FILE NOS. 2-48925
811-2402
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 42 (X)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 25 (X)
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JOHN HANCOCK SOVEREIGN BOND FUND
(Exact Name of Registrant as Specified in Charter)
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, (617) 375-1700
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SUSAN S. NEWTON
Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
(X) on May 1, 1997 pursuant to paragraph (b) of Rule 485
( ) 60 days after filing pursuant to paragraph (a) of Rule 485
( ) on (DATE) pursuant to paragraph (a) of Rule 485
Calculation of Registration Fees Under the Securities Act of 1933
<TABLE>
<CAPTION>
Proposed Maximum Proposed Aggregate
Title of Securities Amount of Shares Offering Price Maximum Amount of
Being Registered Being Registered Per Share Offering Price Registration Fee
---------------- ---------------- --------- -------------- ----------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest Indefinite N/A N/A 0
Shares of Beneficial Interest 2,064,968 $15.28 N/A N/A
</TABLE>
1. Registrant continues its election to register an indefinite number of
shares of beneficial interest pursuant to Rule 24f-2 under the
investment Company Act of 1940, as amended.
2. Registrant elects to calculate the maximum aggregate offering price
pursuant to Rule 24e-2. 26,388,473 shares were redeemed during the
fiscal year ended December 31, 1996. 0 shares were used for reductions
pursuant to Paragraph (c) of Rule 24f-2 during the current fiscal year.
2,064,968 shares is the amount of redeemed shares used for reduction in
this Amendment. Pursuant to Rule 457(c) under the Securities Act of
1933, the Maximum public offering price of $15.28 per share on April
21, 1997 is the price used as the basis for calculating the
registration fee. No fee is required for the 2,064,968 shares.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of shares under the Securities Act of 1933. The
Registrant filed the notice required by Rule 24f-2 for its most recent fiscal
year on or about February 26, 1997.
<PAGE>
<TABLE>
<CAPTION>
Item Number Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
------ ------------------ -------------------
<S> <C> <C>
1 Front Cover Page *
2 Overview; Investor Expenses; *
3 Financial Highlights *
4 Overview; Goal and Strategy; Portfolio *
Securities; Risk Factors; Business
Structure; More About Risk
5 Overview; Business Structure; *
Manager/Subadviser; Investor Expenses
6 Choosing a Share Class; Buying Shares; *
Selling Shares; Transaction Policies;
Dividends and Account Policies;
Additional Investor Services
7 Choosing a Share Class; How Sales Charges *
are Calculated; Sales Charge Deductions
and Waivers; Opening an Account; Buying
Shares; Transaction Policies; Additional
Investor Services
8 Selling Shares; Transaction Policies; *
Dividends and Account Policies
9 Not Applicable *
10 * Front Cover Page
11 * Table of Contents
12 * Organization of the Fund
13 * Investment Objectives and Policies;
Certain Investment Practices;
Investment Restrictions
14 * Those Responsible for Management
15 * Those Responsible for Management
16 * Investment Advisory; Subadvisory
and Other Services; Distribution
Contract; Transfer Agent Services;
Custody of Portfolio; Independent
Auditors
17 * Brokerage Allocation
18 * Description of Fund's Shares
19 * Net Asset Value; Additional
Services and Programs
20 * Tax Status
21 * Distribution Contract
22 * Calculation of Performance
23 * Financial Statements
</TABLE>
<PAGE>
JOHN HANCOCK
Income Funds
[Logo]
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Prospectus Government Income Fund
May 1, 1997*
High Yield Bond Fund
This prospectus gives vital
information about these funds. Intermediate Maturity
For your own benefit and Government Fund
protection, please read it before
you invest, and keep it on hand Limited-Term Government Fund
for future reference.
Sovereign Bond Fund
Please note that these funds:
o are not bank deposits Sovereign U.S. Government Income Fund
o are not federally insured
o are not endorsed by any bank Strategic Income Fund
or government agency
o are not guaranteed to achieve
their goal(s)
Some of these funds may invest up
to 100% in junk bonds; read risk
information carefully.
Like all mutual fund shares,
these securities have not been
approved or disapproved by the
Securities and Exchange
Commission or any state
securities commission, nor has
the Securities and Exchange
Commission or any state
securities commission passed upon
the accuracy or adequacy of this
prospectus. Any representation to
the contrary is a criminal
offense.
*March 1, 1997 for all funds
except Limited-Term Government
Fund and Sovereign Bond Fund.
[Logo]JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
Contents
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A fund-by-fund look at goals, Government Income Fund 4
strategies, risks, expenses High Yield Bond Fund 6
and financial history. Intermediate Maturity Government Fund 8
Limited-Term Government Fund 10
Sovereign Bond Fund 12
Sovereign U.S. Government Income Fund 14
Strategic Income Fund 16
Policies and instructions for Your account
opening, maintaining and Choosing a share class 18
closing an account in any How sales charges are calculated 18
income fund. Sales charge reductions and waivers 19
Opening an account 20
Buying shares 21
Selling shares 22
Transaction policies 24
Dividends and account policies 24
Additional investor services 25
Details that apply to the Fund details
income funds as a group. Business structure 26
Sales compensation 27
More about risk 29
For more information back cover
<PAGE>
Overview
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GOAL OF THE INCOME FUNDS
John Hancock income funds seek current income without sacrificing total return.
Some of the funds also invest for stability of principal. Each fund has its own
strategy and its own risk/reward profile. Because you could lose money by
investing in these funds, be sure to read all risk disclosure carefully before
investing.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
o are seeking a regular stream of income
o are seeking higher potential returns than money market funds and are willing
to accept moderate risk of volatility
o want to diversify their portfolios
o are seeking a mutual fund for the income portion of an asset allocation
portfolio
o are retired or nearing retirement
Income funds may NOT be appropriate if you:
o are investing for maximum return over a long time horizon
o require absolute stability of your principal
THE MANAGEMENT FIRM
All John Hancock income funds are managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Mutual Life Insurance Company and manages more than $20 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Clipart] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clipart] Portfolio securities The primary types of securities in which the fund
invests. Secondary investments are described in "More about risk" at the end of
the prospectus.
[Clipart] Risk factors The major risk factors associated with the fund.
[Clipart] Portfolio management The individual or group designated by the
investment adviser to handle the fund's day-to-day management.
[Clipart] Expenses The overall costs borne by an investor in the fund, including
sales charges and annual expenses.
[Clipart] Financial highlights A table showing the fund's financial performance
for up to ten years, by share class. A bar chart showing total return allows you
to compare the fund's historical risk level to those of other funds.
<PAGE>
Government Income Fund
REGISTRANT NAME: JOHN HANCOCK BOND TRUST
TICKER SYMBOL CLASS A: JHGIX CLASS B: TSGIX
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GOAL AND STRATEGY
[Clipart] The fund seeks to earn a high level of current income consistent with
preservation of capital. To pursue this goal, the fund invests primarily in U.S.
Government and agency securities of any maturity, as described below. Stability
of share price is a secondary goal.
PORTFOLIO SECURITIES
[Clipart] Under normal circumstances, the fund invests at least 80% of assets in
securities that are issued, or guaranteed as to principal and interest, by the
U.S. Government, its agencies or instrumentalities. These may include
Treasuries, mortgage-backed securities such as Ginnie Maes, Freddie Macs and
Fannie Maes, and repurchase agreements and forward commitments involving these
securities.
For liquidity and flexibility, the fund may place up to 20% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain higher-risk investments, including asset-backed securities,
U.S. dollar-denominated foreign government securities and derivative and
leveraged investments, and may engage in other investment practices. Investments
in asset-backed and foreign government securities must be in the two highest and
four highest rating categories, respectively, or if unrated, be of comparable
quality. Up to 10% of assets may be invested in foreign government bonds rated
BB/Ba or B (junk bonds).
RISK FACTORS
[Clipart] As with most income funds, the value of your investment will fluctuate
with changes in interest rates. Typically, a rise in interest rates causes a
decline in the market value of debt securities (including U.S. Government and
mortgage-backed securities). To the extent that the fund invests in
mortgage-backed securities, it may also be subject to extension and prepayment
risks. These risks are defined in "More about risk" starting on page 29. Other
factors may affect the market price and yield of the fund's securities,
including investor demand and domestic and worldwide economic conditions.
The U.S. Government does not guarantee the market value or the current yield of
government securities, nor does the government's guarantee in any way extend to
the fund itself. Please read "More about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[Clipart] Barry H. Evans, CFA, leader of the fund's portfolio management team
since January 1995, is a senior vice president of the adviser. He has been in
the investment business since joining John Hancock Funds in 1986.
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INVESTOR EXPENSES
[Clipart] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
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Shareholder transaction expenses Class A Class B
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Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
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Annual fund operating expenses (as a % of average net assets)
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Management fee 0.63% 0.63%
12b-1 fee(3) 0.25% 1.00%
Other expenses 0.30% 0.30%
Total fund operating expenses 1.18% 1.93%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
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Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $56 $81 $107 $182
Class B shares
Assuming redemption
at end of period $70 $91 $124 $206
Assuming no redemption $20 $61 $104 $206
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
4 GOVERNMENT INCOME FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
1988(1) 1989 1990 1991 1992 1993 1994(1) 1995(2) 1996
2.40(6) 10.22 3.71 14.38 8.81 9.86 (6.42) 14.49 3.84
<TABLE>
<CAPTION>
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Class A - year ended October 31, 1994(1) 1995(2) 1996
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<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 8.85 $ 8.75 $ 9.32
Net investment income (loss) 0.06 0.72 0.65(3)
Net realized and unrealized gain (loss) on investments (0.10) 0.57 (0.25)
Total from investment operations (0.04) 1.29 0.40
Less distributions:
Dividends from net investment income (0.06) (0.72) (0.65)
Net asset value, end of period $ 8.75 $ 9.32 $ 9.07
Total investment return at net asset value(4,5) (%) (0.45)(6) 15.32 4.49
Total adjusted investment return at net asset value(4) (%) (0.46)(6) 15.28 --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 223 470,569 396,323
Ratio of expenses to average net assets(5) (%) 0.12(6) 1.19 1.17
Ratio of net investment income (loss) to average net assets(5) (%) 0.71(6) 7.38 7.10
Portfolio turnover rate (%) 92 102 106
Debt outstanding at end of period (000s omitted)(7) ($) -- -- --
Average daily amount of debt outstanding during the period (000s omitted)(7) ($) 349 N/A N/A
Average monthly number of shares outstanding during the period (000s omitted) 28,696 N/A N/A
Average daily amount of debt outstanding per share during the period(7) ($) 0.01 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
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Class B - year ended October 31, 1988(1) 1989 1990 1991 1992 1993 1994
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<S> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.58 $ 10.01 $ 9.98 $ 9.37 $ 9.79 $ 9.83 $ 10.05
Net investment income (loss) 0.69(3) 0.98 0.88 0.89 0.80 0.70 0.65
Net realized and unrealized gain (loss) on
investments (0.45) (0.01) (0.54) 0.40 0.03 0.24 (1.28)
Total from investment operations 0.24 0.97 0.34 1.29 0.83 0.94 (0.63)
Less distributions
Dividends from net investment income (0.64) (1.00) (0.95) (0.87) (0.79) (0.72) (0.65)
Distributions from net realized gain on
investments sold (0.17) -- -- -- -- -- (0.02)
Total distributions (0.81) (1.00) (0.95) (0.87) (0.79) (0.72) (0.67)
Net asset value, end of period $10.01 $ 9.98 $ 9.37 $ 9.79 $ 9.83 $ 10.05 $ 8.75
Total investment return at net asset value(4,5) (%) 2.40(6) 10.22 3.71 14.38 8.81 9.86 (6.42)
Total adjusted investment return at net asset
value(4) (%) 1.02(6) 9.40 3.67 -- 8.66 9.85 (6.43)
Ratios and supplemental data
Net assets end of period (000s omitted) ($) 6,966 26,568 64,707 129,014 225,540 293,413 241,061
Ratio of expenses to average net assets (%) 1.38(6) 2.00 2.00 2.00 2.00(5) 2.00(5) 1.93(5)
Ratio of adjusted expenses to average net assets (%) 2.76(6) 2.82 2.04 -- -- -- --
Ratio of net investment income (loss) to average net
assets(5) (%) 6.34(6) 9.64 9.22 9.09 8.03 7.06 6.98
Ratio of adjusted net investment income (loss) to
average net assets (%) 4.96(6) 8.82 9.18 -- -- -- --
Portfolio turnover rate (%) 174 151 83 162 112 138 92
Fee reduction per share ($) 0.15 0.08 0.004 -- -- -- --
Debt outstanding at end of period (000s omitted)(7) ($) -- -- -- -- 0 0 0
Average daily amount of debt outstanding during the
period (000s omitted)(7) ($) -- -- -- -- 6,484 503 349
Average monthly number of shares outstanding during
the period (000s omitted) -- -- -- -- 18,572 26,378 28,696
Average daily amount of debt outstanding per share
during the period(7) ($) -- -- -- -- 0.35 0.02 0.01
</TABLE>
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Class B - year ended October 31, 1995(2) 1996
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $ 8.75 $ 9.32
Net investment income (loss) 0.65 0.58(3)
Net realized and unrealized gain (loss) on
investments 0.57 (0.24)
Total from investment operations 1.22 0.34
Less distributions
Dividends from net investment income (0.65) (0.58)
Distributions from net realized gain on
investments sold -- --
Total distributions (0.65) (0.58)
Net asset value, end of period $ 9.32 $ 9.08
Total investment return at net asset value(4,5) (%) 14.49 3.84
Total adjusted investment return at net asset
value(4) (%) 14.47 --
Ratios and supplemental data
Net assets end of period (000s omitted) ($) 226,954 178,124
Ratio of expenses to average net assets (%) 1.89(5) 1.90
Ratio of adjusted expenses to average net assets (%) -- --
Ratio of net investment income (loss) to average net
assets(5) (%) 7.26 6.37
Ratio of adjusted net investment income (loss) to
average net assets (%) -- --
Portfolio turnover rate (%) 102 106
Fee reduction per share ($) -- --
Debt outstanding at end of period (000s omitted)(7) ($) -- --
Average daily amount of debt outstanding during the
period (000s omitted)(7) ($) N/A N/A
Average monthly number of shares outstanding during
the period (000s omitted) N/A N/A
Average daily amount of debt outstanding per share
during the period(7) ($) N/A N/A
(1) Class A and Class B shares commenced operations on September 30, 1994 and
February 23, 1988, respectively.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Excludes interest expense, which equals 0.04% for Class A for the year
ended October 31, 1995 and 0.15%, 0.01%, 0.01% and 0.02% for Class B for
the years ended October 31, 1992, 1993, 1994 and 1995, respectively.
(6) Not annualized.
(7) Debt outstanding consists of reverse repurchase agreements entered into
during the year.
GOVERNMENT INCOME FUND 5
<PAGE>
High Yield Bond Fund
REGISTRANT NAME: JOHN HANCOCK BOND TRUST
TICKER SYMBOL CLASS A: JHHBX CLASS B: TSHYX
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GOAL AND STRATEGY
[Clipart] The fund seeks to maximize current income without assuming undue risk.
To pursue this goal, the fund invests primarily in junk bonds, i.e. lower-rated,
higher-yielding debt securities.
Because the performance of junk bonds has historically been influenced by
economic conditions, the fund may rotate securities selection by business sector
according to the economic outlook. The fund also seeks capital appreciation, but
only when consistent with its primary goal.
PORTFOLIO SECURITIES
[Clipart] Under normal circumstances, the fund invests at least 65% of assets in
bonds rated lower than BBB/Baa and their unrated equivalents. Up to 10% of
assets may be invested in bonds rated CC/Ca. Up to 40% of assets may be invested
in the securities of issuers in the electric utility and telephone industries.
For all other industries, the limitation is 25% of assets.
Types of bonds include, but are not limited to, domestic and foreign corporate
bonds, debentures, notes, convertible securities, preferred stocks, municipal
obligations and government obligations.
The fund may also invest up to 20% of net assets in U.S. or foreign equities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain higher-risk investments, including restricted securities, and
may engage in other investment practices.
RISK FACTORS
[Clipart] Investors should expect greater fluctuations in share price, yield and
total return compared to less aggressive bond funds. These fluctuations, whether
positive or negative, may be sharp and unanticipated.
Issuers of junk bonds are typically in weak financial health and their ability
to pay interest and principal is uncertain. Compared to issuers of
investment-grade bonds, they are more likely to encounter financial difficulties
and to be materially affected by these difficulties when they do encounter them.
Junk bond markets may react strongly to adverse news about an issuer or the
economy, or to the perception or expectation of adverse news. Before you invest,
please read "More about risk" starting on page 29.
PORTFOLIO MANAGEMENT
[Clipart] Arthur N. Calavritinos, CFA, leader of the fund's portfolio management
team since July 1995, is a second vice president of the adviser. He joined John
Hancock Funds in 1988 and has been in the investment business since 1987.
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INVESTOR EXPENSES
[Clipart] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
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Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.56% 0.56%
12b-1 fee(3) 0.25% 1.00%
Other expenses 0.29% 0.29%
Total fund operating expenses 1.10% 1.85%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
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Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $56 $78 $103 $173
Class B shares
Assuming redemption
at end of period $69 $88 $120 $197
Assuming no redemption $19 $58 $100 $197
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
6 HIGH YIELD BOND FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
1987(1) 1988 1989 1990 1991 1992 1993(1) 1994 1995(2) 1996
(0.10)(5) 9.77 (4.51) (8.04) 34.21 11.56 21.76 (1.33) 7.97 15.24
<TABLE>
<CAPTION>
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Class A - year ended October 31, 1993(1) 1994 1995(2) 1996
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<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 8.10 $ 8.23 $ 7.33 $ 7.20
Net investment income (loss) 0.33 0.80(3) 0.72 0.76(3)
Net realized and unrealized gain (loss) on investments 0.09 (0.83) (0.12) 0.35
Total from investment operations 0.42 (0.03) 0.60 1.11
Less distributions:
Dividends from net investment income (0.29) (0.82) (0.73) (0.76)
Distributions from net realized gain on investments sold -- (0.05) -- --
Total distributions (0.29) (0.87) (0.73) (0.76)
Net asset value, end of period $ 8.23 $ 7.33 $ 7.20 $ 7.55
Total investment return at net asset value(4) (%) 4.96(5) (0.59) 8.83 16.06
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 2,344 11,696 26,452 52,792
Ratio of expenses to average net assets (%) 0.91(6) 1.16 1.16 1.10
Ratio of net investment income (loss) to average net assets (%) 12.89(6) 10.14 10.23 10.31
Portfolio turnover rate (%) 204 153 98 113
</TABLE>
<TABLE>
<CAPTION>
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Class B - year ended October 31, 1987(1) 1988 1989 1990 1991 1992
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<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 9.95 $ 9.94 $ 9.70 $ 8.14 $ 6.45 $ 7.44
Net investment income (loss) 0.01 1.07(3) 1.16 1.09 0.98 0.87
Net realized and unrealized gain (loss)
on investments (0.02) (0.14) (1.55) (1.68) 1.06 (0.04)
Total from investment operations (0.01) 0.93 (0.39) (0.59) 2.04 0.83
Less distributions:
Dividends from net investment income -- (1.17) (1.14) (1.09) (0.98) (0.84)
Distributions from net realized gain on
investments sold -- -- -- -- -- --
Distributions from capital paid-in -- -- (0.03) (0.01) (0.07) --
Total distributions -- (1.17) (1.17) (1.10) (1.05) (0.84)
Net asset value, end of period $ 9.94 $ 9.70 $ 8.14 $ 6.45 $ 7.44 $ 7.43
Total investment return at net asset
value(4) (%) (0.10)(5) 9.77 (4.51) (8.04) 34.21 11.56
Total adjusted investment return at net
asset value(4,7) (%) (0.41)(5) 9.01 (4.82) (8.07) -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 110 20,852 33,964 37,097 72,023 98,560
Ratio of expenses to average net assets (%) 0.03(6) 2.00 2.20 2.22 2.24 2.25
Ratio of adjusted expenses to average net assets(8) (%) 0.34(6) 2.76 2.51 2.25 -- --
Ratio of net investment income (loss) to average net assets (%) 0.09(6) 10.97 12.23 14.59 13.73 11.09
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) (0.22)(6) 10.21 11.92 14.56 -- --
Portfolio turnover rate (%) 0 60 100 96 93 206
Fee reduction per share ($) 0.03 0.07 0.03 0.002 -- --
<CAPTION>
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Class B - year ended October 31, 1993 1994 1995(2) 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $ 7.43 $ 8.23 $ 7.33 $ 7.20
Net investment income (loss) 0.80 0.74(3) 0.67 0.70(3)
Net realized and unrealized gain (loss)
on investments 0.75 (0.83) (0.13) 0.35
Total from investment operations 1.55 (0.09) 0.54 1.05
Less distributions:
Dividends from net investment income (0.75) (0.76) (0.67) (0.70)
Distributions from net realized gain on
investments sold -- (0.05) -- --
Distributions from capital paid-in -- -- -- --
Total distributions (0.75) (0.81) (0.67) (0.70)
Net asset value, end of period $ 8.23 $ 7.33 $ 7.20 $ 7.55
Total investment return at net asset
value(4) (%) 21.76 (1.33) 7.97 15.24
Total adjusted investment return at net
asset value(4,7) (%) -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 154,214 160,739 180,586 242,944
Ratio of expenses to average net assets (%) 2.08 1.91 1.89 1.82
Ratio of adjusted expenses to average net assets(8) (%) -- -- -- --
Ratio of net investment income (loss) to average net assets (%) 10.07 9.39 9.42 9.49
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) -- -- -- --
Portfolio turnover rate (%) 204 153 98 113
Fee reduction per share ($) -- -- -- --
</TABLE>
(1) Class A and Class B shares commenced operations on June 30, 1993 and
October 26, 1987, respectively.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
(7) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(8) Unreimbursed, without fee reduction.
