John Hancock
Income Funds
[Logo]
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Prospectus
August 30, 1996
This prospectus gives vital information about these funds. For your own benefit
and protection, please read it before you invest, and keep it on hand for future
reference.
Please note that these funds:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank
or government agency
o are not guaranteed to achieve their goal(s)
Some of these funds may invest up to 100% in junk bonds; read risk information
carefully.
Like all mutual fund shares, these securities have not been approved
or disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
Government Income Fund
High Yield Bond Fund
Intermediate Maturity
Government Fund
Limited-Term Government Fund
Sovereign Bond Fund
Sovereign U.S. Government
Income Fund
Strategic Income 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 Government Income Fund 4
at goals, High Yield Bond Fund 6
strategies, risks, Intermediate Maturity Government Fund 8
expenses and Limited-Term Government Fund 10
financial history. Sovereign Bond Fund 12
Sovereign U.S. Government Income Fund 14
Strategic Income Fund 16
Policies and Your account
instructions for Choosing a share class 18
opening, maintaining How sales charges are calculated 18
and closing an Sales charge reductions and waivers 19
account in any Opening an account 20
income fund. Buying shares 21
Selling shares 22
Transaction policies 24
Dividends and account policies 24
Additional investor services 25
Details that apply Fund details
to the income funds Business structure 26
as a group. Sales compensation 27
More about risk 29
For more information back cover
<PAGE>
Overview
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FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Icon]Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Icon]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.
[Icon]Risk factors The major risk factors associated with the fund.
[Icon]Portfolio management The individual or group designated by the investment
adviser to handle the fund's day-to-day management.
[Icon]Expenses The overall costs borne by an investor in the fund, including
sales charges and annual expenses.
[Icon]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.
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 employs its own strategy and has 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 $19 billion in assets.
<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
[Icon] 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
[Icon]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 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
[Icon]As with most income funds, the value of your investment in the fund 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
[Icon]Barry H. Evans, 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
[Icon]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 0.27% 0.27%
Total fund operating expenses 1.15% 1.90%
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
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Class A shares $56 $80 $105 $178
Class B shares
Assuming redemption
at end of period $69 $90 $123 $203
Assuming no redemption $19 $60 $103 $203
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
[Icon]The figures below have been audited
by the fund's independent auditors, Ernst & Young LLP.
[The table below was represented by a bar graph in the printed material]
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class B
year-by-year total investment return (%) 2.40(6) 10.22 3.71 14.38 8.81 9.86 (6.42) 14.49 (0.58)(6)
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Class A - year ended October 31, 1994(1) 1995(2) 1996(3)
- --------------------------------------------------------------------------------------------------------------------------
<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 0.32
Net realized and unrealized gain (loss) on investments (0.10) 0.57 (0.34)
Total from investment operations (0.04) 1.29 (0.02)
Less distributions:
Dividends from net investment income (0.06) (0.72) (0.32)
Net asset value, end of period $ 8.75 $ 9.32 $ 8.98
Total investment return at net asset value(4,5) (%) (0.45) 15.32 (0.23)
