ended December 31, 1994:
<TABLE>
<CAPTION>
Rating
Assigned Rating
Average % of by % of Assigned % of
Security Ratings Value Portfolio Adviser Portfolio by Service Portfolio
- -------------------- ------------ -------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
AAA $ 506,896,240 36.2% 0 0.0% $ 506,896,240 36.2%
AA 149,154,024 10.6% 0 0.0% 149,154,024 10.6%
A 240,396,674 17.2% 0 0.0% 240,396,674 17.2%
BAA 200,808,990 14.3% 0 0.0% 200,808,990 14.3%
BA 165,446,356 11.8% 0 0.0% 165,446,356 11.8%
B 114,182,848 8.2% 0 0.0% 114,182,848 8.2%
CAA 6,292,420 0.4% 0 0.0% 6,292,420 0.4%
CA 0 0.0% 0 0.0% 0 0.0%
C 0 0.0% 0 0.0% 0 0.0%
D 0 0.0% 0 0.0% 0 0.0%
---------- ------ ------- ------ --------- --------
Debt Securities 1,383,177,552 98.7% 0 0.0% $1,383,177,552 98.7%
Equity Securities 0 0.0%
Short-Term
Securities 18,727,923 1.3%
---------- ------
Total Portfolio 1,401,905,475 100.0%
Other Assets--Net 25,728,800
----------
Net Assets $1,427,634,275
==========
</TABLE>
B-32
<PAGE>
JOHN HANCOCK SOVEREIGN
BOND FUND
Investment Adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Principal Distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Custodian
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
Transfer Agent
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For: Service Information
Telephone Exchange call 1-800-225-5291
Investment-by-Phone
Telephone Redemption
TDD call 1-800-554-6713
JHD-2100P 5/95 [reverse recycle logo] Printed on recycled paper
JOHN HANCOCK
SOVEREIGN
BOND FUND
Class A and B Shares
Prospectus
May 1, 1995
A mutual fund seeking to generate a high level of current income consistent
with prudent investment risk through investment in a diversified portfolio of
freely marketable debt securities.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Telephone 1-800-225-5291