HIGH YIELD BOND FUND 7
<PAGE>
Intermediate Maturity Government Fund
REGISTRANT NAME: JOHN HANCOCK BOND TRUST
TICKER SYMBOL CLASS A: TAUSX CLASS B: TSUSX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart] The fund seeks to earn a high level of current income consistent with
preservation of capital and maintenance of liquidity. To pursue this goal, the
fund invests primarily in U.S. Government securities of any maturity, as
described below. The fund's weighted average maturity will typically be between
three and ten years.
PORTFOLIO SECURITIES
[Clipart] Under normal circumstances, the fund invests at least 65% of assets
in securities that are issued, or guaranteed as to principal and interest, by
the U.S. Government, its agencies or instrumentalities. These may include
Treasuries and mortgage-backed securities such as Ginnie Maes and Fannie Maes.
The fund may invest up to 35% in asset-backed securities or corporate debt
securities rated AAA/Aaa and their unrated equivalents. For liquidity and
flexibility, the fund may place up to 35% of assets in investment-grade
short-term securities. In abnormal market conditions, it may invest more assets
in these securities as a defensive tactic. The fund also may invest in certain
higher-risk investments, including derivative and leveraged investments, and may
engage in other investment practices.
RISK FACTORS
[Clipart] As with most income funds, the value of your investment will fluctuate
with changes in interest rates. Typically, a rise in interest rates causes a
decline in the market value of debt securities (including U.S. Government and
mortgage-backed securities). To the extent that the fund invests in
mortgage-backed securities, it may also be subject to extension and prepayment
risks. These risks are defined in "More about risk" starting on page 29. Other
factors may affect the market price and yield of the fund's securities,
including investor demand and domestic and worldwide economic conditions.
The U.S. Government does not guarantee the market value or the current yield of
government securities, nor does the government's guarantee in any way extend to
the fund itself. Please read "More about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[Clipart] Roger C. Hamilton, leader of the fund's portfolio management team
since January 1992 (with the fund's previous adviser), is a vice president of
the adviser. He joined John Hancock Funds in December 1994 and has been in the
investment business since 1980.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clipart] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 3.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 3.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee (after expense limitation)(3) 0.00% 0.00%
12b-1 fee 0.25% 1.00%
Other expenses (after limitation)(3) 0.50% 0.50%
Total fund operating expenses
(after limitation)(3) 0.75% 1.50%
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $37 $53 $70 $120
Class B shares
Assuming redemption
at end of period $45 $67 $82 $131
Assuming no redemption $15 $47 $82 $131
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(3) Reflects the adviser's temporary agreement to limit expenses (except for
12b-1 and other class-specific expenses). Without this limitation,
management fees would be 0.40% for each class, other expenses would be
0.72% for each class and total fund operating expenses would be 1.37% for
Class A and 2.02% for Class B.
8 INTERMEDIATE MATURITY GOVERNMENT FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
1992(4) 1993 1994 1995(2) 1996 1996(6)
1.96(4) 6.08 2.51 5.60 3.98 2.03(4)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended March 31, 1992(1) 1993 1994 1995(2) 1996 1996(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 10.00 $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69
Net investment income (loss) 0.17 0.58 0.41 0.49 0.62 0.40(4)
Net realized and unrealized gain (loss) on investments 0.03 0.02 (0.16) (0.11) (0.08) (0.21)
Total from investment operations 0.20 0.60 0.25 0.38 0.54 0.19
Less distributions:
Dividends from net investment income (0.17) (0.58) (0.41) (0.48) (0.64) (0.34)
Net asset value, end of period $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.54
Total investment return at net asset value(5,7)(%) 1.96(6) 6.08 2.51 3.98 5.60 2.03(6)
Total adjusted investment return at net asset value(4,7)(%) 1.68(6) 5.53 2.27 3.43 4.83 1.87(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 13,775 33,273 24,310 12,950 29,024 25,856
Ratio of expenses to average net assets(5)(%) 0.50(9) 0.50 0.75 0.80 0.75 0.75(9)
Ratio of adjusted expenses to average net assets(8,10)(%) 1.62(9) 1.05 0.99 1.35 1.45 1.07(9)
Ratio of net investment income (loss) to average assets(10)(%)
assets (%) 6.47(9) 5.47 4.09 4.91 6.49 7.05(9)
Ratio of adjusted net investment income (loss) to average
assets(8) (%) 5.35(9) 4.92 3.85 4.36 5.79 6.73(9)
Portfolio turnover rate (%) 1 186 244 341 423 115
Fee reduction per share ($) 0.11 0.06 0.02 0.05 0.07 0.02(4)
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class B - year ended March 31, 1992(1) 1993 1994 1995(2) 1996 1996(9)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.00 $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69
Net investment income (loss) 0.15 0.51 0.34 0.43 0.57 0.31(9)
Net realized and unrealized gain (loss) on investments 0.03 0.02 (0.16) (0.11) (0.10) (0.15)
Total from investment operations 0.18 0.53 0.18 0.32 0.47 0.16
Less distributions:
Dividends from net investment income (0.15) (0.51) (0.34) (0.42) (0.57) (0.31)
Net asset value, end of period $10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.54
Total investment return at net asset value(3) (%) 1.80(6) 5.40 1.85 3.33 4.92 1.69(9)
Total adjusted investment return at net asset value(5,7) 1.52(6) 4.85 1.61 2.78 4.15 1.53(9)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,630 13,753 11,626 9,506 8,532 7,118
Ratio of expenses to average net assets(6) (%) 1.15(9) 1.15 1.40 1.45 1.40 1.40(9)
Ratio of adjusted expenses to average net assets (%) 2.27(9) 1.70 1.64 2.00 2.10 1.72(9)
Ratio of net investment income (loss) to average net assets
assets (10)(%) 5.85(9) 4.82 3.44 4.26 5.80 6.39(9)
Ratio of adjusted net investment income (loss) to average
assets(10) (%) 4.73(9) 4.27 3.20 3.71 5.10 6.07(9)
Portfolio turnover rate (%) 1 186 244 341 423 115
Fee reduction per share ($) 0.11 0.06 0.02 0.05 0.07 0.02
</TABLE>
(1) Class A and Class B shares commenced operations on December 31, 1991.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Six months ended September 30, 1996. (Unaudited.)
(4) Based on the average of the shares outstanding at the end of each month.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(8) Beginning on December 31, 1991 (commencement of operations) through March
31, 1995, the expenses used in the ratios represented the expenses of the
fund plus expenses incurred indirectly from the Adjustable U.S. Government
fund (the "Portfolio"), the mutual fund in which the fund invested all of
its assets. The expenses used in the ratios for the fiscal year ended March
31, 1996 include the expenses of the Portfolio through September 22, 1995.
(9) Annualized.
(10) Unreimbursed, without fee reduction.
INTERMEDIATE MATURITY GOVERNMENT FUND 9
<PAGE>
Limited-Term Government Fund
REGISTRANT NAME: JOHN HANCOCK LIMITED-TERM GOVERNMENT FUND
TICKER SYMBOL CLASS A: JHNLX CLASS B: JHLBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart] The fund seeks to provide current income and security of principal. To
pursue this goal, the fund invests primarily in U.S. Government and agency
securities, as described below. The fund's securities may be of any maturity,
although a substantial portion typically will have maturities of ten years or
less.
PORTFOLIO SECURITIES
[Clipart] Under normal circumstances, the fund invests at least 80% of assets in
securities that are issued, or guaranteed as to principal and interest, by the
U.S. Government, its agencies or instrumentalities. These may include Treasuries
and mortgage-backed securities such as Ginnie Maes and Fannie Maes.
For liquidity and flexibility, the fund may place up to 20% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain higher-risk investments, and may engage in other investment
practices.
RISK FACTORS
[Clipart] in seeking to maintain a relatively stable share price, the fund may
sacrifice opportunities for higher yields. At the same time, its share price
will fluctuate to some extent with changes in interest rates. Typically, a rise
in interest rates causes a decline in the market value of debt securities
(including U.S. Government and mortgage-backed securities). To the extent that
the fund invests in mortgage-backed securities, it may also be subject to
extension and prepayment risks. These risks are defined in "More about risk"
starting on page 29. Other factors may affect the market price and yield of the
fund's securities, including investor demand and domestic and worldwide economic
conditions. The U.S. Government does not guarantee the market value or the
current yield of government securities, nor does the government's guarantee in
any way extend to the fund itself. Please read "More about risk" carefully
before investing.
PORTFOLIO MANAGEMENT
[Clipart] Barry H. Evans, CFA, leader of the fund's portfolio management team
since January 1995, is a senior vice president of the adviser. He has been in
the investment business since joining John Hancock Funds in 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clipart] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 3.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 3.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.60% 0.60%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.47% 0.47%
Total fund operating expenses 1.37% 2.07%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $44 $72 $103 $190
Class B shares
Assuming redemption
at end of period $51 $85 $111 $198
Assuming no redemption $21 $65 $111 $198
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
10 LIMITED-TERM GOVERNMENT FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
(0.49) 5.67 11.59 7.75 12.54 4.19 7.13 (1.31) 11.23 3.45
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Class A - year ended December 31, 1987 1988 1989 1990 1991 1992 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 9.71 $ 8.83 $ 8.56 $ 8.73 $ 8.61 $ 8.97 $ 8.77
Net investment income (loss) 0.78 0.77 0.79 0.74 0.67 0.54 0.48
Net realized and unrealized gain (loss)
on investments (0.83) (0.28) 0.18 (0.11) 0.36 (0.18) 0.14
Total from investment operations (0.05) 0.49 0.97 0.63 1.03 0.36 0.62
Less distributions:
Dividends from net investment income (0.83) (0.76) (0.80) (0.75) (0.67) (0.54) (0.48)
Distributions from net realized gain
on investments sold -- -- -- -- -- (0.02) (0.11)
Total distributions (0.83) (0.76) (0.80) (0.75) (0.67) (0.56) (0.59)
Net asset value, end of period $ 8.83 $ 8.56 $ 8.73 $ 8.61 $ 8.97 $ 8.77 $ 8.80
Total investment return at net asset
value(2) (%) (0.49) 5.67 11.59 7.75 12.54 4.19 7.13
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 202,924 192,315 179,065 176,329 211,322 259,170 262,903
Ratio of expenses to average net assets (%) 0.97 1.02 1.01 1.53 1.44 1.55 1.51
Ratio of net investment income (loss) to
average net assets (%) 8.52 8.71 8.98 8.56 7.72 6.13 5.34
Portfolio turnover rate (%) 7 12 26 75 134 185 175
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Class A - year ended December 31, 1994 1995 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 8.80 $ 8.31 $8.73
Net investment income (loss) 0.38(1) 0.50(1) 0.50(1)
Net realized and unrealized gain (loss)
on investments (0.49) 0.42 (0.21)
Total from investment operations (0.11) 0.92 0.29
Less distributions:
Dividends from net investment income (0.38) (0.50) (0.50)
Distributions from net realized gain
on investments sold -- -- --
Total distributions (0.38) (0.50) (0.50)
Net asset value, end of period $ 8.31 $ 8.73 $8.52
Total investment return at net asset
value(2) (%) (1.31) 11.23 3.45
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 218,846 198,681 175,995
Ratio of expenses to average net assets (%) 1.41 1.36 1.37
Ratio of net investment income (loss) to
average net assets (%) 4.39 5.76 5.81
Portfolio turnover rate (%) 155 105 166
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Class B - year ended December 31, 1994(3) 1995 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 8.77 $ 8.31 $8.73
Net investment income (loss) 0.30(1) 0.45(1) 0.44(1)
Net realized and unrealized gain (loss) on investment (0.46) 0.42 (0.21)
Total from investment operations (0.16) 0.87 0.23
Less distributions:
Dividends from net investment income (0.30) (0.45) (0.44)
Net asset value, end of period $ 8.31 $ 8.73 $8.52
Total investment return at net asset value(2) (%) (1.84)(4) 10.60 2.72
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 7,111 10,765 10,472
Ratio of expenses to average net assets (%) 2.12(5) 1.93 2.08
Ratio of net investment income (loss) to average
net assets (%) 3.70(5) 5.21 5.10
Portfolio turnover rate (%) 155 105 166
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) Class B shares commenced operations on January 3, 1994.
(4) Not annualized.
(5) Annualized.
LIMITED-TERM GOVERNMENT FUND 11
<PAGE>
Sovereign Bond Fund
REGISTRANT NAME: SOVEREIGN BOND FUND
TICKER SYMBOL CLASS A: JHNBX CLASS B: JHBBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart] The fund seeks to generate a high level of current income consistent
with prudent investment risk. To pursue this goal, the fund invests in a
diversified portfolio of marketable debt securities. These securities are
primarily investment grade, although up to 25% of them may be junk bonds rated
as low as CC/Ca and their unrated equivalents. The fund does not concentrate its
investments in any particular industry.
PORTFOLIO SECURITIES
[Clipart] Under normal circumstances, the fund invests at least 65% of assets in
corporate and government bonds and debentures. Typically, at least
three-quarters of these debt securities (excluding commercial paper) will be:
o securities of any type of issuer that are rated among the four highest
Moody's or S&P rating categories and their unrated equivalents
o U.S. Government and agency securities
The fund may invest up to 25% of assets in U.S. dollar-denominated foreign
securities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain higher-risk investments, including asset-backed securities and
derivatives and leveraged investments, and may engage in other investment
practices.
RISK FACTORS
[Clipart] Investors should expect fluctuations in share price, yield and total
return, particularly with changes in interest rates. Typically, a rise in
interest rates causes a decline in the market value of debt securities. To the
extent that it invests in certain securities, the fund may be affected by
additional risks:
o junk bonds: above-average credit, market and other risks
o foreign securities: currency, information, natural event and political risks
o mortgage-backed securities: extension and prepayment risks
These risks are defined in "More about risk" starting on page 29. The longer the
fund's average weighted maturity, the more it is likely to be affected by a
change in interest rates. Please read "More about risk" carefully before
investing.
PORTFOLIO MANAGEMENT
[Clipart] James K. Ho, CFA, leader of the fund's portfolio management team since
March 1988, is an executive vice president of the adviser. He joined John
Hancock Funds in 1985 and has been in the investment business since 1977.
INVESTOR EXPENSES
[Clipart] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past fiscal year, adjusted to
reflect any changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.50% 0.50%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.33% 0.33%
Total fund operating expenses 1.13% 1.83%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $56 $79 $104 $176
Class B shares
Assuming redemption
at end of period $69 $88 $119 $196
Assuming no redemption $19 $58 $ 99 $196
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
12 SOVEREIGN BOND FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
1.58 9.82 12.13 6.71 16.59 8.08 11.80 (2.75) 19.40 4.11
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Class A - year ended December 31, 1987 1988 1989 1990 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 15.89 $ 14.53 $ 14.51 $ 14.77 $ 14.33
Net investment income (loss) 1.40 1.44 1.43 1.32 1.29
Net realized and unrealized gain (loss) on
investments and financial futures contracts (1.17) (0.06) 0.27 (0.40) 0.98
Total from investment operations 0.23 1.38 1.70 0.92 2.27
Less distributions:
Dividends from net investment income (1.53) (1.40) (1.44) (1.35) (1.29)
Distributions from net realized gain on
investments sold and financial futures contracts (0.06) -- -- -- --
Distributions from capital paid-in -- -- -- (0.01) --
Total distributions (1.59) (1.40) (1.44) (1.36) (1.29)
Net asset value, end of period $ 14.53 $ 14.51 $ 14.77 $ 14.33 $ 15.31
Total investment return at net asset value(1) (%) 1.58 9.82 12.13 6.71 16.59
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,095,208 1,103,691 1,110,394 1,103,391 1,249,980
Ratio of expenses to average net assets (%) 0.82 0.82 0.80 1.31 1.27
Ratio of net investment income (loss) to
average net assets (%) 9.32 9.77 9.68 9.18 8.81
Portfolio turnover rate (%) 159 66 64 92 90
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended December 31, 1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 15.31 $ 15.29 $ 15.53 $ 13.90 $ 15.40
Net investment income (loss) 1.20 1.14 1.12 1.12 1.09
Net realized and unrealized gain (loss) on
investments and financial futures contracts (0.01) 0.62 (1.55) 1.50 (0.50)
Total from investment operations 1.19 1.76 (0.43) 2.62 0.59
Less distributions:
Dividends from net investment income (1.21) (1.14) (1.12) (1.12) (1.09)
Distributions from net realized gain on
investments sold and financial futures contracts -- (0.38) (0.08) -- --
Distributions from capital paid-in -- -- -- -- --
Total distributions (1.21) (1.52) (1.20) (1.12) (1.09)
Net asset value, end of period $ 15.29 $ 15.53 $ 13.90 $ 15.40 14.90
Total investment return at net asset value(1) (%) 8.08 11.80 (2.75) 19.40 4.11
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,386,260 1,505,754 1,326,058 1,535,204 1,416,116
Ratio of expenses to average net assets (%) 1.44 1.41 1.26 1.13 1.14
Ratio of net investment income (loss) to
average net assets (%) 7.89 7.18 7.74 7.58 7.32
Portfolio turnover rate (%) 87 107 85 103(3) 123
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - year ended December 31, 1993(2) 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $15.90 $ 15.52 $ 13.90 $15.40
Net investment income (loss) 0.11 1.04 1.02 0.98
Net realized and unrealized gain (loss) on investments and
financial futures contracts -- (1.54) 1.50 (0.50)
Total from investment operations 0.11 (0.50) 2.52 0.48
Less distributions:
Dividends from net investment income (0.11) (1.04) (1.02) (0.98)
Distributions from net realized gain on investments sold
and financial futures contracts (0.38) (0.08) -- --
Total distributions (0.49) (1.12) (1.02) (0.98)
Net asset value, end of period $15.52 $ 13.90 $ 15.40 $14.90
Total investment return at net asset value(1) (%) 0.90(4) (3.13) 18.66 3.38
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,125 40,299 98,739 134,112
Ratio of expenses to average net assets (%) 1.63(5) 1.78 1.75 1.84
Ratio of net investment income (loss) to average net assets (%) 0.57(5) 7.30 6.87 6.62
Portfolio turnover rate (%) 107 85 103(3) 123
</TABLE>
(1) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(2) Portfolio turnover excludes merger activity
(3) Class B shares commenced operations on November 23, 1993.
(4) Not annualized.
(5) Annualized.
SOVEREIGN BOND FUND 13
<PAGE>
Sovereign U.S. Government Income Fund
REGISTRANT NAME: JOHN HANCOCK STRATEGIC SERIES
TICKER SYMBOL CLASS A: JHSGX CLASS B: FGOPX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart] The fund seeks to provide as high a level of income as is consistent
with long-term total return. To pursue this goal, the fund invests in U.S.
Government and agency securities, as described below.
PORTFOLIO SECURITIES
[Clipart] Under normal circumstances, the fund invests at least 65% of assets in
securities that are issued, or guaranteed as to principal and interest, by the
U.S. Government, its agencies or instrumentalities. These may include Treasuries
and mortgage-backed securities such as Ginnie Maes and Fannie Maes.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain higher-risk investments, including derivative and leveraged
investments, and may engage in other investment practices.
RISK FACTORS
[Clipart] As with most income investments, the value of your investment will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of debt securities (including U.S.
Government and mortgage-backed securities). To the extent that the fund invests
in mortgage-backed securities, it may also be subject to extension and
prepayment risks. These risks are defined in "More about risk" starting on page
29. Other factors may affect the market price and yield of the fund's
securities, including investor demand and economic conditions.
