John Hancock
Sovereign
Bond Fund
Class A and Class B Shares
Prospectus
May 1, 1995
TABLE OF CONTENTS
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Page
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Expense Information 2
The Fund's Financial Highlights 3
Investment Objective and Policies 5
Organization and Management of the Fund 9
Alternative Purchase Arrangements 10
The Fund's Expenses 11
Dividends and Taxes 12
Performance 13
How to Buy Shares 14
Share Price 15
How to Redeem Shares 20
Additional Services and Programs 22
Institutional Investors 25
Appendix 26
</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. 5."
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.
2100S 6/95
<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>
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Class A Class B
Shares Shares
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Shareholder Transaction
Expenses
Maximum sales charge
imposed on purchases (as
a percentage of offering
price) 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.
The management and 12b-1 fees referred to above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contract."
2
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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>
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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%
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<TABLE>
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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%
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3
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THE FUND'S FINANCIAL HIGHLIGHTS (continued)
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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>
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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.
4
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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.
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.
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 mortgage loans
underlying mortgage-backed securities are generally subject to a greater rate
of principal prepayments in a declining interest rate environment and to a
lesser rate of principal prepayments in an increasing interest rate
environment. Under certain interest and prepayment rate scenarios, the Fund may
fail to recover the full amount of its investment in mortgage-backed securities
5
<PAGE>
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 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.
6
<PAGE>
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.
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
7
<PAGE>
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.
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.
8
<PAGE>
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 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
9
<PAGE>
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.
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.
10
<PAGE>
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 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.
11
<PAGE>
The Fund pays distribution and service fees for marketing and sales-related
shareholder servicing.
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 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.
12
<PAGE>
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
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."
13
<PAGE>
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.
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.
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<PAGE>
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.
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
15
<PAGE>
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 Reallowance
Charge Charge and Service to Selling
as a as a Fee as a Brokers as a
Percentage Percentage Percentage of Percentage of
Amount invested of Offering of the Amount Offering Offering
(Including Sales 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>
(*) 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
16
<PAGE>
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. 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."
17
<PAGE>
Class A shares may be available without a sales charge to certain individuals
and organizations.
If you are in one of the following categories, you may purchase Class A shares
of the Fund without paying a sales charge:
(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.
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
18
<PAGE>
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>
(bullet) Proceeds of 50 shares redeemed at $12 per
share $ 600
(bullet) Minus proceeds of 10 shares not subject to
CDSC because they were acquired through
dividend reinvestment (10 X $12) -120
(bullet) Minus appreciation on remaining shares,
also not subject to CDSC (40 X $2) - 80
(bullet) 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% 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.
19
<PAGE>
(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.
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.
20
<PAGE>
By Telephone
To assure acceptance of your redemption request, please follow these
procedures.
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.
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 A letter of instruction signed (with titles where applicable) by
Proprietorship, Custodial (Uniform all persons authorized to sign for the account, exactly as it is
Gifts or Transfer to Minors Act), registered with the signature(s) guaranteed.
General Partners.
Corporation, Association A letter of instruction and a corporate resolution, signed by
person(s) authorized to act on the account, with the
signature(s) guaranteed.
Trusts A letter of instruction signed by the Trustee(s) with the
signature(s) guaranteed. (If the Trustee's name is not
registered on your account, also provide a copy of the trust
document, certified within the last 60 days.)
If you do not fall into any of these registration categories, please call 1-800-225-5291 for further instructions.
</TABLE>
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<PAGE>
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.
Through Your Broker
Your broker may be able to initiate the redemption. Contact your broker for
instructions.
Additional information about redemptions
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.
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.
22
<PAGE>
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 rate of the CDSC will be the rate in effect on the
original fund at the time of the exchange.
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
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.
23
<PAGE>
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
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
24
<PAGE>
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.
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.
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
25
<PAGE>
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.
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.
26
<PAGE>
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.
Quality Distribution
The average weighted quality distribution of the portfolio for the fiscal year
ended December 31, 1994:
<TABLE>
<CAPTION>
Rating Rating
Average % of Assigned % of Assigned % of
Security Ratings Value Portfolio by 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>
27
<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
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
[RECYCLE LOGO] Printed on recycled paper using soybean ink
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