Total adjusted investment return at net asset value(4,7) (%) -- 15.28 --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 223 470,569 419,147
Ratio of expenses to average net assets (%) 0.12(6) 1.19(5) 1.16(8)
Ratio of adjusted expenses to average net assets (%) -- 1.23 --
Ratio of net investment income (loss) to average net assets (%) 0.71(6) 7.38(5) 6.99(8)
Ratio of adjusted net investment income (loss) to average net assets (%) -- 7.34 --
Portfolio turnover rate (%) 92 102 49
Fee reduction per share ($) 0.01(8) 0.004 --
Debt outstanding at end of period(10) (000s omitted) ($) 0.0 0 0
Average daily amount of debt outstanding during
the period (000s omitted)(10) ($) 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(10) ($) 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 1995(2) 1996(3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <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 $ 8.75 $ 9.32
Net investment income (loss) 0.69(11) 0.98 0.88 0.89 0.80 0.70 0.65 0.65 0.29
Net realized and unrealized gain
(loss) on investments (0.45) (0.01) (0.54) 0.40 0.03 0.24 (1.28) 0.57 (0.34)
Total from investment operations 0.24 0.97 0.34 1.29 0.83 0.94 (0.63) 1.22 (0.05)
Less distributions
Dividends from net investment income (0.64) (1.00) (0.95) (0.87) (0.79) (0.72) (0.65) (0.65) (0.29)
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) (0.65) (0.29)
Net asset value, end of period $ 10.01 $ 9.98 $ 9.37 $ 9.79 $ 9.83 $ 10.05 $ 8.75 $ 9.32 $ 8.98
Total investment return at
net asset value(4,5) (%) 2.40(6) 10.22 3.71 14.38 8.81 9.86 (6.42) 14.49 (0.58)(6)
Total adjusted investment return
at net asset value(4,7) (%) 1.02(6) 9.40 3.67 -- 8.66 9.85 (6.43) 14.47 --
Ratios and supplemental data
Net assets end of period
(000s omitted) ($) 6,966 26,568 64,707 129,014 225,540 293,413 241,061 226,954 199,361
Ratio of expenses to average
net assets (%) 1.38(6) 2.00 2.00 2.00 2.00(5) 2.00(5) 1.93(5) 1.89(5) 1.85(8)
Ratio of adjusted expenses
to average net assets (%) 2.76(6) 2.82 2.04 -- 2.15 2.01 1.94 1.91 --
Ratio of net investment income
(loss) to average net assets (%) 6.34(6) 9.64 9.22 9.09 8.03(5) 7.06(5) 6.98(5) 7.26(5) 6.28(8)
Ratio of adjusted net investment income
(loss) to average net assets (%) 4.96(6) 8.82 9.18 -- 7.88 7.05 6.97 7.24 --
Portfolio turnover rate (%) 174 151 83 162 112 138 92 102 49
Fee reduction per share ($) 0.15 0.08 0.004 -- 0.01 0.001 0.001 0.002 --
Debt outstanding at end of period
(000s omitted)(10) ($) -- -- -- -- 0 0 0 0 0
Average daily amount of debt
outstanding during the
period (000s omitted)(10) ($) -- -- -- -- 6,484 503 349 N/A N/A
Average monthly number of shares
outstanding during
the period (000s omitted) -- -- -- -- 18,572 26,378 28,696 N/A N/A
Average daily amount of debt
outstanding per share
during the period(10) ($) -- -- -- -- 0.35 0.02 0.01 N/A N/A
</TABLE>
(1) Class A and Class B shares commenced operations on September 30, 1994 and
February 23, 1988, respectively.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Six months ended April 30, 1996. (Unaudited.)
(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) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(8) Annualized.
(9) Less than one cent per share.
(10) Debt outstanding consists of reverse repurchase agreements entered into
during the year.
(11) Based on the average of the shares outstanding at the end of each month.
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
[Icon]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
[Icon]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.
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
[Icon]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
[Icon]Arthur N. Calavritinos, 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
[Icon]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 0.58% 0.58%
12b-1 fee(3) 0.25% 1.00%
Other expenses 0.35% 0.35%
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%.
- --------------------------------------------------------------------------------
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.
6 HIGH YIELD BOND FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[Icon]The figures below have been audited
by the fund's independent auditors, Ernst & Young LLP.