The U.S. Government does not guarantee the market value or the current yield of
government securities, nor does the government's guarantee in any way extend to
the fund itself. Please read "More about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[Clipart] Barry H. Evans, CFA, leader of the fund's portfolio management team
since January 1995, is a senior vice president of the adviser. He has been in
the investment business since joining John Hancock Funds in 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clipart] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.50% 0.50%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.35% 0.35%
Total fund operating expenses 1.15% 1.85%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $56 $80 $105 $178
Class B shares
Assuming redemption
at end of period $69 $88 $120 $198
Assuming no redemption $19 $58 $100 $198
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
14 SOVEREIGN U.S. GOVERNMENT FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
1987(6) 1987(7) 1988 1989 1990 1991 1992 1993 1994 1995 1996
2.61 3.70 11.53 11.52 6.24 14.46 7.58 12.66 (7.05) 15.27 3.33
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended October 31, 1992(1) 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 10.51 $ 10.29 $ 10.89 $ 9.24 $ 10.01
Net investment income (loss) 0.64 0.68(2) 0.65 0.65 0.64(2)
Net realized and unrealized gain (loss) on investments and
financial futures contracts (0.22) 0.61 (1.34) 0.77 (0.26)
Total from investment operations 0.42 1.29 (0.69) 1.42 0.38
Less distributions:
Dividends from net investment income (0.64) (0.68) (0.65) (0.65) (0.64)
Distributions from net realized gain on investments sold -- (0.01) (0.31) -- --
Total distributions (0.64) (0.69) (0.96) (0.65) (0.64)
Net asset value, end of period $ 10.29 $ 10.89 $ 9.24 $ 10.01 $ 9.75
Total investment return at net asset value(3) (%) 5.33(4) 12.89 (6.66) 15.90 4.02
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 350,907 375,416 315,372 370,966 330,162
Ratio of expenses to average net assets (%) 1.06(5) 1.30 1.23 1.17 1.15
Ratio of net investment income (loss) to average net assets (%) 7.11(5) 6.47 6.62 6.76 6.58
Portfolio turnover rate (%) 140 273 127 94 143
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - year ended October 31, 1987(6) 1987(7) 1988 1989 1990 1991 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 10.00 $ 10.28 $ 9.45 $ 9.73 $ 10.01 $ 9.83 $ 10.29
Net investment income (loss) 0.56 0.48 0.78 0.81 0.85 0.85 0.76
Net realized and unrealized gain (loss) on
investments and financial futures contracts 0.36 (0.75) 0.28 0.25 (0.25) 0.51 --
Total from investment operations 0.92 (0.27) 1.06 1.06 0.60 1.36 0.76
Less distributions:
Dividends from net investment income (0.57) (0.48) (0.77) (0.77) (0.78) (0.90) (0.77)
Distributions from net realized gain on
investments sold (0.07) (0.08) (0.01) (0.01) -- -- --
Total distributions (0.64) (0.56) (0.78) (0.78) (0.78) (0.90) (0.77)
Net asset value, end of period $ 10.28 $ 9.45 $ 9.73 $ 10.01 $ 9.83 $ 10.29 $ 10.28
Total investment return at net asset value(3) (%) 2.61(5) 3.70(3) 11.53 11.52 6.24 14.46 7.58
Total adjusted investment return at
net asset value(3,8) (%) -- 3.65(4) 11.47 11.29 6.23 -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 164,001 170,030 161,163 144,756 133,778 164,347 197,032
Ratio of expenses to average net assets (%) 1.26(5) 1.24(5) 1.29 1.35 1.54 1.51 1.55
Ratio of adjusted expenses to
average net assets(9) (%) -- 1.32(5) 1.35 1.58 1.55 -- --
Ratio of net investment income (loss) to
average net assets (%) 7.56(5) 7.94(5) 8.09 8.34 8.54 8.53 7.35
Ratio of adjusted net investment income
(loss) to average net assets(9) (%) -- 7.86(5) 8.03 8.11 8.53 -- --
Portfolio turnover rate (%) 108(5) 83(5) 79 45 63 62 140
Fee reduction per share ($) -- 0.01 0.01 0.02 0.01 -- --
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - year ended October 31, 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 10.28 $ 10.88 $ 9.23 $ 10.00
Net investment income (loss) 0.66(2) 0.61 0.60 0.58(2)
Net realized and unrealized gain (loss) on
investments and financial futures contracts 0.61 (1.34) 0.77 (0.26)
Total from investment operations 1.27 (0.73) 1.37 0.32
Less distributions:
Dividends from net investment income (0.66) (0.61) (0.60) (0.58)
Distributions from net realized gain on
investments sold (0.01) (0.31) -- --
Total distributions (0.67) (0.92) (0.60) (0.58)
Net asset value, end of period $ 10.88 $ 9.23 $ 10.00 $ 9.74
Total investment return at net asset value(3) (%) 12.66 (7.05) 15.27 3.33
Total adjusted investment return at
net asset value(3,8) (%) -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 244,133 196,899 130,824 112,228
Ratio of expenses to average net assets (%) 1.51 1.64 1.72 1.82
Ratio of adjusted expenses to
average net assets(9) (%) -- -- -- --
Ratio of net investment income (loss) to
average net assets (%) 6.23 6.19 6.24 5.91
Ratio of adjusted net investment income
(loss) to average net assets(9) (%) -- -- -- --
Portfolio turnover rate (%) 273 127 94 143
Fee reduction per share ($) -- -- -- --
</TABLE>
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) For the period June 5, 1986 (commencement of operations) to March 31, 1987.
(7) For the period April 1, 1987 to October 31, 1987.
(8) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(9) Unreimbursed, without fee reduction.
SOVEREIGN U.S. GOVERNMENT FUND 15
<PAGE>
Strategic Income Fund
REGISTRANT NAME: JOHN HANCOCK STRATEGIC SERIES
TICKER SYMBOL CLASS A: JHFIX CLASS B: STIBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart] The fund seeks a high level of current income. To pursue this goal,
the fund invests primarily in three sectors:
o foreign government and corporate debt securities
o U.S. Government and agency securities
o junk bonds rated as low as CC/Ca and their unrated equivalents.
Under normal circumstances, the fund's assets will be invested in all three
sectors. However, the weighting of assets among sectors will be adjusted to
reflect current or anticipated market behavior, and the fund may invest up to
100% of assets in any sector.
PORTFOLIO SECURITIES
[Clipart] The fund may invest in debt securities of all maturities and types,
including bonds, debentures, notes, preferred stock, mortgage-backed and
asset-backed securities and others. The fund may also invest up to 10% of net
assets in U.S. or foreign equities.
For liquidity and flexibility, the fund may invest in investment-grade
short-term securities. In abnormal market conditions, it may invest more assets
in these securities as a defensive tactic. The fund also may invest in certain
higher-risk investments, including derivative and leveraged investments, and may
engage in other investment practices.
RISK FACTORS
[Clipart] Investors should expect fluctuations in share price, yield and total
return that are above-average for bond funds. Typically, a rise in interest
rates causes a decline in the market value of debt securities. The longer the
fund's average weighted maturity, the more it is likely to be affected by a
change in interest rates. To the extent that the fund invests in mortgage-backed
securities, it may also be subject to extension and prepayment risks. These
risks are defined in "More about risk" starting on page 29. Foreign securities
carry additional risks, including currency, information, natural event and
political risks. Issuers of junk bonds are typically in weak financial health,
and their ability to pay interest and principal is uncertain, especially in an
adverse economy. Junk bond markets may react strongly to adverse news about an
issuer or the economy, or to the perception or expectation of adverse news.
Please read "More about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[Clipart] Frederick L. Cavanaugh, Jr., leader of the fund's portfolio management
team since 1986, is a senior vice president of the adviser. He joined John
Hancock Funds in 1986 and has been in the investment business since 1973.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clipart] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.45% 0.45%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.28% 0.28%
Total fund operating expenses 1.03% 1.73%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $55 $76 $99 $165
Class B shares
Assuming redemption
at end of period $68 $84 $114 $186
Assuming no redemption $18 $54 $94 $186
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
16 STRATEGIC INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
1987(1) 1988 1989 1990 1991 1992 1993 1994 1995 1996 1996(8)
4.81(6) 6.89 9.72 (7.36) 12.31 19.92 6.81 4.54 9.33 11.37 8.90(6)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A - year ended May 31, 1987(1) 1988 1989 1990 1991 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 10.00 $ 9.71 $ 9.24 $ 8.98 $ 7.33 $ 7.20
Net investment income (loss) 0.79 1.13 1.12 1.04 0.93 0.80
Net realized and unrealized gain (loss) on investments,
foreign currency transactions and financial futures contracts (0.29) (0.47) (0.26) (1.65) (0.13) 0.52
Total from investment operations 0.50 0.66 0.86 (0.61) 0.80 1.32
Less distributions:
Dividends from net investment income (0.79) (1.13) (1.12) (1.04) (0.93) (0.74)(4)
Distributions in excess of net investment income -- -- -- -- -- --
Distributions from capital paid-in -- -- -- -- -- --
Total distributions (0.79) (1.13) (1.12) (1.04) (0.93) (0.74)
Net asset value, end of period $ 9.71 $ 9.24 $ 8.98 $ 7.33 $ 7.20 $ 7.78
Total investment return at net asset value(3) (%) 4.81(6) 6.89 9.72 (7.36) 12.31 19.92
Total adjusted investment return at
net asset value(5,7) (%) 3.64(6) 6.49 9.58 (7.45) -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 30,260 67,140 95,430 80,890 79,272 153,568
Ratio of expenses to average net assets (%) 1.00(4) 1.09 1.33 1.53 1.75 1.69
Ratio of adjusted expenses to average net assets (%) 2.17(4) 1.49 1.47 1.62 -- --
Ratio of net investment income (loss) to
average net assets (%) 10.87(8) 12.07 12.28 12.60 13.46 10.64
Ratio of adjusted net investment income (loss) to
average net assets (%) 9.70(8) 11.67 12.14 12.51 -- --
Portfolio turnover rate (%) 207 67 125 81 60 80
Fee reduction per share ($) 0.09 0.04 0.01 0.01 -- --
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A - year ended May 31, 1993 1994 1995 1996 1996(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $ 7.78 $ 7.55 $ 7.17 $ 7.15 $ 7.27
Net investment income (loss) 0.71 0.68 0.64 0.66(3) 0.32(3)
Net realized and unrealized gain (loss) on investments,
foreign currency transactions and financial futures contracts (0.22) (0.33) (0.02) 0.12 0.31
Total from investment operations 0.49 0.35 0.62 0.78 0.63
Less distributions:
Dividends from net investment income (0.72) (0.58)(4) (0.55) (0.66) (0.32)
Distributions in excess of net investment income -- (0.05) -- -- --
Distributions from capital paid-in -- (0.10) (0.09) -- --
Total distributions (0.72) (0.73) (0.64) (0.66) (0.32)
Net asset value, end of period $ 7.55 $ 7.17 $ 7.15 $ 7.27 $ 7.58
Total investment return at net asset value(3) (%) 6.81 4.54 9.33 11.37 8.90(5)
Total adjusted investment return at
net asset value(5,7) (%) -- -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 262,137 335,261 327,876 369,127 400,738
Ratio of expenses to average net assets (%) 1.58 1.32 1.09 1.03 1.01(8)
Ratio of adjusted expenses to average net assets (%) -- -- -- -- --
Ratio of net investment income (loss) to
average net assets (%) 9.63 8.71 9.24 9.13 8.73(8)
Ratio of adjusted net investment income (loss) to
average net assets (%) -- -- -- -- --
Portfolio turnover rate (%) 97 91 55 78 77
Fee reduction per share ($) -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class B - year ended May 31, 1994(1) 1995 1996 1996(8)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 7.58 $ 7.17 $ 7.15 $ 7.27
Net investment income (loss) 0.40 0.60(3) 0.61(3) 0.29(3)
Net realized and unrealized gain (loss) on investments,
foreign currency transactions and financial futures contracts (0.41) (0.02) 0.12 0.31
Total from investment operations (0.01) 0.58 0.73 0.60
Less distributions:
Dividends from net investment income (0.32) (0.52) (0.61) (0.29)
Distributions in excess of net investment income (0.03) -- -- --
Distributions from capital paid-in (0.05) (0.08) -- --
Total distributions (0.40) (0.60) (0.61) (0.29)
Net asset value, end of period $ 7.17 $ 7.15 $ 7.27 $ 7.58
Total investment return at net asset value(5) (%) (0.22)(6) 8.58 10.61 8.50(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 77,691 134,527 206,751 275,432
Ratio of expenses to average net assets (%) 1.91(7) 1.76 1.73 1.71(7)
Ratio of net investment income (loss) to average net assets (%) 8.12(7) 8.55 8.42 8.02(7)
Portfolio turnover rate (%) 91 55 78 77
</TABLE>
(1) Class A and Class B shares commenced operations on August 18, 1986 and
October 4, 1993, respectively.
(2) Six months ended November 30, 1996. (Unaudited.)
(3) Based on the average of the shares outstanding at the end of each month.
(4) The dividend policy of the fund was changed, effective August 1, 1991, from
one that utilized daily dividend declarations to one that declares
dividends monthly. Additionally, the dividend policy of the fund was
changed, effective October 1, 1993, from one that declared dividends
monthly to daily dividend declarations.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(8) Annualized.
STRATEGIC INCOME FUND 17
<PAGE>
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
All John Hancock income funds offer two classes of shares, Class A and Class B.
Each class has its own cost structure, allowing you to choose the one that best
meets your requirements. Your financial representative can help you decide.
- --------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------
o Front-end sales charges, as o No front-end sales charge; all
described below. There are your money goes to work for you
several ways to reduce these right away.
charges, also described below.
o Higher annual expenses than
o Lower annual expenses than Class Class A shares.
B shares.
o A deferred sales charge, as
described below.
o Automatic conversion to Class A
shares after either five years
(Group 1) or eight years (Group 2)
(see below), thus reducing future
annual expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Use the table below to find out which group the fund is in, then consult the
sales charge information for that group.
- --------------------------------------------------------------------------------
Group 1 Group 2
- --------------------------------------------------------------------------------
o Intermediate Maturity o Government Income
Government
o High Yield Bond
o Limited-Term Government
o Sovereign Bond
o Sovereign U.S. Government Income
o Strategic Income
Class A Sales charges are as follows:
- --------------------------------------------------------------------------------
Class A sales charges - Group 1
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $99,999 3.00% 3.09%
$100,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
- --------------------------------------------------------------------------------
Class A sales charges - Group 2
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $99,999 4.50% 4.71%
$100,000 - $249,999 3.75% 3.90%
$250,000 - $499,999 2.75% 2.83%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
Investments of $1 million or more Class A shares are available with no front-end
sales charge. However, there is a contingent deferred sales charge (CDSC) on any
shares sold within one year of purchase, as follows:
- --------------------------------------------------------------------------------
CDSC on $1 million+ investments (Groups 1 and 2)
- --------------------------------------------------------------------------------
Your investment CDSC on shares being sold
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the LAST day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
18 YOUR ACCOUNT
<PAGE>
Class B Shares are offered at their net asset value per share, without any
initial sales charge. However, you may be charged a contingent deferred sales
charge (CDSC) on shares you sell within a certain time after you bought them, as
described in the table below. There is no CDSC on shares acquired through
reinvestment of dividends. The CDSC is based on the original purchase cost or
the current market value of the shares being sold, whichever is less. The longer
the time between the purchase and the sale of shares, the lower the rate of the
CDSC:
- --------------------------------------------------------------------------------
Class B deferred charges
- --------------------------------------------------------------------------------
Years after CDSC on Group 1 CDSC on Group 2
purchase shares being sold shares being sold
1st year 3.00% 5.00%
2nd year 2.00% 4.00%
3rd year 2.00% 3.00%
4th year 1.00% 3.00%
5th year None 2.00%
6th year None 1.00%
After 6 years None None
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the FIRST day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
o Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
o Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
o Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Signature Services to add these options (see
the back cover of this prospectus).
Group Investment Program A group may be treated as a single purchaser under the
accumulation and combination priviliges. Each investor has an individual
account, but for sales charge purposes the group's investments are lumped
together, making the investors potentially eligible for reduced sales charges.
There is no charge, no obligation to invest (although initial aggregate
investments must be at least $250), and individual investors may terminate their
accounts at any time.
To utilize: contact your financial representative or Signature Services to find
out how to qualify or consult the SAI (see the back cover of this prospectus).
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for either share class will generally be waived in the following cases: o
to make payments through certain systematic withdrawal plans
o to make certain distributions from a retirement plan
o because of shareholder death or disability
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI.
Reinstatement privilege If you sell shares of a John Hancock fund, you may
reinvest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge, as long as Signature Services is
notified before you reinvest. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must have
the same registration.
To utilize: contact your financial representative or Signature Services.
YOUR ACCOUNT 19
<PAGE>
Waivers for certain investors Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
o government entities that are prohibited from paying mutual fund sales charges
o financial institutions or common trust funds investing $1 million or more for
non-discretionary accounts
o selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
o fund trustees and other individuals who are affiliated with these or other
John Hancock funds
o individuals transferring assets to a John Hancock fund from an employee
benefit plan that has John Hancock funds
o members of an approved affinity group financial services program
o certain insurance company contract holders (one-year CDSC usually applies)
o participants in certain retirement plans with at least 100 members (one-year
CDSC applies)
o in the case of Limited-Term Government Fund, anyone investing the proceeds
from any non-John Hancock mutual fund, as long as that fund had sales charges
and the investor paid them; investors must supply a copy of the redemption
check or confirmation statement, and must remain invested in Limited-Term
Government Fund for at least 15 days
To utilize: if you think you may be eligible for a sales charge waiver, contact
Signature Services or consult the SAI.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
o non-retirement account: $1,000
o retirement account: $250
o group investments: $250
o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest at
least $25 a month
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Signature Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges later.
5 Make your initial investment using the table on the next page. You and your
financial representative can initiate any puchase, exchange or sale of
shares.
20 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clipart] o Make out a check for the o Make out a check for the
investment amount, payable investment amount payable
to "John Hancock Signature to "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to investment slip from an
your financial account statement. If no
representative, or mail slip is available, include
to Signature Services a note specifying the fund
(address below). name, your share class,
your account number and the
name(s) in which the
account is registered.
o Deliver the check and your
investment slip or note to
your financial
representative, or mail
to Signature Services
(address below).
By exchange
[Clipart] o Call your financial o Call your financial
representative or Signature representative or Signature
Services to request an Services to request an exchange.
exchange.
By wire
[Clipart] o Deliver your completed o Instruct your bank to wire
application to your the amount of your
financial representative, investment to:
or mail it to Signature First Signature Bank & Trust
Services. Account # 900000260
Routing # 211475000
o Obtain your account number Specify the fund name, your
by calling your financial share class, your account
representative or Signature number and the name(s) in
Services. which the account is
registered. Your bank may
o Instruct your bank to wire charge a fee to wire funds.
the amount of your
investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name,
your choice of share class,
the new account number and
the name(s) in which the
account is registered. Your
bank may charge a fee to
wire funds.
By phone
[Clipart] See "By wire" and o Verify that your bank or
"By exchange." credit union is a member of
the Automated Clearing
House (ACH) system.
o Complete the
"Invest-By-Phone" and "Bank
Information" sections on
your account application.
o Call Signature Services to
verify that these features
are in place on your
account.
o Tell the Signature Services
representative the fund
name, your share class,
your account number, the
name(s) in which the
account is registered and
the amount of your
investment.
- ------------------------------------------
Address
John Hancock Signature Services, Inc.
1 John Hancock Way STE 1000
Boston, MA 02217-1000
Phone To open or add to an account using
1-800-225-5291 the Monthly Automatic Accumulation
Program, see "Additional investor
Or contact your financial representative services."
for instructions and assistance.
- ------------------------------------------
YOUR ACCOUNT 21
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clipart] o Accounts of any type. o Write a letter of
instruction or complete a
o Sales of any amount. stock power indicating the
fund name, your share
class, your account number,
the name(s) in which the
account is registered and
the dollar value or number
of shares you wish to sell.
o Include all signatures and
any additional documents
that may be required (see
next page).
o Mail the materials to
Signature Services.
o A check will be mailed to
the name(s) and address in
which the account is
registered, or otherwise
according to your letter of
instruction.
By phone
[Clipart] o Most accounts. o For automated service 24
hours a day using your
o Sales of up to $100,000. touch-tone phone, call the
EASI-Line at
1-800-338-8080.
o To place your order with a
representative at John
Hancock Funds, call
Signature Services between
8 A.M. and 4 P.M. Eastern
Time on most business days.
By wire or electronic funds transfer (EFT)
[Clipart] o Requests by letter to sell o Fill out the "Telephone
any amount (accounts of any Redemption" section of your
type). new account application.
o Requests by phone to sell o To verify that the
up to $100,000 (accounts telephone redemption
with telephone redemption privilege is in place on an
privileges). account, or to request the
forms to add it to an
existing account, call
Signature Services.
o Amounts of $1,000 or more
will be wired on the next
business day. A $4 fee will
be deducted from your
account.
o Amounts of less than $1,000
may be sent by EFT or by
check. Funds from EFT
transactions are generally
available by the second
business day. Your bank may
charge a fee for this
service.
By exchange
[Clipart] o Accounts of any type. o Obtain a current prospectus
for the fund into which you
o Sales of any amount. are exchanging by calling
your financial
representative or Signature
Services.
o Call your financial
representative or Signature
Services to request an
exchange.
By check
[Clipart] o Government Income, o Request checkwriting on your
Limited-Term Government, account application.
Sovereign U.S. Government
and Strategic Income Funds o Verify that the shares to be
only. sold were purchased more than
10 days earlier or were
o Any account with purchased by wire.
checkwriting privileges.
o Write a check for any
o Sales of over $100. amount over $100.
------------------------------------------
Address
John Hancock Signature Services, Inc.
1 John Hancock Way STE 1000
Boston, MA 02217-1000
Phone
1-800-225-5291
To sell shares through a systematic
withdrawal plan, see "Additional Or contact your financial representative
investor services." for instructions and assistance.
------------------------------------------
22 YOUR ACCOUNT
<PAGE>
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling more than $100,000 worth of shares
o you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
o a broker or securities dealer
o a federal savings, cooperative or other type of bank
o a savings and loan or other thrift institution o a credit union
o a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
[Clipart]
- --------------------------------------------------------------------------------
Seller Requirements for written requests
- --------------------------------------------------------------------------------
Owners of individual, joint, sole o Letter of instruction.
proprietorship, UGMA/UTMA
(custodial accounts for minors) or o On the letter, the signatures
general partner accounts. and titles of all persons
authorized to sign for the
account, exactly as the account
is registered.
o Signature guarantee if
applicable (see above).
Owners of corporate or association o Letter of instruction.
accounts.
o Corporate resolution, certified
within the past two years.
o On the letter and the
resolution, the signature of the
person(s) authorized to sign for
the account.
o Signature guarantee if
applicable (see above).
Owners or trustees of trust o Letter of instruction.
accounts.
o On the letter, the signature(s)
of the trustee(s).
o If the names of all trustees are
not registered on the account,
please also provide a copy of
the trust document certified
within the past six months.
o Signature guarantee if
applicable (see above).
Joint tenancy shareholders whose o Letter of instruction signed by
co-tenants are deceased. surviving tenant.
o Copy of death certificate.
o Signature guarantee if
applicable (see above).
Executors of shareholder estates. o Letter of instruction signed by
executor.
o Copy of order appointing
executor.
o Signature guarantee if
applicable (see above).
Administrators, conservators, o Call 1-800-225-5291 for
guardians and other sellers or instructions.
account types not listed above.
YOUR ACCOUNT 23
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
Buy and sell prices When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
Execution of requests Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after your request is accepted by
Signature Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Signature Services will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or other taxpayer ID number and other relevant
information. If appropriate measures are taken, Signature Services is not
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Also for your protection, telephone transactions are not
permitted on accounts whose names or addresses have changed within the past 30
days. Proceeds from telephone transactions can only be mailed to the address of
record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical. Class B shares
will continue to age from the original date and will retain the same CDSC rate
as they had before the exchange, except that the rate will change to the new
fund's rate if that rate is higher. A CDSC rate that has increased will drop
again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may also refuse any exchange order.
A fund may change or cancel its exchange policies at any time, upon 60 days'
notice to its shareholders.
Certificated shares Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Signature Services. Certificated
shares can only be sold by returning the certificates to Signature Services,
along with a letter of instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
Eligibility by state You may only invest in, or exchange into, fund shares
legally available in your state.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The funds generally declare dividends daily and pay them monthly.
Short- and long-term capital gains, if any, are distributed annually, typically
after the end of a fund's fiscal year. Your dividends begin accruing the day
after payment is received by the fund and continue through the day your shares
are actually sold.
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively,
24 YOUR ACCOUNT
<PAGE>
you can choose to have a check for your dividends mailed to you. However, if the
check is not deliverable, your dividends will be reinvested.
Taxability of dividends As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. Dividends from a fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income. Some dividends paid in January may be
taxable as if they had been paid the previous December.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
o Complete the appropriate parts of your account application.
o If you are using MAAP to open an account, make out a check ($25 minimum) for
your first investment amount payable to "John Hancock Signature Services,
Inc." Deliver your check and application to your financial representative or
Signature Services.
Systematic withdrawal plan This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
o Specify the payee(s). The payee may be yourself or any other party, and there
is no limit to the number of payees you may have, as long as they are all on
the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial representative
or Signature Services.
Retirement plans John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, 401(k) plans, 403(b) plans (including TSAs) and
other pension and profit-sharing plans. Using these plans, you can invest in any
John Hancock fund (except tax-free income funds) with a low minimum investment
of $250 or, for some group plans, no minimum investment at all. To find out
more, call Signature Services at 1-800-225-5291.
YOUR ACCOUNT 25
<PAGE>
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
How the funds are organized Each John Hancock income fund is an open-end
management investment company or a series of such a company.
Each fund is supervised by a board of trustees, an independent body that has
ultimate responsibility for the fund's activities. The board retains various
companies to carry out the fund's operations, including the investment adviser,
custodian, transfer agent and others (see diagram). The board has the right, and
the obligation, to terminate the fund's relationship with any of these companies
and to retain a different company if the board believes it is in the
shareholders' best interests. At a mutual fund's inception, the initial
shareholder (typically the adviser) appoints the fund's board. Thereafter, the
board and the shareholders determine the board's membership. The boards of the
John Hancock income funds may include individuals who are affiliated with the
investment adviser. However, the majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
<TABLE>
<S><C><C>
------------------
Shareholders
-------------------
----------------------------------
Financial services firms and
their representatives
Distribution Advise current and prospective
and shareholder shareholders on their fund
services invesments, often in the context
of an overall financial plan.
------------------------------------
--------------------------------- -------------------------------------
Principal distributor Transfer agent
John Hancock Funds, Inc. John Hancock Signature Services, Inc.
101 Huntington Avenue 1 John Hancock Way, Suite 1000
Boston, MA 02199-7603 Boston, MA 02217-1000
Markets the funds and distributes Handles shareholder services, includ-
shares through selling brokers, ing record-keeping and statements,
financial planners and other distribution of dividends and pro-
financial representatives. cessing of buy and sell requests.
--------------------------------- -------------------------------------
- --------------------------- -----------------------------------
Investment adviser Custodian
John Hancock Advisers, Inc. Investors Bank & Trust Co.
101 Huntington Avenue 89 South Street
Boston, MA 02199-7603 Boston, MA 02111 Asset
Management
Manages the funds' Holds the funds' assets, settles
business and invest- all portfolio trades and collects
ment activites. most of the valuation data required
- --------------------------- for calculating each fund's NAV.
-----------------------------------
--------------------------------
Trustees
Supervise the funds' activities.
--------------------------------
</TABLE>
26 FUND DETAILS
<PAGE>
Accounting compensation The funds compensate the adviser for performing tax and
financial management services. Annual compensation is not expected to exceed
0.02% of each fund's average net assets.
Portfolio trades In placing portfolio trades, the adviser may use brokerage
firms that market the fund's shares or are affiliated with John Hancock Mutual
Life Insurance Company, but only when the adviser believes no other firm offers
a better combination of quality execution (i.e., timeliness and completeness)
and favorable price.
Investment goals Except for Government Income Fund, High Yield Bond Fund and
Intermediate Maturity Government Fund, each fund's investment goal is
fundamental and may only be changed with shareholder approval.
Diversification All of the income funds are diversified.
- --------------------------------------------------------------------------------
SALES COMPENSATION
As part of their business strategies, the funds, along with John Hancock Funds,
pay compensation to financial services firms that sell the funds' shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the funds' assets ("12b-1" refers to the federal
securities regulation that authorizes annual fees of this type). The 12b-1 fee
rates vary by fund and by share class, according to Rule 12b-1 plans adopted by
the funds. The sales charges and 12b-1 fees paid by investors are detailed in
the fund-by-fund information. The portions of these expenses that are reallowed
to financial services firms are shown on the next page.
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and, for Class B shares,
interest expenses.
- --------------------------------------------------------------------------------
Class B unreimbursed distribution expenses(1)
- --------------------------------------------------------------------------------
Unreimbursed As a % of
Fund expenses net assets
Government Income $ 9,835,482 4.85%
High Yield Bond $ 7,642,995 3.83%
Intermediate Maturity Gov. $ 253,107 2.30%
Limited-Term Government $ 191,883 1.93%
Sovereign Bond $ 3,897,654 3.40%
Sovereign U.S. Gov. Income $ 5,553,890 4.58%
Strategic Income $ 5,169,665 3.18%
(1) As of the most recent fiscal year end covered by each fund's financial
highlights. These expenses may be carried forward indefinitely.
Initial compensation Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
Annual compensation Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears.
Financial services firms selling large amounts of fund shares may receive extra
compensation. This compensation, which John Hancock Funds pays out of its own
resources, may include asset retention fees as well as reimbursement for
marketing expenses.
FUND DETAILS 27
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A investments
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum
Sales charge reallowance First year Maximum
paid by investors or commission service fee total compensation(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
Group 1 funds
Up to $99,999 3.00% 2.26% 0.25% 2.50%
$100,000 - $499,999 2.50% 2.01% 0.25% 2.25%
$500,000 - $999,999 2.00% 1.51% 0.25% 1.75%
Group 2 funds
Up to $99,999 4.50% 3.76% 0.25% 4.00%
$100,000 - $249,999 3.75% 3.01% 0.25% 3.25%
$250,000 - $499,999 2.75% 2.06% 0.25% 2.30%
$500,000 - $999,999 2.00% 1.51% 0.25% 1.75%
Regular investments of $1 million
or more (Groups 1 and 2)
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
Waiver investments(2) -- 0.00% 0.25% 0.25%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B investments
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum
reallowance First year Maximum
or commission service fee total compensation
(% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C>
Group 1 funds
All amounts 2.25% 0.25% 2.50%
Group 2 funds
All amounts 3.75% 0.25% 4.00%
</TABLE>
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members that take advantage of the sales charge
waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
28 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's principal securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief descriptions of these
securities and investment practices, along with the risks associated with them.
The funds follow certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that a John Hancock income fund
will earn income or show a positive total return over any period of time --
days, months or years.
- --------------------------------------------------------------------------------
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). Incomplete correlation can result
in unanticipated risks.
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency-denominated investments, and may widen any losses.
Extension risk The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value.
o Hedged When a derivative (a security whose value is based on another security
or index) is used as a hedge against an opposite position that the fund also
holds, any loss generated by the derivative should be substantially offset by
gains on the hedged investment, and vice versa. While hedging can reduce or
eliminate losses, it can also reduce or eliminate gains.
o Speculative To the extent that a derivative is not used as a hedge, the fund
is directly exposed to the risks of that derivative. Gains or losses from
speculative positions in a derivative may be substantially greater than the
derivative's original cost.
Liquidity risk The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative affect on fund management or
performance.
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. Market risk may affect a single issuer, an
industry, a sector of the bond market or the market as a whole. Common to all
stocks and bonds and the mutual funds that invest in them.
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events.
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and war.
Prepayment risk The risk that unanticipated prepayments may occur, reducing the
value of mortgage-backed securities.
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
FUND DETAILS 29
<PAGE>
- --------------------------------------------------------------------------------
Higher-risk securities and practices
- --------------------------------------------------------------------------------
This table shows each fund's investment limitations as a percentage of portfolio
assets. In each case the principal types of risk are listed (see previous page
for definitions). Numbers in this table show allowable usage only; for actual
usage, consult the fund's annual/semi-annual reports.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
* No policy limitation on usage; fund may be using currently
@ Permitted, but has not typically been used
- -- Not permitted
<TABLE>
<CAPTION>
Intermediate Sovereign
Government High Yield Maturity Limited-Term Sovereign U.S. Gov't Strategic
Income Bond Gov't Government Bond Income Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment practices
Borrowing; reverse repurchase agreements
The borrowing of money from banks
or through reverse repurchase agreements.
Leverage, credit risks. 33.3 33.3 33.3 33.3 33.3 33.3 33
Covered mortgage dollar roll transactions
The sale of mortgage-backed securities
with the commitment to buy back similar
securities at a future date. Credit, interest
rate,leverage, market, opportunity risks. * * * * * * *
Repurchase agreements The purchase of a
security that must later be sold back to
the issuer at the same price plus interest.
Credit risk. * * * * * * *
Securities lending The lending of securities
to financial institutions, which provide
cash or government securities as collateral.
Credit risk. 30 30 33.3 33.3 33.3 30 33.3
Short-term trading Selling a security soon
after purchase. A portfolio engaging in
short-term trading will have higher turnover
and transaction expenses. Market risk. * * * * * * *
When-issued securities and forward commitments
The purchase or sale of securities for delivery
at a future date; market value may change before
delivery. Market, opportunity, leverage risks. * * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------------
Conventional securities
Brady bonds Dollar-denominated securities issued
to refinance foreign government bank loans and
other debt. Credit, interest rate, market,
political risks. 10 @ (1) -- -- 25 -- @ (1)
Foreign debt securities Debt securities issued
by foreign governments or companies. Credit,
currency, interest rate, market, political risks. 20 * (1) -- -- 25 -- * (1)
In-kind, delayed and zero coupon debt securities
Securities offering non-cash or delayed-cash
payment. Their prices are typically more volatile
than those of conventional debt securities.
Credit, interest rate, market risks. * * * * * * *
Restricted and illiquid securities Securities
not traded on the open market. May include
illiquid Rule 144A securities. Liquidity,
valuation, market risks. 10 10 15 15 15 15 15
- ------------------------------------------------------------------------------------------------------------------------------------
Unleveraged derivative securities
Asset-backed securities Securities backed by
unsecured debt, such as credit card debt;
these securities are often guaranteed or
over-collateralized to enhance their credit
quality. Credit, interest rate risks. 20 * 35 20 * 35 *
Mortgage-backed securities Securities backed
by pools of mortgages, including passthrough
certificates, PACs, TACs and other senior
classes of collateralized mortgage obligations
(CMOs). Credit, extension, prepayment, interest
rate risks. * * * * * * *
Participation interests Securities representing
an interest in another security or in bank loans.
Credit, interest rate, liquidity, valuation
risks. -- 10(2) -- -- 15(2) -- 15(2)
Rights and warrants Securities offering the
right, or involving the promise, to buy or
sell certain securities at a future date.
Market risk. 5 5 5 5 5 -- 5
</TABLE>
(1) No more than 25% of the fund`s assets will be invested in government
securities of any one foreign country.
(2) Part of the 10% or 15% limitation on illiquid securities.
30 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
Higher-risk securities and practices (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate Sovereign
Government High Yield Maturity Limited-Term Sovereign U.S. Gov't Strategic
Income Bond Gov't Government Bond Income Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leveraged derivative securities
Currency contracts Contracts involving the
right or obligation to buy or sell a
given amount of foreign currency at a
specified price and future date.
o Hedged. Currency, hedged leverage,
correlation, liquidity, opportunity risks. -- * -- -- -- -- *
o Speculative. Currency, speculative
leverage, liquidity risks. -- -- -- -- -- -- @
Financial futures and options; securities
and index options Contracts involving the
right or obligation to deliver or receive
assets or money depending on the performance
of one or more assets or an economic index.
o Futures and related options. Interest
rate, currency, market, hedged or
speculative leverage, correlation,
liquidity, opportunity risks. * * * * * * *
o Options on securities and indices. Interest
rate, currency, market, hedged or speculative
leverage, correlation, liquidity, credit,
opportunity risks. * * * * @ * @
Structured securities Indexed and/or leveraged
mortgage-backed and other debt securities,
including principal-only and interest-only
securities, leveraged floating rate securities,
and others. These securities tend to be highly
sensitive to interest rate movements and their
performance may not correlate to such movements
in a conventional fashion. Credit, interest
rate, extension, prepayment, market, speculative
leverage, liquidity, valuation risks. * 10 10 10 10 10 *
Swaps, caps, floors, collars OTC contracts
involving the right or obligation to receive
or make payments based on two different income
streams. Correlation, credit, currency, interest
rate, hedged or speculative leverage, liquidity,
valuation risks. @ @ @ @ @ @ @
</TABLE>
- --------------------------------------------------------------------------------
Analysis of funds with 5% or more in junk bonds(1)
- --------------------------------------------------------------------------------
[The following table was depicted as a bar graph in the printed material.]
<TABLE>
<CAPTION>
Quality rating
(S&P/Moody's)(2) High Yield Bond Fund Sovereign Bond Fund Strategic Income Fund
<S> <C> <C> <C>
Investment-Grade Bonds
AAA/Aaa 0.9% 41.8% 22.6%
AA/Aa 0.4% 9.4% 10.7%
A/A 0.2% 14.2% 0.6%
BBB/Baa 3.8% 13.0% 2.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Junk Bonds
BB/Ba 10.5% 11.7% 10.8%
B/B 64.4% 7.5% 42%
CCC/Caa 6.1% 0.0% 0.9%
CC/Ca 0.4% 0.0% 0.0%
C/C 0.0% 0.0% 0.0%
D 0.4% 0.0% 0.2%
% of portfolio in bonds 87.1% 97.6% 90.0%
</TABLE>
(1) Average weighted quality distribution for the most recent fiscal year.
(2) In cases where the S&P and Moody's ratings for a given bond issue do not
agree, the issue has been counted in the higher category.
FUND DETAILS 31
<PAGE>
For more information
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
income funds:
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/ semi-annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference (is legally a part of this prospectus).
To request a free copy of the current annual/semi-annual report or the SAI,
please write or call:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA02217-1000
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
Internet: www.jhancock.com/funds
[Logo]JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts 02199-7603
John Hancock(R) (C) 1996 John Hancock Funds, Inc.
Financial Services INCPN 5/97
<PAGE>
JOHN HANCOCK
SOVEREIGN BOND FUND
Class A and Class B Shares
Statement of Additional Information
May 1, 1997
This Statement of Additional Information provides information about John Hancock
Sovereign Bond Fund (the "Fund"), a diversified open-end investment company, in
addition to the information that is contained in the combined Income Funds'
Prospectus (the "Prospectus") dated May 1, 1997.
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund ....................................... 2
Investment Objective and Policies .............................. 2
Investment Restrictions ........................................ 14
Those Responsible for Management ............................... 17
Investment Advisory and Other Services ......................... 26
Distribution Contracts ......................................... 28
Net Asset Value ................................................ 29
Initial Sales Charge on Class A Shares ......................... 30
Deferred Sales Charge on Class B Shares ........................ 32
Special Redemptions ............................................ 36
Additional Services and Programs ............................... 36
Description of the Fund's Shares ............................... 38
Tax Status ..................................................... 39
Calculation of Performance ..................................... 43
Brokerage Allocation ........................................... 44
Transfer Agent Services ........................................ 46
Custody of Portfolio ........................................... 46
Independent Auditors ........................................... 46
Appendix A-Description of Bond Ratings ......................... A-1
Financial Statements ........................................... F-1
1
<PAGE>
ORGANIZATION OF THE FUND
The Fund is a diversified open-end investment management company organized as a
Massachusetts business trust under the laws of The Commonwealth of
Massachusetts. The Fund was organized in 1984.
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment Adviser.
The Adviser is an indirect wholly-owned subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company"), a Massachusetts life insurance company
chartered in 1862, with national headquarters at John Hancock Place, Boston,
Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus.
The Fund'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 Adviser seeks high current
income consistent with the moderate level of risk associated with a portfolio
consisting primarily of investment grade debt securities. The Fund's investments
will be subject to the market fluctuations and risks inherent in all securities.
Under normal conditions, at least 65% of the value of the Fund's assets will be
in bonds and/or debentures. In addition, the Fund contemplates 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
("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 the issuers' capacity to pay
interest and repay principal. The Fund will, when feasible, purchase debt
securities which are non-callable. 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.
The Fund may purchase corporate debt securities bearing fixed or fixed and
contingent interest as well as those which carry certain equity features, such
as conversion or exchange rights or warrants for the acquisition of stock of the
same or a different issuer, or participations based on revenues, sales or
profits. The Fund will not exercise any such conversion, exchange or purchase
rights if, at the time, the value of all equity interests so owned would exceed
10% of the Fund's total assets taken at market value.
For liquidity and flexibility, the Fund may place up to 35% of total assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The market value
of debt securities which carry no equity participation usually reflects yields
generally available on securities of similar quality and type. When such yields
decline, the market value of a portfolio already invested at higher yields can
be expected to rise if such securities are protected against early call.
Similarly, when such yields increase, the market value of a portfolio already
2
<PAGE>
invested can be expected to decline. The Fund's portfolio may include debt
securities which sell at substantial discounts from par. These securities are
low coupon bonds which, during periods of high interest rates, because of their
lower acquisition cost tend to sell on a yield basis approximating current
interest rates.
Ratings as Investment Criteria. In general, the ratings of Moody's and S&P
represent the opinions of these agencies as to the quality of the securities
which they rate. It should be emphasized, however, that such ratings are
relative and subjective and are not absolute standards of quality. These ratings
will be used by the Fund as initial criteria for the selection of portfolio
securities. Among the factors which will be considered are the long-term ability
of the issuer to pay principal and interest and general economic trends.
Appendix A contains further information concerning the ratings of Moody's and
S&P and their significance.
Participation Interests. Participation interests, which may take the form of
interests in, or assignments of certain loans, are acquired from banks who have
made these loans or are members of a lending syndicate. The Fund's investments
in participation interests are subject to its 15% limitation on investments in
illiquid securities.
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.
Lower Rated High Yield Debt Obligations. 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
Statement of Additional Information, 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
3
<PAGE>
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 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.
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 United States. 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 rate mortgage loans
which are guaranteed by agencies or instrumentalities of the U.S. government.
Unlike conventional debt obligations, mortgage-backed securities provide monthly
payments derived from the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans. The
mortgage loans underlying mortgage-backed securities are generally subject to a
greater rate of principal prepayments in a declining interest rate environment
and to a lesser rate of principal prepayments in an increasing interest rate
environment. Under certain interest and prepayment 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
4
<PAGE>
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.
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."
Repurchase Agreements. In a repurchase agreement the Fund would buys a security
for a relatively short period (usually not more than 7 days) subject to the
obligation to sell it back to the issuer at a fixed time and price plus accrued
interest. The Fund will enter into repurchase agreements only with member banks
of the Federal Reserve System and with "primary dealers" in U.S. Government
securities. The Adviser will continuously monitor the creditworthiness of the
parties with whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income decline in
value of the underlying securities or lack of access to income during this
period as well as the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse purchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain with the
Fund's custodian a separate account consisting of liquid securities, of any type
or maturity, in an amount at least equal to the repurchase prices of the
securities (plus any accrued interest thereon) under such agreements. In
addition, the Fund will not enter into reverse repurchase agreements or borrow
money, except from banks as a temporary measure for extraordinary emergency
purposes in amounts not to exceed 33 1/3% of the Fund's total assets (including
the amount borrowed) taken at market value. The Fund will not use leverage to
attempt to increase income. The Fund will not purchase securities while
5
<PAGE>
outstanding borrowings exceed 5% of the Fund's total assets. The Fund will enter
into reverse repurchase agreements only with federally insured banks which are
approved in advance as being creditworthy by the Trustees. Under the procedures
established by the of Trustees, the Adviser will monitor the creditworthiness of
the banks involved.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of the 1933 Act ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act.
However, the Fund will not invest more than 15% limit on illiquid investments.
If the Trustees determine, based upon a continuing review of the trading markets
for specific Section 4(2) paper or Rule 144A securities, that they are liquid,
they will not be subject to the 15% limit on illiquid investments. The Trustees
may adopt guidelines and delegate to the Adviser the daily function of
determining the monitoring and liquidity of restricted investments. The
Trustees, however, will retain sufficient oversight and be ultimately
responsible for the determinations. The Trustees will carefully monitor the
Fund's liquidity and availability of information. This investment practice could
have the effect of increasing the level of liquidity in the Fund if qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
Options on Securities and Securities Indices. The Fund may purchase and write
(sell) call and put options on any securities in which it may invest or on any
securities index based on securities in which it may invest. These options may
be listed on national domestic securities exchanges or traded in the
over-the-counter market. The Fund may write covered put and call options and
purchase put and call options to enhance total return, as a substitute for the
purchase or sale of securities, or to protect against declines in the value of
portfolio securities and against increases in the cost of securities to be
acquired.
Writing Covered Options. A call option on securities written by the Fund
obligates the Fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. A put option on securities written by a Fund obligates the Fund to
purchase specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash settlement payments and does
not involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations in
a single security. Writing covered call options may deprive the Fund of the
opportunity to profit from an increase in the market price of the securities in
its portfolio. Writing covered put options may deprive the Fund of the
opportunity to profit from a decrease in the market price of the securities to
be acquired for its portfolio.
All call and put options written by the Funds are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities in a
segregated account maintained by the Fund's custodian with a value at least
equal to the Fund's obligation under the option, (ii) entering into an
offsetting forward commitment and/or (iii) purchasing an offsetting option or
any other option which, by virtue of its exercise price or otherwise, reduces
the Fund's net exposure on its written option position. A written call option on
securities is typically covered by maintaining the securities that are subject
to the option in a segregated account. The Fund may cover call options on a
securities index by owning securities whose price changes are expected to be
similar to those of the underlying index.
6
<PAGE>
The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts") in the market value of securities of the type in which it
may invest. The Fund may also sell call and put options to close out its
purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities at a specified price during the option
period. The Fund would ordinarily realize a gain on the purchase of a call
option if, during the option period, the value of such securities exceeded the
sum of the exercise price, the premium paid and transaction costs; otherwise the
Fund would realize either no gain or a loss on the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities at a specified price during the option
period. The purchase of protective puts is designed to offset or hedge against a
decline in the market value of the Fund's portfolio securities. Put options may
also be purchased by the Fund for the purpose of affirmatively benefiting from a
decline in the price of securities which it does not own. The Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying securities decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
7
<PAGE>
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates or securities prices, the Fund
may purchase and sell futures contracts, and purchase and write call and put
options on these futures contracts. The Fund may also enter into closing
purchase and sale transactions with respect to any of these contracts and
options. The futures contracts may be based on various securities (such as U.S.
Government securities), securities indices and any other financial instruments
and indices. All futures contracts entered into by the Fund are traded on U.S.
exchanges or boards of trade that are licensed, regulated or approved by the
Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments for an
agreed price during a designated month (or to deliver the final cash settlement
price, in the case of a contract relating to an index or otherwise not calling
for physical delivery at the end of trading in the contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities will usually be liquidated in
this manner, the Fund may instead make, or take, delivery of the underlying
securities whenever it appears economically advantageous to do so. A clearing
corporation associated with the exchange on which futures contracts are traded
guarantees that, if still open, the sale or purchase will be performed on the
settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire. When
interest rates are rising or securities prices are falling, the Fund can seek to
offset a decline in the value of its current portfolio securities through the
sale of futures contracts. When interest rates are falling or securities prices
are rising, the Fund, through the purchase of futures contracts, can attempt to
secure better rates or prices than might later be available in the market when
it effects anticipated purchases.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or a decline in market prices that would adversely affect the
value of the Fund's portfolio securities. Such futures contracts may include
contracts for the future delivery of securities held by the Fund or securities
with characteristics similar to those of the Fund's portfolio securities.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
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based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices then available in the applicable market to be less favorable
than prices that are currently available. The Fund may also purchase futures
contracts as a substitute for transactions in securities, to alter the
investment characteristics of portfolio securities or to gain or increase its
exposure to a particular securities market.
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
protect against a decline in the price of securities that the Fund owns or
futures contracts will be purchased to protect the Fund against an increase in
the price of securities it intends to purchase. The Fund will determine that the
price fluctuations in the futures contracts and options on futures used for
hedging purposes are substantially related to price fluctuations in securities
held by the Fund or securities or instruments which it expects to purchase. As
evidence of its hedging intent, the Fund expects that on 75% or more of the
occasions on which it takes a long futures or option position (involving the
purchase of futures contracts), the Fund will have purchased, or will be in the
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process of purchasing, equivalent amounts of related securities in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. The Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualification as a
regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities, require the Fund to establish with
the custodian a segregated account consisting of cash or liquid securities in an
amount equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates or securities prices may result
in a poorer overall performance for the Fund than if it had not entered into any
futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. There are no futures contracts based upon
individual securities, except certain U.S. Government securities. The only
futures contracts available to hedge the Fund's portfolio are various futures on
U.S. Government securities and securities indices. In the event of an imperfect
correlation between a futures position and a portfolio position which is
intended to be protected, the desired protection may not be obtained and the
Fund may be exposed to risk of loss.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
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seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when- issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Mortgage "Dollar Roll" Transactions. The Fund may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which the
Fund sells mortgage-backed securities and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. The Fund will only enter into covered rolls. A "covered roll" is a
specific type of dollar roll for which there is an offsetting cash position or a
cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction. Covered rolls are not treated as
a borrowing or other senior security and will be excluded from the calculation
of the Fund's borrowings and other senior securities. For financial reporting
and tax purposes, the Fund treats mortgage dollar rolls as two separate
transactions; one involving the purchase of a security and a separate
transaction involving a sale. The Fund does not currently intend to enter into
mortgage dollar roll transactions that are accounted for as a financing.
Asset-Backed Securities. The Fund may invest a portion of its assets in asset-
backed securities which are rated in the highest rating category by a nationally
recognized statistical rating organization (e.g., Standard & Poor's Corporation
or Moody's Investors Services, Inc.) or if not so rated, of equivalent
investment quality in the opinion of the Adviser.
Asset-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can be
expected to accelerate. Accordingly, the Fund's ability to maintain positions in
these securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the returns
of principal at comparable yields is subject to generally prevailing interest
rates at that time.
Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than
residential real property. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
asset- backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
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Swaps, Caps, Floor and Collars. As one way of managing its exposure to different
types of investments, the Fund may enter into interest rate swaps, currency
swaps, and other types of swap agreements such as caps, collars and floors. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specified period of
time. If a swap agreement provides for payment in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift the Fund's investment exposure from one type
of investment to another. For example, if the Fund agreed to exchange payments
in dollars for payments in a foreign currency, the swap agreement would tend to
decrease the Fund's exposure to U.S. interest rates and increase its exposure to
foreign currency and interest rates. Caps and floors have an effect similar to
buying or writing options. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a Fund's investments and its
share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Fund may also suffer losses if
it is unable to terminate outstanding swap agreements or reduce its exposure
through offsetting transactions. The Fund will maintain in a segregated account
with its custodian, cash or liquid, high grade debt securities equal to the net
amount, if any, of the excess of the Fund's obligations over its entitlements
with respect to swap, cap, collar or floor transactions.
Pay-In-Kind, Delayed and Zero Coupon Bonds. The Fund may invest in pay-in- kind,
delayed and zero coupon bonds. These are securities issued at a discount from
their face value because interest payments are typically postponed until
maturity. The amount of the discount rate varies depending on factors including
the time remaining until maturity, prevailing interest rates, the security's
liquidity and the issuer's credit quality. These securities also may take the
form of debt securities that have been stripped of their interest payments. A
portion of the discount with respect to stripped tax-exempt securities or their
coupons may be taxable. The market prices in pay-in-kind, delayed and zero
coupon bonds generally are more volatile than the market prices of
interest-bearing securities and are likely to respond to a greater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit quality. The Fund's investments in pay-in-kind, delayed
and zero coupon bonds may require the Fund to sell certain of its portfolio
securities to generate sufficient cash to satisfy certain income distribution
requirements. See "TAX STATUS."
Brady Bonds. The Fund may invest in Brady Bonds and other sovereign debt
securities of countries that have restructured or are in the process of
restructuring sovereign debt pursuant to the Brady Plan. Brady Bonds are debt
securities issued by U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
indebtedness (generally, commercial bank debt). In restructuring its external
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debt under the Brady Plan framework, a debtor nation negotiates with its
existing bank lenders as well as multilateral institutions such as the World
Bank and the International Monetary Fund (the "IMF"). The Brady Plan facilitates
the exchange of commercial bank debt for newly issued bonds (known as Brady
Bonds). The World Bank and the IMF provide funds pursuant to loan agreements or
other arrangements which enable the debtor nation to collateralize the new Brady
Bonds or to repurchase outstanding bank debt at a discount. Under these
arrangements the IMF debtor nations are required to implement domestic monetary
and fiscal reforms. These reforms have included the liberalization of trade and
foreign investment, the privatization of state-owned enterprises and the setting
of targets for public spending and borrowing. These policies and programs seek
to promote the debtor country's ability to service its external obligations and
promote its economic growth and development. The Brady Plan only sets forth
general guiding principles for economic reform and debt reduction, emphasizing
that solutions must be negotiated on a case-by-case basis between debtor nations
and their creditors. The Adviser believes that economic reforms undertaken by
countries in connection with the issuance of Brady Bonds make the debt of
countries which have issued or have announced plans to issue Brady Bonds an
attractive opportunity for investment.
Brady Bonds have recently been issued by Argentina, Brazil, Bulgaria, Costa
Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Poland, the
Philippines, Uruguay and Venezuela and may be issued by other countries. Over
$130 billion in principal amount of Brady Bonds have been issued to date, the
largest portion having been issued by Argentina and Brazil. Brady Bonds may
involve a high degree of risk, may be in default or present the risk of default.
As of January 1, 1997, the Fund is not aware of the occurrence of any payment
defaults on Brady Bonds. Investors should recognize however, that Brady Bonds
have been issued only recently, and, accordingly, they do not have a long
payment history. Agreements implemented under the Brady Plan to date are
designed to achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result, the financial
packages offered by each country differ. The types of options have included the
exchange of outstanding commercial bank debt for bonds issued at 100% of face
value of such debt, bonds issued at a discount of face value of such debt, bonds
bearing an interest rate which increases over time and bonds issued in exchange
for the advancement of new money by existing lenders. Certain Brady Bonds have
been collateralized as to principal due at maturity by U.S. Treasury zero coupon
bonds with a maturity equal to the final maturity of such Brady Bonds, although
the collateral is not available to investors until the final maturity of the
Brady Bonds. Collateral purchases are financed by the IMF, the World Bank and
the debtor nations' reserves. In addition, the first two or three interest
payments on certain types of Brady Bonds may be collateralized by cash or
securities agreed upon by creditors. Although Brady Bonds may be collateralized
by U.S. Government securities, repayment of principal and interest is not
guaranteed by the U.S. Government.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
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the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income. Short
term trading may have the effect of increasing portfolio turnover rate. A high
rate of portfolio turnover (100% or greater) involves correspondingly greater
brokerage expenses and may make it more difficult for the Fund to qualify as a
regulated investment company for federal income tax purposes. The Fund's
portfolio turnover rate is set forth in the table under the caption "Financial
Highlights" in the Prospectus.
The Fund intends to use short-term trading of securities as a means of managing
its portfolio to achieve its investment objective. The Fund, in reaching a
decision to sell one security and purchase another security at approximately the
same time, will take into account a number of factors, including the quality
ratings, interest rates, yields, maturity dates, call prices, and refunding and
sinking fund provisions of the securities under consideration, as well as
historical yield spreads and current economic information. The success of
short-term trading will depend upon the ability of the Fund to evaluate
particular securities, to anticipate relevant market factors, including trends
of interest rates and earnings and variations from such trends, to obtain
relevant information, to evaluate it promptly, and to take advantage of its
evaluations by completing transactions on a favorable basis. It is expected that
the expenses involved in short-term trading, which would not be incurred by an
investment company which does not use this portfolio technique, will be
significantly less than the profits and other benefits which will accrue to
shareholders.
The portfolio turnover rate will depend on a number of factors, including the
fact that the Fund intends to continue to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, the Fund intends to limit its short-term trading so that less than
30% of the Fund's gross annual income (including all dividend and interest
income and gross realized capital gains, both short and long-term, without being
offset for realized capital losses) will be derived from gross realized gains on
the sale or other disposition of securities held for less than three months.
This limitation, which must be met by all mutual funds in order to obtain such
Federal tax treatment, at certain times may prevent the Fund from realizing
capital gains on some securities held for less than three months.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without approval of a majority of the Fund's outstanding voting
securities which, as used in the Prospectus and this Statement of Additional
Information, means approval by the lesser of (1) the holders of 67% or more of
the Fund's shares represented at a meeting if more than 50% of the Fund's
outstanding shares are present in person or by proxy at the meeting or (2) more
than 50% of the Fund's outstanding shares.
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The Fund may not:
(1) Issue senior securities, except as permitted by paragraphs
(2), (6) and (7) below. For purposes of this restriction, the issuance of shares
of beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts and options on futures contracts, forward
commitments, forward foreign exchange contracts and repurchase agreements
entered into in accordance with the Fund's investment policy, and the pledge,
mortgage or hypothecation of the Fund's assets within the meaning of paragraph
(3) below are not deemed to be senior securities.
(2) Borrow money, except from banks as a temporary measure for
extraordinary emergency purposes in amounts not to exceed 33 1/3% of the Fund's
total assets (including the amount borrowed) taken at market value. The Fund
will not use leverage to attempt to increase income. The Fund will not purchase
securities while outstanding borrowings exceed 5% of the Fund's total assets.
(3) Pledge, mortgage, or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if such pledging,
mortgaging or hypothecating does not exceed 33 1/3% of the Fund's total assets
taken at market value.
(4) Act as an underwriter, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be deemed
to be an underwriter for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate or any interest therein, except
that the Fund may invest in securities of corporate or governmental entities
secured by real estate or marketable interests therein or issued by companies
that invest in real estate or interests therein.
(6) Make loans, except that the Fund (1) may lend portfolio
securities in accordance with the Fund's investment policies up to 33 1/3% of
the Fund's total assets taken at market value, (2) enter into repurchase
agreements, and (3) purchase all or a portion of an issue of publicly
distributed debt securities, bank loan participation interests, bank
certificates of deposit, bankers' acceptances, debentures or other securities,
whether or not the purchase is made upon the original issuance of the
securities.
(7) Invest in commodities or commodity contracts or in puts,
calls, or combinations of both, except interest rate futures contracts, options
on securities, securities indices, currency and other financial instruments and
options on such futures contracts, forward foreign currency exchange contracts,
forward commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment policies.
(8) Purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after such purchase, the
value of its investments in such industry would exceed 25% of its total assets
taken at market value at the time of each investment. This limitation does not
apply to investments in obligations of the U.S. Government or any of its
agencies or instrumentalities.
(9) Purchase securities of an issuer, (other than the U.S.
Government, its agencies or instrumentalities) if
(a) Such purchase would cause more than 5% of the Fund's
total assets taken at market value to be invested in the securities of such
issuer, or
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(b) Such purchase would at the time result in more than
10% of the outstanding voting securities of such issuer being held by the Fund.
In connection with the lending of portfolio securities under item (6) above,
such loans must at all times be fully collateralized by cash or securities of
the U.S. Government or its agencies or instrumentalities and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Any cash collateral will consist of short-term high quality debt
instruments. Securities used as collateral must be marked to market daily.
Non-fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval:
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any
securities trading account. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management of the
Adviser to save commissions or to average prices among them is not deemed to
result in a securities trading account.
(b) Purchase securities on margin or make short sales, except
margin deposits in connection with transactions in options, futures contracts,
options on futures contracts and other arbitrage transactions or unless by
virtue of its ownership of other securities, the Fund has the right to obtain
securities equivalent in kind and amount to the securities sold and, if the
right is conditional, the sale is made upon the same conditions, except that the
Fund may obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities and in connection with transactions involving
forward foreign currency exchange transactions.
(c) Purchase securities of any issuer which, together with any
predecessor, has a record of less than three years' continuous operations prior
to the purchase if such purchase would cause investments of the Fund in all such
issuers to exceed 5% of the value of the total assets of the Fund.
(d) Invest for the purpose of exercising control over or
management of any company.
(e) Purchase warrants of any issuer, if, as a result of such
purchases, more than 2% of the value of the Fund's total assets would be
invested in warrants which are not listed on the New York Stock Exchange or the
American Stock Exchange or more than 5% of the value of the total assets of the
Fund would be invested in warrants generally, whether or not so listed. For
these purposes, warrants are to be valued at the lesser of cost or market value,
but warrants acquired by the Fund in units with or attached to debt securities
shall be deemed to be without value.
(f) Knowingly purchase or retain securities of an issuer if one or
more of the Trustees or officers of the Fund or directors or officers of the
Adviser or any investment management subsidiary of the Adviser individually owns
beneficially more than 0.5%, and together own beneficially more than 5%, of the
securities of such issuer.
(g) Purchase interests in oil, gas or other mineral leases or
exploration programs; however, this policy will not prohibit the acquisition of
securities of companies engaged in the production or transmission of oil, gas or
other minerals.
(h) Invest more than (i) 10% of its total assets in securities
which are restricted under the Securities Act of 1933 (the "1933 Act")
(excluding restricted securities that are eligible for resale pursuant to Rule
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144A under the 1933 Act) or (ii) 15% of the Fund's total assets in such
restricted securities (including restricted securities eligible for resale
pursuant to Rule 144A).
(i) Purchase interests in real estate limited partnerships.
(j) Purchase any security, including any repurchase agreement
maturing in more than seven days, which is not readily marketable, if more than
15% of the net assets of the Fund, taken at market value, would be invested in
such securities.
(k) Purchase a security if, as a result, (i) more than 10% of the
Fund's total assets would be invested in the securities of other investment
companies, (ii) the Fund would hold more than 3% of the total outstanding voting
securities of any one investment company, or (iii) more than 5% of the Fund's
total assets would be invested in the securities of any one investment company.
These limitations do not apply to (a) the investment of cash collateral,
received by the Fund in connection with lending the Fund's portfolio securities,
in the securities of open-end investment companies or (b) the purchase of shares
of any investment company in connection with a merger, consolidation,
reorganization or purchase of substantially all of the assets of another
investment company. Subject to the above percentage limitations, the Fund may,
in connection with the John Hancock Group of Funds Deferred Compensation Plan
for Independent Trustees/Directors, purchase securities of other investment
companies within the John Hancock Group of Funds.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions on investment policy
more restrictive than those described above. Should the Trustees determine that
any such more restrictive policy is no longer in the best interest of the Fund
and its shareholders, the Fund may cease offering shares in the state involved
and the Trustees may revoke such restrictive policy. Moreover, if the states
involved shall no longer require any such restrictive policy, the Trustees may,
at their sole discretion, revoke such policy.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees of the Trust, who elect
officers who are responsible for the day-to-day operations of the Fund and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Fund are also Officers and Directors of the Adviser or Officers
and Directors of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
17
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman and Chief Executive
101 Huntington Avenue Executive Officer (1, 2) Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("Berkeley
October 1944 Group"); Chairman, NM Capital
Management, Inc. ("NM Capital") and
John Hancock Advisers International
Limited ("Advisers International");
Chairman, Chief Executive Officer
and President, John Hancock Funds,
Inc. ("John Hancock Funds"), First
Signature Bank and Trust Company
and Sovereign Asset Management
Corporation ("SAMCorp."); Director,
John Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), John
Hancock Capital Corporation and New
England/Canada Business Council;
Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; Vice Chairman and
President, the Adviser (until July
1992); Chairman, John Hancock
Distributors, Inc. (until April
1994); Director, John Hancock
Freedom Securities Corporation
(until September 1996); Director,
John Hancock Signature Services,
Inc. ("Signature Services") (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
18
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dennis S. Aronowitz Trustee (3) Professor of Law, Emeritus, Boston
Boston University University School of Law; Trustee,
Boston, Massachusetts Brookline Savings Bank.
June 1931
Richard P. Chapman, Jr. Trustee (1, 3) President, Brookline Savings Bank;
160 Washington Street Director, Federal Home Loan Bank of
Brookline, MA 02147 Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University (education);
Director, Depositors Insurance Fund,
Inc. (insurance).
William J. Cosgrove Trustee (3) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, NJ 07458 N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation, Inc.
(consulting) (until October 1993);
Trustee, the Hudson City Savings
Bank (since 1995).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
19
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Douglas M. Costle Trustee (1, 3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, VT 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991); Dean Vermont Law
School (until 1991); Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
Mitretek Systems (governmental
consulting services).
Leland O. Erdahl Trustee (3) Director, Santa Fe Ingredients
8046 Mackenzie Court Company of California, Inc. and
Las Vegas, NV 89129 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing companies),
Uranium Resources, Inc.; President,
Stolar, Inc. (1987-1991); President,
Albuquerque Uranium Corporation
(1985-1992); Director,
Freeport-McMoRan Copper & Gold
Company, Inc., Hecla Mining Company,
Canyon Resources Corporation and
Original Sixteen to One Mines, Inc.
(1984-1987 and 1991-1995)
(management consultant).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
20
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Farrell Trustee(3) President of Farrell, Healer & Co.,
Venture Capital Partners (venture capital management firm)
160 Federal Street (since 1980); Prior to 1980, headed
23rd Floor the venture capital group at Bank of
Boston, MA 02110 Boston Corporation.
November 1932
Gail D. Fosler Trustee (3) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD 20815 economic and business research);
December 1947 Director, Unisys Corp.; and H.B.
Fuller Company.
William F. Glavin Trustee (3) President, Babson College; Vice
Babson College Chairman, Xerox Corporation (until
Horn Library June 1989); Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994) and Inco
March 1931 Ltd.
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser; Director,
Boston, MA 02199 The Berkeley Group, John Hancock
April 1953 Funds; Director, Advisers
International; Executive Vice
President, the Adviser (until
December 1994); Senior Vice
President, the Adviser (until
December 1993); Director, Signature
Services (until January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
21
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dr. John A. Moore Trustee (3) President and Chief Executive
Institute for Evaluating Health Risks Officer, Institute for Evaluating
1629 K Street NW Health Risks, (nonprofit
Suite 402 institution) (since September 1989).
Washington, DC 20006-1602
February 1939
Patti McGill Peterson Trustee (3) Cornell Institute of Public Affairs,
Cornell University Cornell University (since August
Institute of Public Affairs 1996); President Emeritus of Wells
364 Upson Hall College and St. Lawrence University;
Ithica, NY 14853 Director, Niagara Mohawk Power
May 1943 Corporation (electric utility) and
Security Mutual Life (insurance).
John W. Pratt Trustee (3) Professor of Business Administration
2 Gray Gardens East at Harvard University Graduate
Cambridge, MA 02138 School of Business Administration
September 1931 (since 1961).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
22
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John Hancock
Boston, MA 02117 Funds, John Hancock Distributors,
August 1937 Inc., Insurance Agency, Inc., John
Hancock Subsidiaries, Inc.,
SAMCorp. and NM Capital; Trustee,
The Berkeley Group; Director, JH
Networking Insurance Agency, Inc.;
Director, John Hancock Property and
Casualty Insurance and its
affiliates (until November 1993);
Director, Signature Services (until
January 1997).
Edward J. Spellman, CPA Trustee (3) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL 33308
November 1932
Robert G. Freedman Vice Chairman and Chief Investment Vice Chairman and Chief Investment
101 Huntington Avenue Officer (2) Officer, the Adviser; Director, the
Boston, MA 02199 Adviser, Advisers International,
July 1938 John Hancock Funds, SAMCorp.,
Insurance Agency, Inc.,
Southeastern Thrift & Bank Fund and
NM Capital; Senior Vice President,
The Berkeley Group; President, the
Adviser (until December 1994);
Director, Signature Services (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
23
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James B. Little Senior Vice President and Chief Senior Vice President, the Adviser,
101 Huntington Avenue Financial Officer The Berkeley Group, John Hancock
Boston, MA 02199 Funds.
February 1935
John A. Morin Vice President Vice President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services and John Hancock
July 1950 Funds; Secretary, SAMCorp.,
Insurance Agency, Inc. and NM
Capital; Counsel, John Hancock
Mutual Life Insurance Company (until
January 1996).
Susan S. Newton Vice President and Secretary Vice President, the Adviser; John
101 Huntington Avenue Hancock Funds, Signature Services
Boston, MA 02199 and The Berkeley Group; Vice
March 1950 President, John Hancock
Distributors, Inc. (until 1994).
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
</TABLE>
24
<PAGE>
All of the officers listed are officers or employees of the Adviser or the
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of March 28, 1997, the officers and trustees of the Trust as a group owned
less than 1% of the outstanding shares of each class of the Fund. As of that
date, the following shareholders beneficially owned 5% of or more of the
outstanding shares of the Funds listed below:
<TABLE>
<CAPTION>
Number of Shares of Percentage of Total
Name and Address of Beneficial Outstanding Shares of
Shareholders Class of Shares Interest Owned the Class of the Fund
- ------------ --------------- -------------- ---------------------
<S> <C> <C> <C>
MLPF&S For The Sole B 1,057,780 12.00%
Benefit of Its Customers
Attn Fund Administration
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
</TABLE>
The following table provides information regarding the compensation paid by the
Fund during its most recently completed fiscal year and the other investment
companies in the John Hancock Fund Complex to the Independent Trustees for their
services. Trustees not listed below were not Trustees of the Fund during its
most recently completed fiscal year. Messrs. Boudreau, Scipione and Ms. Hodsdon,
each a non-Independent Trustee, and each of the officers of the Fund are
interested persons of the Adviser, are compensated by the Adviser and/or its
affiliates and receive no compensation from the Fund for their services.
Total Compensation
Aggregate From the Fund and
Compensation John Hancock Fund
Independent Trustees from the Fund Complex to Trustees*
- -------------------- ------------- --------------------
Dennis S. Aronowitz $ 22,062 $ 72,450
Richard P. Chapman, Jr. + $ 22,693 $ 75,200
William J. Cosgrove + $ 22,062 $ 72,450
Douglas M. Costle $ 1,524 $ 75,350
Leland O. Erdahl $ 1,286 $ 72,350
Richard A. Farrell $ 1,524 $ 75,350
Gail D. Fosler $ 20,790 $ 68,450
William F. Glavin $ 1,271 $ 72,250
Bayard Henry ++ $ 7,664 $ 23,700
Dr. John A. Moore $ 1,286 $ 68,350
Patti McGill Peterson $ 1,286 $ 72,100
John W. Pratt $ 1,286 $ 72,350
Edward J. Spellman $ 22,301 $ 73,950
--------- --------
Totals $127,035 $894,300
* Compensation for the fiscal year ended December 31, 1996.
The total compensation paid by the John Hancock Fund Complex to the Independent
Trustees is for the calendar year ended December 31, 1996. On this date, there
were sixty-seven funds in the John Hancock Complex of which each of these
independent trustees served on thirty-five of the funds.
25
<PAGE>
+ On December 31, 1996, the value of the aggregate deferred compensation from
all funds in the John Hancock Fund Complex for Mr. Chapman was $63,164 and for
Mr. Cosgrove was $131,317 and for Mr. Glavin was $109,059 under the John Hancock
Deferred Compensation Plan for Independent Trustees.
++ Mr. Henry retired from his position as Trustee effective April 26, 1996.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and presently has more than $20 billion in assets under
management in its capacity as investment adviser to the Fund and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over 1,080,000 shareholders. The Adviser is
an affiliate of the Life Company, one of the most recognized and respected
financial institutions in the nation. With total assets under management of $80
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries high ratings from S&P's and A. M. Best's. Founded
in 1862, the Life Company has been serving clients for over 130 years
The Fund has entered into an investment management contract with the Adviser
(the "Advisory Agreement") which was approved by the Fund's shareholders. As
manager and investment adviser, the Adviser will: (a) furnish continuously an
investment program for the Fund and determine, subject to the overall
supervision and review of the Trustees, which investments should be purchased,
held, sold or exchanged and (b) provide supervision over all aspects of the
Fund's operations except those which are delegated to a custodian, transfer
agent or other agent.
The Fund bears all costs of its organization and operation, including expenses
of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plan of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Fund (including an allocable portion of the cost of the
Adviser's employees rendering such services to the Fund; the compensation and
expenses of Trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders'
meetings; trade association memberships; insurance premiums; and any
extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
Net Asset Value Annual Rate
--------------- -----------
First $1,500,000,000 0.50%
Next $500,000,000 0.45%
Next $500,000,000 0.40%
Amount Over $2,500,000,000 0.35%
26
<PAGE>
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to re-impose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provides investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more other funds or clients are selling the same security. If opportunities for
the purchase or sale of securities by the Adviser or for other funds or clients,
for which the Adviser renders investment advice, arise for consideration at or
about the same time, transactions in such securities will be made, insofar as
feasible, for the respective funds or clients in a manner deemed equitable to
all of them. To the extent that transactions on behalf of more than one client
of the Adviser or its affiliates may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
Pursuant to its investment management contract, the Adviser is not liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which its contract relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from reckless disregard of the
obligations and duties under the contract.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent that it lawfully
can) will cease to use such a name or any other name indicating that it is
advised by or otherwise connected with the Adviser. In addition, the Adviser or
the Life Company may grant the nonexclusive right to use the name "John Hancock"
or any similar name to any other corporation or entity, including but not
limited to any investment company of which the Life Company or any subsidiary or
affiliate thereof or any successor to the business of any subsidiary or
affiliate thereof shall be the investment adviser.
The continuation of the Advisory Agreement was approved by all of the Trustees.
The Advisory Agreement, and the Distribution Agreement discussed below, will
continue in effect from year to year, provided that its continuance is approved
annually both (i) by the holders of a majority of the outstanding voting
securities of the Trust or by the Trustees, and (ii) by a majority of the
Trustees who are not parties to the Agreement or "interested persons" of any
such parties. Both agreements may be terminated on 60 days written notice by any
party or by a vote of a majority of the outstanding voting securities of the
Fund and will terminate automatically if it is assigned.
For the fiscal years ended December 31, 1994, 1995 and 1996, the Adviser
received fees of $7,116,092, $7,406,635 and $7,799,825, respectively.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the period ended December 31, 1996, the Fund paid the
Adviser $291,977 for services under this agreement.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser and
the Fund have adopted extensive restrictions on personal securities trading by
personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
27
<PAGE>
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement, John Hancock Funds is obligated to use its best efforts to sell each
class of shares of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined, plus any applicable sales charge, if any. In connection
with the sale of Class A or Class B shares, John Hancock Funds and Selling
Brokers receive compensation from a sales charge imposed, in the case of Class A
shares, at the time of sale or, in the case of Class B shares, on a deferred
basis. John Hancock Funds may pay extra compensation to financial services firms
selling large amounts of fund shares. This compensation would be calculated as a
percentage of fund shares sold by the firm. The sales charges are discussed
further in the Prospectus.
The Fund's Trustees adopted Distribution Plans with respect to Class A and Class
B shares (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% and 1.00%, respectively, of the Fund's
average daily net assets attributable to shares of that class. However, the
service fee will not exceed 0.25% of the Fund's average daily net assets
attributable to each class of shares. The distribution fees will be used to
reimburse the John Hancock Funds for its distribution expenses, including but
not limited to: (i) initial and ongoing sales compensation to Selling Brokers
and others (including affiliates of the John Hancock Funds) engaged in the sale
of Fund shares; (ii) marketing, promotional and overhead expenses incurred in
connection with the distribution of Fund shares; and (iii) with respect to Class
B shares only, interest expenses on unreimbursed distribution expenses. The
service fees will be used to compensate Selling Brokers and others for providing
personal and account maintenance services to shareholders. In the event that
John Hancock Funds is not fully reimbursed for payments or expenses they incur
under the Class A Plan, these expenses will not be carried beyond twelve months
from the date they were incurred. Unreimbursed expenses under the Class B Plan
will be carried forward together with interest on the balance of these
unreimbursed expenses. The Fund does not treat the unreimbursed expenses under
the Class B Plan as a liability of the Fund because the Trustees may terminate
the Class B Plan at any time. For the fiscal year ended December 31, 1996, an
aggregate of $3,897,654 of distribution expenses or 3.40% of the average net
assets of the Class B shares of the Fund, was not reimbursed or recovered by
John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1
fees in prior periods.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on these Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. The Plans provide that they may be terminated without
penalty (a) by vote of a majority of the Independent Trustees, (b) by a vote of
a majority of the Fund's outstanding shares of the applicable class in each case
28
<PAGE>
upon 60 days' written notice to John Hancock Funds, and (c) automatically in the
event of assignment. The Plans further provide that they may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to the Plan. Each Plan provides that
no material amendment to the Plans will be effective unless it is approved by a
vote of a majority of the Trustees and the Independent Trustees of the Fund. The
holders of Class A shares and Class B shares have exclusive voting rights with
respect to the Plan applicable to their respective class of shares. In adopting
the Plans the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable class of
shares of the Fund.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of the
Trustees. From time to time, the Fund may participate in joint distribution
activities with other Funds and the costs of those activities will be borne by
each Fund in proportion to the relative net asset value of the participating
Funds.
During the fiscal year ended December 31, 1996, the Fund paid John Hancock Funds
the following amounts of expenses in connection with their services for the
Fund:
<TABLE>
<CAPTION>
Expense Items
Printing and
Mailing of Expenses of Interest
Prospectus to Compensa- John Carrying or
New tion to Selling Hancock Other Finance
Advertising Shareholders Brokers Funds Charges
----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A Shares $285,176 $18,690 $3,207,144 $840,048 $ --
Class B Shares $139,429 $ 8,947 $ 263,305 $412,732 $329,234
</TABLE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a Fund's shares, the
following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
29
<PAGE>
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of a Fund's NAV. If quotations
are not readily available, or the value has been materially affected by the
events occurring after closing of a foreign market, assets are valued by a
method that Trustees believe accurately reflects fair value.
The NAV of each fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net assets by the number of its shares outstanding.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which a Fund's NAV is not calculated.
Consequently, a Fund's portfolio securities may trade and the NAV of the Fund's
redeemable securities may be significantly affected on days when a shareholder
has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
will not be issued unless requested by the shareholder in writing, and then they
will only be issued for full shares. The Trustees reserve the right to change or
waive a Fund's minimum investment requirements and to reject any order to
purchase shares (including purchase by exchange) when in the judgment of the
Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining reduced sales charges referred
to generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares of the Fund, the
investor is entitled to accumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund owned by the
investor or, if John Hancock Signature Services, Inc. ("Signature Services") is
notified by the investor's dealer or the investor at the time of the purchase,
the cost of the Class A shares owned.
Without Sales Charges. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
o Any state, county or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment
laws from paying a sales charge or commission when it purchases shares
of any registered investment management company.*
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if
it is purchasing $1 million or more for non-discretionary customers or
accounts.*
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law) of any of the foregoing; or any fund,
pension, profit sharing or other benefit plan for the individuals
described above.
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o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into an agreement with John Hancock
Funds providing specifically for the use of Fund shares in fee-based
investment products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any
or all of his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.*
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed defined contribution plans with at least 100 eligible
employees at the inception of the Fund account, may purchase Class A
shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which
the purchase was made, a CDSC will be imposed at the following rate:
Amount Invested CDSC RATE
$1 to $4,999,000 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or a Selling Broker's representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares.
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<PAGE>
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges are also applicable to investments
made pursuant to a Letter of Intention (the "LOI"), which should be read
carefully prior to its execution by an investor. The Fund offers two options
regarding the specified period for making investments under the LOI. All
investors have the option of making their investments over a specified period of
thirteen (13) months. Investors who are using the Fund as a funding medium for a
qualified retirement plan, however, may opt to make the necessary investments
called for by the LOI over a forty-eight (48) month period. These qualified
retirement plans include IRAs, SEP, SARSEP, 401(k), 403(b) (including TSAs) and
Section 457 plans. Such an investment (including accumulations and combinations)
must aggregate $100,000 or more invested during the specified period from the
date of the LOI or from a date within ninety (90) days prior thereto, upon
written request to Signature Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate amount intended
to be invested had been invested immediately. If such aggregate amount is not
actually invested, the difference in the sales charge actually paid and the
sales charge payable had the LOI not been in effect is due from the investor.
However, for the purchases actually made within the specified period (either 13
or 48 months) the sales charge applicable will not be higher than that which
would have applied (including accumulations and combinations) had the LOI been
for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrow Class A shares will be released. If the total investment specified in
the LOI is not completed, the Class A shares held in escrow may be redeemed and
the proceeds used as required to pay such sales charge as may be due. By signing
the LOI, the investor authorizes Signature Services to act as his or her
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional Class A shares and
may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. No CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B shares derived from
reinvestment of dividends or capital gains distributions. No CDSC will be
imposed on shares derived from reinvestment of dividends or capital gains
distributions.
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<PAGE>
Class B shares are not available to full-service defined contribution plans
administered by Signature Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six- year CDSC redemption period or those you acquired through
dividend and capital gain reinvestment, and next from the shares you have held
the longest during the six-year period. For this purpose, the amount of any
increase in a share's value above its initial purchase price is not regarded as
a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price. However, you cannot redeem appreciation value only in order to avoid a
CDSC.
When requesting a redemption for a specific dollar amount please indicate if you
require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
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<PAGE>
* Redemptions made pursuant to the Fund's right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account
value, including reinvested dividends, at the time you established your
periodic withdrawal plan and 12% of the value of subsequent investments
(less redemptions) in that account at the time you notify Signature
Services. (Please note, this waiver does not apply to periodic
withdrawal plan redemptions of Class A shares that are subject to a
CDSC.)
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other qualified plans as
described in the Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory distributions under the Internal
Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement under Section 401(a)
of the Code (such as 401(k), Money Purchase Plan or Profit-Sharing
Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares
prior to May 15, 1995.
Please see matrix for reference.
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<PAGE>
<TABLE>
<CAPTION>
CDSC Waiver Matrix for Class B Funds.
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Type of 401(a) Plan 403(b) 457 IRA, IRA Non-
Distribution (401(k), Rollover retirement
MPP, PSP)
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually in
distribution periodic payments
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or value annually in
12% of account periodic payments
value annually
in periodic
payments
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Under 59 1/2 Waived Waived for Waived for Waived for 12% of account
annuity payments annuity payments annuity payments value annually in
(72+) or 12% of (72+) or 12% of (72+) or 12% of periodic payments
account value account value account value
annually in annually in annually in
periodic payments periodic payments periodic payments
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Loans Waived Waived N/A N/A N/A
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Hardships Waived Waived Waived N/A N/A
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Return of Waived Waived Waived Waived N/A
Excess
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
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<PAGE>
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholder will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, the Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90-day period would
exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock Short-Term Strategic Income
Fund, John Hancock Intermediate Maturity Government Fund and John Hancock
Limited-Term Government Fund will retain the exchanged fund's CDSC schedule).
For purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the holding
period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares. Since the redemption price of the Fund shares may be
more or less than the shareholder's cost, depending upon the market value of the
securities owned by the Fund at the time of redemption, the distribution of cash
36
<PAGE>
pursuant to this plan may result in realization of gain or loss for purposes of
Federal, state and local income taxes. The maintenance of a Systematic
Withdrawal Plan concurrently with purchases of additional Class A or Class B
shares of the Fund could be disadvantageous to a shareholder because of the
initial sales charge payable on such purchases of Class A shares and the CDSC
imposed on redemptions of Class B shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase Class A and Class B shares
at the same time a Systematic Withdrawal Plan is in effect. The Fund reserves
the right to modify or discontinue the Systematic Withdrawal Plan of any
shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the processing date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit of that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of any CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
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<PAGE>
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have not authorized any additional series of the Fund,
other than the Fund, although they may do so in the future. The Declaration of
Trust also authorizes the Trustees to classify and reclassify the shares of the
Fund, or any new series of the Trust, into one or more classes. As of the date
of this Statement of Additional Information, the Trustees have authorized the
issuance of two classes of shares of the Fund, designated as Class A and Class
B.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
Class A shares and Class B shares have certain exclusive voting rights on
matters relating to their respective distribution plans. The different classes
of the Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that class, (ii) Class B shares will pay higher
distribution and service fees than Class A shares and (iii) each of Class A and
Class B shares will bear any class expenses properly allocable to that class of
shares, subject to the conditions the Internal Revenue Service imposes with
respect to the multiple-class structures. Similarly, the net asset value per
share may vary depending on whether Class A or Class B shares are purchased.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts, obligations or affairs of the Fund. The
Declaration of Trust also provides for indemnification out of the Fund's assets
for all losses and expenses of any shareholder held personally liable by reason
of being or having been a shareholder. The Declaration of Trust also provides
that no series of the Trust shall be liable for the liabilities of any other
series. Furthermore, no fund included in this Fund's prospectus shall be liable
for the liabilities of any other John Hancock Fund. Liability is therefore
38
<PAGE>
limited to circumstances in which the Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. Use of
information provided on the account application may be used by the Fund to
verify the accuracy of the information or for background or financial history
purposes. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts.
TAX STATUS
The Fund has qualified and has elected to be treated as a "regulated investment
company" under Subchapter M of the Code, and intends to continue to so qualify
for each taxable year. As such and by complying with the applicable provisions
of the Code regarding the sources of its income, the timing of its distributions
and the diversification of its assets, the Fund will not be subject to Federal
income tax on taxable income (including net realized capital gains, if any)
which is distributed to shareholders in accordance with the timing requirements
of the Code.
The Fund will be subject to a four percent non-deductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to seek to avoid or minimize liability
for such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
The amount of net realized capital gains, if any, in any given year will vary
depending upon the Adviser's current investment strategy and whether the Adviser
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<PAGE>
believes it to be in the best interest of the Fund to dispose of portfolio
securities that will generate capital gains or to enter into options or futures
transactions. At the time of an investor's purchase of Fund shares, a portion of
the purchase price is often attributable to realized or unrealized appreciation
in the Fund's portfolio. Consequently, subsequent distributions on these shares
from such appreciation may be taxable to such investor even if the net asset
value of the investor's shares is, as a result of the distributions, reduced
below the investor's cost for such shares, and the distributions in reality
represent a return of a portion of the purchase price.
Upon a redemption of shares of the Fund (including by exercise of the exchange
privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares
and subject to the special rules described below. A sales charge paid in
purchasing Class A shares of the Fund cannot be taken into account for purposes
of determining gain or loss on the redemption or exchange of such shares within
ninety (90) days after their purchase to the extent Class A shares of the Fund
or another John Hancock fund are subsequently acquired without payment of a
sales charge pursuant to the reinvestment or exchange privilege. This
disregarded charge will result in an increase in the shareholder's tax basis in
the shares subsequently acquired. Also, any loss realized on a redemption or
exchange may be disallowed to the extent the shares disposed of are replaced
with other shares of the Fund within a period of sixty- one (61) days beginning
thirty (30) days before and ending thirty (30) days after the shares are
disposed of, such as pursuant to automatic dividend reinvestments. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be treated as a long-term capital loss
to the extent of any amounts treated as distributions of long-term capital gain
with respect to such shares.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain in his return for his taxable year in which the last day of the
Fund's taxable year falls, (b) be entitled either to a tax credit on his return
for, or to a refund of, his pro rata share of the taxes paid by the Fund, and
(c) be entitled to increase the adjusted tax basis for his shares in the Fund by
the difference between his pro rata share of this excess and his pro rata share
of these taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset net capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent net capital gains
are offset by such losses, they would not result in Federal income tax liability
to the Fund and, as noted above, would not be distributed to shareholders. The
Fund has $30,237,728 of capital loss carryforwards available, to the extent
provided by regulations, to offset future net realized capital gains. These
carryforwards expire at various amounts and times from 1997 through 2004.
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<PAGE>
Dividends and capital gain distributions from the Fund will not qualify for the
dividends-received deduction for corporations.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to the Fund's investments in certain foreign securities,
if any. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes in some cases. Because more than 50% of the Fund's assets
at the close of any taxable year will generally not consist of stocks or
securities of foreign corporations, the Fund will generally be unable to pass
through such taxes to its shareholders, who will therefore generally not be
entitled to any foreign tax credit or deduction with respect to their investment
in the Fund. The Fund will deduct such taxes in determining the amount it has
available for distribution to shareholders.
The Fund is required to accrue income on any debt securities that have more than
a de minimus amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options and futures contracts may also
require the Fund to recognize gain within a concurrent receipt of cash. However,
the Fund must distribute to shareholders for each taxable year substantially all
of its net income and net capital gains, including such income or liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the Fund's distributions are
derived from interest on (or, in the case of intangibles taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in some
states that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. The Fund will not seek to satisfy any threshold or
reporting requirements that may apply in particular taxing jurisdictions,
although the Fund may in its sole discretion provide relevant information to
shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. The Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
41
<PAGE>
The Fund may invest in debt obligations that are in the lower rating categories
or are unrated, including debt obligations of issuers not currently paying
interest as well as issuers who are in default. Investments in debt obligations
that are at risk of or in default present special tax issues for the Fund. Tax
rules are not entirely clear about issues such as when the Fund may cease to
accrue interest, original issue discount, or market discount, when and to what
extent deductions may be taken for bad debts or worthless securities, how
payments received on obligations in default should be allocated between
principal and income, and whether exchanges of debt obligations in a workout
context are taxable. These and other issues will be addressed by the Fund, in
the event it invests in such securities, in order to reduce the risk of
distributing insufficient income to preserve its status as a regulated
investment company and seek to avoid becoming subject to Federal income or
excise tax.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into futures and options transactions.
Certain options and futures transactions undertaken by the Fund may cause the
Fund to recognize gains or losses from marking to market even though its
positions have not been sold or terminated and affect the character as long-term
or short-term and timing of some capital gains and losses realized by the Fund.
Also, some of the Fund's losses on its transactions involving options and
futures contracts and/or offsetting or successor portfolio positions may be
deferred rather than being taken into account currently in calculating the
Fund's taxable income or gain. Certain of such transactions may also cause the
Fund to dispose of investments sooner than would otherwise have occurred. These
transactions may thereafter affect the amount, timing and character of the
Fund's distributions to shareholders. Some of the applicable tax rules may be
modified if the Fund is eligible and chooses to make one or more of certain tax
elections that may be available. The Fund will take into account the special tax
rules (including consideration of available elections) applicable to options and
futures transactions in order to seek to minimize any potential adverse tax
consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above. These investors may be
subject to nonresident alien withholding tax at the rate of 30% (or a lower rate
under an applicable tax treaty), on amounts treated as ordinary dividends from
the Fund and, unless an effective IRS Form W-8 or authorized substitute for Form
W-8 is on file, to 31% backup withholding on certain other payments from the
Fund. Non-U.S. investors should consult their tax advisors regarding such
treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
42
<PAGE>
CALCULATION OF PERFORMANCE
For the 30-day period ended December 31, 1996, the annualized yield on Class A
and Class B shares of the Fund was 6.27% and 5.85%, respectively. The average
annual total return of the Class A shares of the Fund for the 1 year, 5 year and
10 year periods ended December 31, 1996 was (0.60)%, 6.89% and 8.06%,
respectively.
The average annual total return of Class B shares of the Fund for the 1 year
period ended December 31, 1996 and since inception on November 23, 1993 was
(1.62)% and 5.15%, respectively.
The Fund may advertise yield, where appropriate. The Fund's yield is computed by
dividing net investment income per share determined for a 30-day period by the
maximum offering price per share (which includes the full sales charge, where
applicable) on the last day of the period, according to the following standard
formula:
6
Yield = 2 ( [ ( a - b ) + 1 ] - 1
-----
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the
period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period (NAV where applicable).
Total return is computed by finding the average annual compounded rate of return
over the 1 year, 5 year and 10 year periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of hypothetical $1,000 investment made
at the beginning of the 1 year, 5 year and 10 year periods.
43
<PAGE>
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of Class A or Class B shares, this
calculation assumes the maximum sales charge is included in the initial
investment or the CDSC applied at the end of the period, respectively. This
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period. The "distribution rate"
is determined by annualizing the result of dividing the declared dividends of
the Fund during the period stated by the maximum offering price or net asset
value at the end of the period. Excluding the Fund's sales charge from the
distribution rate produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
or the CDSC on Class B shares into account. Excluding the Fund's sales charge on
Class A shares and the CDSC on Class B shares from a total return calculation
produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's total
return and/or yield will be compared to indices of mutual funds such as Lipper
Analytical Services, Inc.'s "Lipper"-Mutual Performance Analysis," a monthly
publication which tracks net assets, total return, and yield on equity mutual
funds in the United States. Ibottson and Associates, CDA Weisenberger and F.C.
Towers are also used for comparison purposes, as well as the Russell and
Wilshire indices.
Performance rankings and ratings reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MORNINGSTAR, and BARRON'S may also be utilized.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by its investment committee of the Adviser, which consists
of officers and directors of the Adviser and affiliates, and Trustees who are
interested persons of the Fund. Orders for purchases and sales of securities are
placed in a manner which, in the opinion of the Adviser, will offer the best
price and market for the execution of each such transaction. Purchases from
underwriters of portfolio securities may include a commission or commissions
paid by the issuer and transactions with dealers serving as market makers
reflect a "spread." Debt securities are generally traded on a net basis through
dealers acting for their own account as principals and not as brokers; no
brokerage commissions are payable on such transactions.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. Ion other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
44
<PAGE>
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and other policies as the Trustees may determine, the Adviser may consider sales
of shares of the Fund as a factor in the selection of broker-dealers to execute
the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and in the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser of the Fund, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and, conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitment to allocate portfolio transactions upon any
prescribed basis. While the Adviser's officers will be primarily responsible for
the allocation of the Fund's brokerage business, the policies in this regard
must be consistent with the foregoing and will at all times be subject to review
by the Trustees. For the fiscal year ended on December 31, 1996 negotiated
brokerage commissions were $65,835. In the fiscal years ended on December 31,
1995 and 1994, no negotiated brokerage commissions were paid on portfolio
transactions.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended December 31,
1996, the Fund paid commissions in the amount of $43,425 to compensate brokers
for research services such as industry, economic and company reviews and
evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc., a broker-dealer ("Distributors"
or "Affiliated Broker"). Pursuant to procedures determined by the Trustees and
consistent with the above policy of obtaining best net results, the Fund may
execute portfolio transactions with or through Affiliated Brokers. During the
years ended December 31, 1996, 1995 and 1994, the Fund did not execute any
portfolio transactions with Affiliated Brokers.
Distributors may act as broker for the Fund on exchange transactions, subject,
however, to the general policy of the Fund set forth above and the procedures
adopted by the Trustees pursuant to the Investment Company Act. Commissions paid
to an Affiliated Broker must be at least as favorable as those which the
Trustees believe to be contemporaneously charged by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold. A transaction would not be placed with an Affiliated Broker if the Fund
would have to pay a commission rate less favorable than the Affiliated Broker's
45
<PAGE>
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers except for accounts for which the Affiliated Broker
acts as a clearing broker for another brokerage firm, and any customers of the
Affiliated Broker not comparable to the Fund as determined by a majority of the
Trustees who are not interested persons (as defined in the Investment Company
Act) of the Fund, the Adviser or the Affiliated Broker. Because the Adviser,
which is affiliated with the Affiliated Brokers, has, as an investment adviser
to the Fund, the obligation to provide investment management services, which
includes elements of research and related investment skills, such research and
related skills will not be used by the Affiliated Brokers as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Fund with those to be sold or purchased for
other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent of the Fund. The Fund pays an annual fee of
$20.00 for each Class A shareholder and $22.50 for each Class B shareholder,
plus certain out-of-pocket expenses. These expenses are aggregated and charged
to the Fund and allocated to each class on the basis of their relative net asset
values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 89 South Street, Boston,
Massachusetts 02111. Under the custodian agreement, Investors Bank & Trust
Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Ernst & Young LLP, 200 Clarendon
Street, Boston, Massachusetts 02116. Ernst & Young LLP audits and renders an
opinion of the Fund's annual financial statements and prepares the Fund's annual
Federal income tax return.
46
<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 not well safeguarded during
both good and bad times over the future. Uncertainty of position characterized
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represented obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Standard & Poor's describes its lower ratings for corporate bonds as follows:
Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated 'BB,' 'B,' 'CCC,' or 'CC' is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. 'BB' indicates the
lowest degree of speculation and 'CC' the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's describes its three highest ratings for commercial paper as follows:
Issuers rated P-1 (or related supporting institutions) have a superior capacity
for repayment of short-term promissory obligations. P-1 repayment capacity will
normally be evidenced by the following characteristics: (1) leading market
positions in well- established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structures with moderate reliance on
debt and ample asset protections; (4) broad margins in earnings coverage of
fixed financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured sources of
alternate liquidity.
A-1
<PAGE>
Issuers rated P-2 (or related supporting institutions) have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Standard & Poor's describes its lower ratings for corporate bonds as follows:
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated 'BB', 'B', 'CCC', 'CC" and 'C' is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. 'BB'
indicates the lowest degree of speculation and 'C' 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.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.
CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.
CC The rating 'CC' is typically applied to debt subordinated to senior debt that
is assigned an actual or implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior debt which
is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
A-2
<PAGE>
Standard & Poor's describes its three highest ratings for commercial paper as
follows:
A-1. This designation indicated that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Issuers rated P-2 (or related supporting institutions) have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
A-3
<PAGE>
FINANCIAL STATEMENTS
F-1
<PAGE>
PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements listed below are included in and incorporated
by reference into Part B of the Registration Statement from the 1996 Annual
Report to Shareholders for the year ended December 31, 1996 (filed
electronically on February 24, 1997; file nos. 811-2402 and 2-48925; accession
number 0000928816-97-000042):
John Hancock Sovereign Bond Fund
--------------------------------
Statement of Assets and Liabilities as of December 31, 1996.
Statement of Operations of the year ended December 31, 1996.
Statement of Changes in Net Asset for each of the two years ended
December 31.
Notes to Financial Statements.
Financial Highlights for each of the 10 years ended December 31, 1996.
Schedule of Investments as of December 31, 1996.
(b) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit Index
hereto and are incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with Registrant
No person is directly or indirectly controlled by or under common control
with Registrant.
Item 26. Number of Holders of Securities
As of March 28, 1997, the number of record holders of shares of Registrant
was as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Class A Shares - 159,354
Class B Shares - 9,984
Item 27. Indemnification
Section 4.3 of Registrant's Declaration of Trust provides that (i) every
person who is, or has been, a Trustee, officer, employee or agent of the
Trust (including any individual who serves at its request as director,
officer, partner, trustee or the like of another organization in which it
has any interest as a shareholder, creditor or otherwise) shall be
indemnified by the Trust, or by one or more Series thereof if the claim
arises from his or her conduct with
C-1
<PAGE>
respect to only such Series, to the fullest extent permitted by law against
all liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or having
been a Trustee or officer and against amounts paid or incurred by him in
the settlement thereof; and that (ii) the words "claim," "action," "suit,"
or "proceeding" shall apply to all claims, actions, suits or proceedings
(civil, criminal, or other, including appeals), actual or threatened; and
the words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
However, no indemnification shall be provided to a Trustee or officer (i)
against any liability to the Trust, a Series thereof or the Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office; (ii) with
respect to any matter as to which he shall have been finally adjudicated
not to have acted in good faith in the reasonable belief that his action
was in the best interest of the Trust or a Series thereof; (iii) in the
event of a settlement or other disposition not involving a final
adjudication resulting in a payment by a Trustee or officer, unless there
has been a determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office by (A) a court by (B) a
majority of the Non- interested trustees or independent legal counsel, or
(C) a vote of the majority of the Fund's outstanding shares.
The rights of indemnification may be insured against by policies maintained
by the Trust, shall be severable, shall not affect any other rights to
which any Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors, administrators and
assigns of such a person. Nothing contained herein shall affect any rights
to indemnification to which personnel of the Trust or any Series thereof
other than Trustees and officers may be entitled by contract or otherwise
under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding may be advanced by the Trust or a Series thereof before
final disposition, if the recipient undertakes to repay the amount if it is
ultimately determined that he is not entitled to indemnification, provided
that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust or Series
thereof shall be insured against losses arising out of any such
advances; or (ii) a majority of the Non-interested Trustees acting on
the matter (provided that a majority of the Non-interested Trustees
act on the matter) or an independent legal counsel in a written
opinion shall determine, based upon a review of readily available
facts (as opposed to a full trial-type inquiry), that there is reason
to believe that the recipient ultimately will be found entitled to
indemnification.
C-2
<PAGE>
For purposes of indemnification Non-interested Trustee" is one who (i)
is not an "Interested Person" of the Trust (including anyone who has
been exempted from being an "Interested Person" by any rule,
regulation or order of the Commission), and (ii) is not involved in
the claim, action, suit or proceeding.
(b) Under the Distribution Agreement. Under Section 12 of the Distribution
Agreement, John Hancock Funds, Inc. ("John Hancock Funds" ) has agreed to
indemnify the Registrant and its Trustees, officers and controlling persons
against claims arising out of certain acts and statements of John Hancock Funds.
Section 9(a) of the By-Laws of the Insurance Company provides, in effect,
that the Insurance Company will, subject to limitations of law, indemnify each
present and former director, officer and employee of the of the Insurance
Company who serves as a Trustee or officer of the Registrant at the direction or
request of the Insurance Company against litigation expenses and liabilities
incurred while acting as such, except that such indemnification does not cover
any expense or liability incurred or imposed in connection with any matter as to
which such person shall be finally adjudicated not to have acted in good faith
in the reasonable belief that his action was in the best interests of the
Insurance Company. In addition, no such person will be indemnified by the
Insurance Company in respect of any liability or expense incurred in connection
with any matter settled without final adjudication unless such settlement shall
have been approved as in the best interests of the Insurance Company either by
vote of the Board of Directors at a meeting composed of directors who have no
interest in the outcome of such vote, or by vote of the policyholders. The
Insurance Company may pay expenses incurred in defending an action or claim in
advance of its final disposition, but only upon receipt of an undertaking by the
person indemnified to repay such payment if he should be determined to be
entitled to indemnification.
Article IX of the respective By-Laws of John Hancock Funds and the Adviser
provide as follows:
"Section 9.01. Indemnity: Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Corporation
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and the liability was not
incurred by reason of gross negligence or reckless disregard of the duties
involved in the conduct of his office, and expenses in connection therewith may
be advanced by the Corporation, all to the full extent authorized by the law."
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided
by Section 9.01 shall not be deemed exclusive of any other right to which those
indemnified may be entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such as person."
C-3
<PAGE>
Insofar as indemnification for liabilities under the Securities Act of 1933 (the
"Act") may be permitted to Trustees, officers and controlling persons of
Registrant pursuant to the Registrant's Amended and Restated Articles of
Incorporation, Article 10.1 of the Registrant's By-Laws, The underwriting
Agreement, the By-Laws of John Hancock Funds, the Adviser, or the Insurance
Company or otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and other Connections of Investment Adviser
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of the Investment
Adviser, reference is made to Forms ADV (801-8124) filed under the Investment
Advisers Act of 1940, herein incorporated by reference.
Item 29. Principal Underwriters
(a) John Hancock Funds acts as principal underwriter for the Registrant and
also serves as principal underwriter or distributor of shares for John Hancock
Cash Reserve, Inc., John Hancock Bond Trust, John Hancock Current Interest, John
Hancock Series Trust, John Hancock Tax-Free Bond Trust, John Hancock California
Tax-Free Income Fund, John Hancock Capital Series, John Hancock Limited-Term
Government Fund, John Hancock Special Equities Fund, John Hancock Sovereign Bond
Fund, John Hancock Tax-Exempt Series, John Hancock Strategic Series, John
Hancock World Fund, John Hancock Investment Trust, John Hancock Institutional
Series Trust, John Hancock Investment Trust II, John Hancock Investment Trust
III and John Hancock Investment Trust IV.
(b) The following table lists, for each director and officer of John
Hancock Funds, the information indicated.
C-4
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C>
Edward J. Boudreau, Jr. Director, Chairman, President and Chairman and Chief
101 Huntington Avenue Chief Executive Officer Executive Officer
Boston, Massachusetts
Robert H. Watts Director, Executive Vice President None
John Hancock Place and Chief Compliance Officer
P.O. Box 111
Boston, Massachusetts
Anne C. Hodsdon Director, Executive Vice President President
101 Huntington Avenue
Boston, Massachusetts
Robert G. Freedman Director Vice Chairman and Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
Stephen M. Blair Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Osbert Hood Senior Vice President None
101 Huntington Avenue and
Boston, Massachusetts Chief Financial Officer
David A. King Director None
101 Huntington Avenue
Boston, Massachusetts
James B. Little Senior Vice President Senior Vice President and
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts
John A. Morin Vice President and Secretary Vice President
101 Huntington Avenue
Boston, Massachusetts
C-5
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
Susan S. Newton Vice President Vice President and
101 Huntington Avenue Secretary
Boston, Massachusetts
Christopher M. Meyer Second Vice President and None
101 Huntington Avenue Treasurer
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Richard S. Scipione Director Trustee
John Hancock Place
P.O. Box 111
Boston, Massachusetts
C-6
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
David F. D'Alessandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Foster Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Charles H. Womack Senior Vice President None
6501 Americas Parkway
Suite 950
Albuquerque, New Mexico
Anthony P. Petrucci Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Karen Walsh Vice President None
101 Huntington Avenue
Boston, Massachusetts
C-7
<PAGE>
Keith Harstein Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Griselda Lyman Vice President None
101 Huntington Avenue
Boston, Massachusetts
</TABLE>
(c) None.
Item 30. Location of Accounts and Records
Registrant maintains the records required to be maintained by it under
Rules 31a-1 (a), 31a-a(b), and 31a-2(a) under the Investment Company Act of
1940 as its principal executive offices at 101 Huntington Avenue, Boston
Massachusetts 02199-7603. Certain records, including records relating to
Registrant's shareholders and the physical possession of its securities,
may be maintained pursuant to Rule 31a-3 at the main office of Registrant's
Transfer Agent and Custodian.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus with respect to a series of the Registrant is delivered with a copy
of the latest annual report to shareholders with respect to that series upon
request and without charge.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it mets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts on the
24th day of April, 1997.
JOHN HANCOCK SOVEREIGN BOND FUND
By: _____________________________
Edward J. Boudreau, Jr.
Chairman
Pursuant to the requirements of the Securities Act of 1933, the
Registration has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman
- ----------------------- (Principal Executive Officer)
Edward J. Boudreau, Jr.
/s/James B. Little Senior Vice President and Chief
- ----------------------- Financial Officer (Principal April 24, 1997
James B. Little Financial and Accounting Officer)
* Trustee
- -----------------------
Dennis S. Aronowitz
* Trustee
- -----------------------
Richard P. Chapman, Jr.
* Trustee
- -----------------------
William J. Cosgrove
* Trustee
- -----------------------
Douglas M. Costle
* Trustee
- -----------------------
Leland O. Erdahl
* Trustee
- -----------------------
Richard A. Farrell
* Trustee
- -----------------------
Gail D. Fosler
* Trustee
- -----------------------
William F. Glavin
C-9
<PAGE>
Signature Title Date
--------- ----- ----
- ----------------------- Trustee
Anne C. Hodsdon
* Trustee
- -----------------------
John A. Moore
* Trustee
- -----------------------
Patti McGill Peterson
* Trustee
- -----------------------
John W. Pratt
* Trustee
- -----------------------
Richard S. Scipione
* Trustee
- -----------------------
Edward J. Spellman
*By: /s/Susan S. Newton
------------------- April 24, 1997
Susan S. Newton
Attorney-in-Fact under Powers of
Attorney dated May 21, 1996 and
August 27, 1996, filed herewith.
</TABLE>
C-10
<PAGE>
POWER OF ATTORNEY
The undersigned Trustee of each of the above listed Trusts, each a
Massachusetts business trust, does hereby severally constitute and appoint
EDWARD J. BOUDREAU, JR., SUSAN S. NEWTON, AND JAMES B. LITTLE, and each acting
singly, to be my true, sufficient and lawful attorneys, with full power to each
of them, and each acting singly, to sign for me, in my name and in the capacity
indicated below, any Registration Statement on Form N-1A and any Registration
Statement on Form N-14 to be filed by the Trust under the Investment Company Act
of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as
amended (the "1933 Act"), and any and all amendments to said Registration
Statements, with respect to the offering of shares and any and all other
documents and papers relating thereto, and generally to do all such things in my
name and on my behalf in the capacity indicated to enable the Trust to comply
with the 1940 Act and the 1933 Act, and all requirements of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by said attorneys or each of them to any such Registration
Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as of
the 21st day of May, 1996.
/s/Dennis S. Aronowitz /s/William F. Glavin
- ----------------------------- ------------------------------
Dennis S. Aronowitz William F. Glavin
/s/Edward J. Boudreau, Jr. /s/ Anne C. Hodsdon
- ----------------------------- ------------------------------
Edward J. Boudreau, Jr. Anne C. Hodsdon
/s/Richard P. Champman, Jr. /s/Patti McGill Peterson
- ----------------------------- ------------------------------
Richard P. Chapman, Jr. Patti McGill Peterson
/s/William J. Cosgrove
- ----------------------------- ------------------------------
William J. Cosgrove John A. Moore
/s/Douglas M. Costle /s/John W. Pratt
- ----------------------------- ------------------------------
Douglas M. Costle John W. Pratt
/s/Leland O. Erdahl /s/Richard S. Scipione
- ----------------------------- ------------------------------
Leland O. Erdahl Richard S. Scipione
/s/Richard A. Farrell /s/Edward J. Spellman
- ----------------------------- ------------------------------
Richard A. Farrell Edward J. Spellman
/s/Gail D. Fosler
- -----------------------------
Gail D. Fosler
C-11
<PAGE>
John Hancock Capital Series John Hancock Strategic Series
John Hancock Declaration Trust John Hancock Tax-Exempt Series Fund
John Hancock Income Securities Trust John Hancock World Fund
John Hancock Investors Trust Freedom Investment Trust
John Hancock Limited Term Government Fund Freedom Investment Trust II
John Hancock Sovereign Bond Fund Freedom Investment Trust III
John Hancock Special Equities Fund
POWER OF ATTORNEY
The undersigned Trustee of each of the above listed Trusts, each a
Massachusetts business trust, does hereby severally constitute and appoint
EDWARD J. BOUDREAU, JR., SUSAN S. NEWTON, AND JAMES B. LITTLE, and each acting
singly, to be my true, sufficient and lawful attorneys, with full power to each
of them, and each acting singly, to sign for me, in my name and in the capacity
indicated below, any Registration Statement on Form N-1A and any Registration
Statement on Form N-14 to be filed by the Trust under the Investment Company Act
of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as
amended (the "1933 Act"), and any and all amendments to said Registration
Statements, with respect to the offering of shares and any and all other
documents and papers relating thereto, and generally to do all such things in my
name and on my behalf in the capacity indicated to enable the Trust to comply
with the 1940 Act and the 1933 Act, and all requirements of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by said attorneys or each of them to any such Registration
Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as of
the 27th day of August, 1996.
/s/ John A. Moore
John A. Moore
C-12
<PAGE>
John Hancock Sovereign Bond Fund
EXHIBIT INDEX
Exhibit No. Exhibit Description
- ----------- -------------------
99.B1 Amended and Restated Declaration of Trust of Registrant
dated February 28, 1992.*
99.B1.1 Amendment to Declaration of Trust dated May 1, 1992.*
99.B1.2 Amendment to Declaration of Trust dated September 14, 1993.*
99.B1.3 Amendment to Declaration of Trust Agreement Abolition of Class
C Shares of Beneficial Interest of John Hancock Sovereign Bond
Fund dated May 1, 1995.*
99.B1.4 Amendment to Declaration of Trust amending Number of Trustees
and Appointing Individual to Fill a Vacancy dated March 5, 1996.**
99.B2 Amended and Restated By-Laws of Registrant as adopted on
December 3, 1996.+
99.B4 Specimen share certificate for the Registrant.*
99.B5 Investment Management Contract between Registrant and John Hancock
Advisers, Inc. dated January 1, 1994.*
99.B6 Distribution Agreement with Registrant and John Hancock Broker
Distribution Services, Inc. dated August 1, 1991.*
99.B6.1 Form of Soliciting Dealer Agreement between John Hancock Broker
Distribution Services, Inc. and Selected Dealers.*
99.B6.2 Form of Financial Institution Sales and Service Agreement.*
99.B7 None
99.B8 Master Custodian Agreement between John Hancock Mutual Funds and
Investors Bank and Trust Company dated December 15, 1992.*
<PAGE>
99.B9 Transfer Agency Agreement between Registrant and John Hancock Fund
Services, Inc. dated January 1, 1991.*
99.B9.1 Accounting and Legal Services Agreement between John Hancock
Advisers, Inc. and the Registrant as of January 1, 1996.**
99.B.10 24e2 Opinion.+
99.B11 Auditor's Consent.+
99.B12 Not Applicable
99.B13 None
99.B14 None
99.B15 Class A Distribution Plan between Registrant and John Hancock
Broker Services, Inc.*
99.B15.1 Class B Distribution Plan between Registrant and John Hancock
Broker Services, Inc.*
99.B16 Schedule for Computation of Yield and Total Return.*
99.B17 Powers of Attorney dated December 13, 1984, April 23, 1988, April
23, 1987, November 15, 1988, May 17, 1988, October 23, 1990,
October 15, 1991, January 1 1994.*
27.1 Class A+
27.2 Class B+
* Previously filed electronically with post-effective amendment number 39
(file nos. 811-2402 and 2-48925) on April 26, 1995, accession number
0000950146-95-000178.
** Previously filed electronically with post-effective amendment number 40
(file nos. 811-2402 and 2-48925) on April 29, 1996, accession number
0001010521-96-000046.
+ Filed herewith.
AMENDED AND RESTATED
BY-LAWS
OF
JOHN HANCOCK SOVEREIGN BOND FUND
DECEMBER 3, 1996
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I -- Definitions .........................................................................1
ARTICLE II -- Offices .........................................................................1
Section 2.1 Principal Office.........................................................1
Section 2.2 Other Offices............................................................1
ARTICLE III -- Shareholders .........................................................................1
Section 3.1 Meetings.................................................................1
Section 3.2 Notice of Meetings.......................................................1
Section 3.3 Record Date for Meetings and Other Purposes..............................1
Section 3.4 Proxies..................................................................2
Section 3.5 Abstentions and Broker Non-Votes.........................................2
Section 3.6 Inspection of Records....................................................2
Section 3.7 Action without Meeting...................................................3
ARTICLE IV -- Trustees .........................................................................3
Section 4.1 Meetings of the Trustees.................................................3
Section 4.2 Quorum and Manner of Acting..............................................3
ARTICLE V -- Committees .........................................................................4
Section 5.1 Executive and Other Committees...........................................4
Section 5.2 Meetings, Quorum and Manner of Acting....................................4
ARTICLE VI -- Officers .........................................................................4
Section 6.1 General Provisions.......................................................4
Section 6.2 Election, Term of Office and Qualifications..............................5
Section 6.3 Removal..................................................................5
Section 6.4 Powers and Duties of the Chairman........................................5
Section 6.5 Powers and Duties of the Vice Chairman...................................5
Section 6.6 Powers and Duties of the President.......................................5
Section 6.7 Powers and Duties of Vice Presidents.....................................5
Section 6.8 Powers and Duties of the Treasurer.......................................6
Section 6.9 Powers and Duties of the Secretary.......................................6
i
<PAGE>
Section 6.10 Powers and Duties of Assistant Officers..................................6
Section 6.11 Powers and Duties of Assistant Secretaries...............................6
Section 6.12 Compensation of Officers and Trustees and
Members of the Advisory Board........................................6
ARTICLE VII -- Fiscal Year .........................................................................7
ARTICLE VIII -- Seal .........................................................................7
ARTICLE IX -- Sufficiency and Waivers of Notice.............................................................7
ARTICLE X -- Amendments .........................................................................7
</TABLE>
ii
<PAGE>
ARTICLE I
DEFINITIONS
All capitalized terms have the respective meanings given them in the Amended and
Restated Declaration of Trust of John Hancock Sovereign Bond Fund dated February
28, 1992, as amended or restated from time to time.
ARTICLE II
OFFICES
Section 2.1. Principal Office. Until changed by the Trustees, the principal
office of the Trust shall be in Boston, Massachusetts.
Section 2.2. Other Offices. The Trust may have offices in such other places
without as well as within The Commonwealth of Massachusetts as the Trustees may
from time to time determine.
ARTICLE III
SHAREHOLDERS
Section 3.1. Meetings. Meetings of the Shareholders of the Trust or a Series or
Class thereof shall be held as provided in the Declaration of Trust at such
place within or without The Commonwealth of Massachusetts as the Trustees shall
designate. The holders of a majority the Outstanding Shares of the Trust or a
Series or Class thereof present in person or by proxy and entitled to vote shall
constitute a quorum at any meeting of the Shareholders of the Trust or a Series
or Class thereof.
Section 3.2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail or telegraphic means to each Shareholder at his address as
recorded on the register of the Trust mailed at least seven (7) days before the
meeting, provided, however, that notice of a meeting need not be given to a
Shareholder to whom such notice need not be given under the proxy rules of the
Commission under the 1940 Act and the Securities Exchange Act of 1934, as
amended. Any adjourned meeting may be held as adjourned without further notice.
No notice need be given to any Shareholder who shall have failed to inform the
Trust of his current address or if a written waiver of notice, executed before
or after the meeting by the Shareholder or his attorney thereunto authorized, is
filed with the records of the meeting.
Section 3.3. Record Date for Meetings and Other Purposes. For the purpose of
determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding sixty (60) days, as the Trustees may determine; or without
1
<PAGE>
closing the transfer books the Trustees may fix a date not more than ninety (90)
days prior to the date of any meeting of Shareholders or distribution or other
action as a record date for the determination of the persons to be treated as
Shareholders of record for such purposes, except for dividend payments which
shall be governed by the Declaration of Trust.
Section 3.4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken. A
proxy shall be deemed signed if the shareholder's name is placed on the proxy
(whether by manual signature, typewriting or telegraphic transmission) by the
shareholder or the shareholder's attorney-in-fact. Proxies may be solicited in
the name of one or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. Each whole share shall be
entitled to one vote as to any matter on which it is entitled by the Declaration
of Trust to vote and fractional shares shall be entitled to a proportionate
fractional vote. When any Share is held jointly by several persons, any one of
them may vote at any meeting in person or by proxy in respect of such Share, but
if more than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy,
including a photographic or similar reproduction thereof and a telegram,
cablegram, wireless or similar transmission thereof, purporting to be executed
by or on behalf of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise, and the burden of proving invalidity shall rest on the
challenger. If the holder of any such Share is a minor or a person of unsound
mind, and subject to guardianship or the legal control of any other person as
regards the charge or management of such Share, he may vote by his guardian or
such other person appointed or having such control, and such vote may be given
in person or by proxy. The placing of a Shareholder's name on a proxy pursuant
to telephonic or electronically transmitted instructions obtained pursuant to
procedures reasonably designed to verify that such instructions have been
authorized by such Shareholder shall constitute execution of such proxy by or on
behalf of such Shareholder.
Section 3.5. Abstentions and Broker Non-Votes. Outstanding Shares represented in
person or by proxy (including Shares which abstain or do not vote with respect
to one or more of any proposals presented for Shareholder approval) will be
counted for purposes of determining whether a quorum is present at a meeting.
Abstentions will be treated as Shares that are present and entitled to vote for
purposes of determining the number of Shares that are present and entitled to
vote with respect to any particular proposal, but will not be counted as a vote
in favor of such proposal. If a broker or nominee holding Shares in "street
name" indicates on the proxy that it does not have discretionary authority to
vote as to a particular proposal, those Shares will not be considered as present
and entitled to vote with respect to such proposal.
Section 3.6. Inspection of Records. The records of the Trust shall be open to
inspection by Shareholders to the same extent as is permitted shareholders of a
Massachusetts business corporation.
2
<PAGE>
Section 3.7. Action without Meeting. For as long as there are under one hundred
fifty (150) shareholders, any action which may be taken by Shareholders may be
taken without a meeting if a majority of Outstanding Shares entitled to vote on
the matter (or such larger proportion thereof as shall be required by law, the
Declaration of Trust, or the By-laws) consent to the action in writing and the
written consents are filed with the records of the meetings of Shareholders.
Such consents shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
ARTICLE IV
TRUSTEES
Section 4.1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the President, the Chairman
or by any one of the Trustees, at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary or by the officer or Trustee calling
the meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be given by telephone, cable, wireless, facsimilie or
electronic means to each Trustee at his business address, or personally
delivered to him at least one day before the meeting. Such notice may, however,
be waived by any Trustee. Notice of a meeting need not be given to any Trustee
if a written waiver of notice, executed by him before or after the meeting, is
filed with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him. A notice or waiver of notice need not specify the purpose of any meeting.
The Trustees may meet by means of a telephone conference circuit or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall be deemed to have been held at a place designated by the Trustees at the
meeting. Participation in a telephone conference meeting shall constitute
presence in person at such meeting. Any action required or permitted to be taken
at any meeting of the Trustees may be taken by the Trustees without a meeting if
a majority of the Trustees consent to the action in writing and the written
consents are filed with the records of the Trustees' meetings. Such consents
shall be treated as a vote for all purposes.
Section 4.2. Quorum and Manner of Acting. A majority of the Trustees shall be
present in person at any regular or special meeting of the Trustees in order to
constitute a quorum for the transaction of business at such meeting and (except
as otherwise required by law, the Declaration of Trust or these By-laws) the act
of a majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
3
<PAGE>
ARTICLE V
COMMITTEES
Section 5.1. Executive and Other Committees. The Trustees by vote of a majority
of all the Trustees may elect from their own number an Executive Committee to
consist of not less than two (2) members to hold office at the pleasure of the
Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust or a Series thereof, and such
other powers of the Trustees as the Trustees may, from time to time, delegate to
them except those powers which by law, the Declaration of Trust or these By-laws
they are prohibited from delegating. The Trustees may also elect from their own
number other Committees from time to time; the number composing such Committees,
the powers conferred upon the same (subject to the same limitations as with
respect to the Executive Committee) and the term of membership on such
Committees to be determined by the Trustees. The Trustees may designate a
chairman of any such Committee. In the absence of such designation the Committee
may elect its own Chairman.
Section 5.2. Meetings, Quorum and Manner of Acting. The Trustees may (1) provide
for stated meetings of any Committee, (2) specify the manner of calling and
notice required for special meetings of any Committee, (3) specify the number of
members of a Committee required to constitute a quorum and the number of members
of a Committee required to exercise specified powers delegated to such
Committee, (4) authorize the making of decisions to exercise specified powers by
written assent of the requisite number of members of a Committee without a
meeting, and (5) authorize the members of a Committee to meet by means of a
telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and records
of decisions taken without a meeting and cause them to be recorded in a book
designated for that purpose and kept in the office of the Trust.
ARTICLE VI
OFFICERS
Section 6.1. General Provisions. The officers of the Trust shall be a Chairman,
a President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers. The Trustees may
delegate to any officer or committee the power to appoint any subordinate
officers or agents.
4
<PAGE>
Section 6.2. Election, Term of Office and Qualifications. The officers of the
Trust and any Series thereof (except those appointed pursuant to Section 6.10)
shall be elected by the Trustees. Except as provided in Sections 6.3 and 6.4 of
this Article VI, each officer elected by the Trustees shall hold office at the
pleasure of the Trustees. Any two or more offices may be held by the same
person. The Chairman of the Board shall be selected from among the Trustees and
may hold such office only so long as he/she continue to be a Trustee. Any
Trustee or officer may be but need not be a Shareholder of the Trust.
Section 6.3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer with or without cause, by a vote of a majority
of the Trustees then in office. Any officer or agent appointed by an officer or
committee may be removed with or without cause by such appointing officer or
committee.
Section 6.4. Powers and Duties of the Chairman. The Chairman shall preside at
the meetings of the Shareholders and of the Trustees. He may call meetings of
the Trustees and of any committee thereof whenever he deems it necessary. He
shall be the Chief Executive Officer of the Trust and shall have, with the
President, general supervision over the business and policies of the Trust.
Section 6.5. Powers and Duties of the Vice Chairman. The Trustees may, but need
not, appoint one or more Vice Chairman of the Trust. A Vice Chairman shall be an
executive officer of the Trust and shall have the powers and duties of a Vice
President of the Trust as provided in Section 7 of this Article VI. The Vice
Chairman shall perform such duties as may be assigned to him or her from time to
time by the Trustees or the Chairman.
Section 6.6. Powers and Duties of the President. The President shall preside at
all meetings of the Shareholders in the absence of the Chairman. Subject to the
control of the Trustees and to the control of any Committees of the Trustees,
within their respective spheres as provided by the Trustees, he shall at all
times exercise general supervision over the business and policies of the Trust.
He shall have the power to employ attorneys and counsel for the Trust or any
Series or Class thereof and to employ such subordinate officers, agents, clerks
and employees as he may find necessary to transact the business of the Trust or
any Series or Class thereof. He shall also have the power to grant, issue,
execute or sign such powers of attorney, proxies or other documents as may be
deemed advisable or necessary in furtherance of the interests of the Trust or
any Series thereof. The President shall have such other powers and duties, as
from time to time may be conferred upon or assigned to him by the Trustees.
Section 6.7. Powers and Duties of Vice Presidents. In the absence or disability
of the President, the Vice President or, if there be more than one Vice
President, any Vice President designated by the Trustees, shall perform all the
duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees and the President.
5
<PAGE>
Section 6.8. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. He shall deliver all
funds of the Trust or any Series or Class thereof which may come into his hands
to such Custodian as the Trustees may employ. He shall render a statement of
condition of the finances of the Trust or any Series or Class thereof to the
Trustees as often as they shall require the same and he shall in general perform
all the duties incident to the office of a Treasurer and such other duties as
from time to time may be assigned to him by the Trustees. The Treasurer shall
give a bond for the faithful discharge of his duties, if required so to do by
the Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
Section 6.9. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Trustees and of the Shareholders in proper books
provided for that purpose; he shall have custody of the seal of the Trust; he
shall have charge of the Share transfer books, lists and records unless the same
are in the charge of a transfer agent. He shall attend to the giving and serving
of all notices by the Trust in accordance with the provisions of these By-laws
and as required by law; and subject to these By-laws, he shall in general
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned to him by the Trustees.
Section 6.10. Powers and Duties of Assistant Officers. In the absence or
disability of the Treasurer, any officer designated by the Trustees shall
perform all the duties, and may exercise any of the powers, of the Treasurer.
Each officer shall perform such other duties as from time to time may be
assigned to him by the Trustees. Each officer performing the duties and
exercising the powers of the Treasurer, if any, and any Assistant Treasurer,
shall give a bond for the faithful discharge of his duties, if required so to do
by the Trustees, in such sum and with such surety or sureties as the Trustees
shall require.
Section 6.11. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him by the Trustees.
Section 6.12. Compensation of Officers and Trustees and Members of the Advisory
Board. Subject to any applicable provisions of the Declaration of Trust, the
compensation of the officers and Trustees and members of an advisory board shall
be fixed from time to time by the Trustees or, in the case of officers, by any
Committee or officer upon whom such power may be conferred by the Trustees. No
officer shall be prevented from receiving such compensation as such officer by
reason of the fact that he is also a Trustee.
6
<PAGE>
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust and any Series thereof shall be established by
resolution of the Trustees.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have such
inscription thereon as the Trustees may from time to time prescribe but the
absence of a seal shall not impair the validity or execution of any document.
ARTICLE IX
SUFFICIENCY AND WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the Declaration of
Trust or these By-laws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been sent by mail, telegraph, cable, wireless, facsimilie or electronic means
for the purposes of these By-laws when it has been delivered to a representative
of any entity holding itself out as capable of sending notice by such means with
instructions that it be so sent.
ARTICLE X
AMENDMENTS
These By-laws, or any of them, may be altered, amended or repealed, or new
By-laws may be adopted by a vote of a majority of the Trustees, provided,
however, that no By-law may be amended, adopted or repealed by the Trustees if
such amendment, adoption or repeal requires, pursuant to federal or state law,
the Declaration of Trust or these By-laws, a vote of the Shareholders.
END OF BY-LAWS
7
April 24, 1997
John Hancock Sovereign Bond Fund
101 Huntington Avenue
Boston, MA 02199
RE: John Hancock Sovereign Bond Fund
File Nos. 2-48925; 811-2402 (0000045288)
---------------------------------------------
Ladies and Gentlemen:
In connection with the filing of Amendment No. 25 pursuant to Rule 24e-2 under
the Investment Company Act of 1940, as amended, registering by Post-Effective
Amendment No. 42 under the Securities Act of 1933, as amended, 2,064,968 shares
of the John Hancock Sovereign Bond Fund (the "Trust") in reliance upon Rule
24e-2, it is the opinion of the undersigned that such shares will when sold be
legally issued, fully paid and nonassessable.
In connection with this opinion it should be noted that the Trust is an entity
of the type generally known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of a Massachusetts business trust may be held
personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust disclaims shareholder liability for obligations of the
Trust and indemnifies shareholders of the Trust, with this indemnification to be
paid solely out of the assets of the Trust. Therefore, the shareholders' risk is
limited to circumstances in which the assets of the Trust are insufficient to
meet the obligations asserted against the Trust's assets.
Sincerely,
/s/Timothy M. Fagan
Timothy M. Fagan
Assistant Secretary
Member of Massachusetts Bar
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" for Sovereign Bond Fund in the John Hancock Income Funds Prospectus
and "Independent Auditors" in the John Hancock Sovereign Bond Fund Class A and
Class B Shares Statement of Additional Information in Post-Effective Amendment
No. 42 to the Registration Statement (Form N1-A, No. 2-48925) dated May 1, 1997.
We also consent to the incorporation by reference therein of our report dated
February 7, 1997 with respect to the financial statements and financial
highlights of the John Hancock Sovereign Bond Fund in the Form N-1A.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 24, 1997
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<TABLE> <S> <C>
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<NAME> JOHN HANCOCK SOVEREIGN BOND FUND - CLASS B
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