[The table below was represented by a bar graph in the printed material]
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class B (0.10)(6) 9.77 (4.51) (8.04) 34.21 11.56 21.76 (1.33) 7.97 8.30(6)
year-by-year total investment return (%)
</TABLE>
<TABLE>
<CAPTION>
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Class A - year ended October 31, 1993(1) 1994 1995(2) 1996(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<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(4) 0.72 0.36(4)
Net realized and unrealized gain (loss) on investments 0.09 (0.83) (0.12) 0.25
Total from investment operations 0.42 (0.03) 0.6 0.61
Less distributions:)
Dividends from net investment income (0.29) (0.82) (0.73) (0.36)
Distributions from net realized gain on investments sold -- (0.05) -- --
Total distributions (0.29) (0.87) (0.73) (0.36)
Net asset value, end of period $ 8.23 $ 7.33 $ 7.20 $ 7.45
Total investment return at net asset value(5) (%) 4.96(6) (0.59) 8.83 8.67(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 2,344 11,696 26,452 36,452
Ratio of expenses to average net assets (%) 0.91(7) 1.16 1.16 1.13(7)
Ratio of net investment income (loss) to average net assets (%) 12.89(7) 10.14 10.23 9.94(7)
Portfolio turnover rate (%) 204 153 98 56
</TABLE>
<TABLE>
<CAPTION>
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Class B - year ended October 31, 1987(1) 1988 1989 1990 1991 1992 1993 1994 1995(2) 1996(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 9.95 $ 9.94 $ 9.70 $ 8.14 $ 6.45 $ 7.44 $ 7.43 $ 8.23 $ 7.33 $ 7.20
Net investment income (loss) 0.01 1.07(4) 1.16 1.09 0.98 0.87 0.80 0.74(4) 0.67 0.33(4)
Net realized and unrealized gain
(loss) on investments (0.02) (0.14) (1.55) (1.68) 1.06 (0.04) 0.75 (0.83) (0.13) 0.26
Total from investment operations (0.01) 0.93 (0.39) (0.59) 2.04 0.83 1.55 (0.09) 0.54 0.59
Less distributions:
Dividends from net investment income -- (1.17) (1.14) (1.09) (0.98) (0.84) (0.75) (0.76) (0.67) (0.34)
Distributions from net realized gain
on investments sold -- -- -- -- -- -- -- (0.05) -- --
Distributions from capital paid-in -- -- (0.03) (0.01) (0.07) -- -- -- -- --
Total distributions -- (1.17) (1.17) (1.10) (1.05) (0.84) (0.75) (0.81) (0.67) (0.34)
Net asset value, end of period $ 9.94 $ 9.70 $ 8.14 $ 6.45 $ 7.44 $ 7.43 $ 8.23 $ 7.33 $ 7.20 $ 7.45
Total investment return at net
asset value(5) (%) (0.10)(6) 9.77 (4.51) (8.04) 34.21 11.56 21.76 (1.33) 7.97 8.30(6)
Total adjusted investment return at
net asset value(5,8) (%) (0.41)(6) 9.01 (4.82) (8.07) -- -- -- -- -- --
Ratios and supplemental data
Net assets, end of period
(000s omitted) ($) 110 20,852 33,964 37,097 72,023 98,560 154,214 160,739 180,586 191,964
Ratio of expenses to average
net assets (%) 0.03(7) 2.00 2.20 2.22 2.24 2.25 2.08 1.91 1.89 1.83(7)
Ratio of adjusted expenses to average
net assets(9) (%) 0.34(7) 2.76 2.51 2.25 -- -- -- -- -- --
Ratio of net investment income (loss)
to average net assets (%) 0.09(7) 10.97 12.23 14.59 13.73 11.09 10.07 9.39 9.42 9.16(7)
Ratio of adjusted net investment income
(loss) to average
net assets(9) (%) (0.22)(7) 10.21 11.92 14.56 -- -- -- -- -- --
Portfolio turnover rate (%) 0 60 100 96 93 206 204 153 98 56
Fee reduction per share ($) 0.03 0.07 0.03 0.002 -- -- -- -- -- --
</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) Six months ended April 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) Annualized.
(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.
HIGH YIELD BOND FUND 7
<PAGE>
Intermediate Maturity Government Fund
REGISTRANT NAME: JOHN HANCOCK BOND TRUST
TICKER SYMBOL CLASS A: TAUSX CLASS B: TSUSX
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GOAL AND STRATEGY
[Icon]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
[Icon]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
[Icon]As with most income funds, the value of your investment in the fund 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
[Icon]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
[Icon]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(4) 0.25% 0.90%
Other expenses (after limitation)(3) 0.50% 0.50%
Total fund operating expenses (after limitation)(3) 0.75% 1.40%
(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 $44 $64 $69 $118
Assuming no redemption $14 $44 $69 $118
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.
(4) Class B fee will be increased from 0.90% to 1.00% after December 23, 1996.
Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
8 INTERMEDIATE MATURITY GOVERNMENT FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Icon]The figures below have been audited by the fund's independent auditors,
Ernst & Young LLP.
[The table below was represented by a bar graph in the printed material]
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Volatility, as indicated by Class A
year-by-year total investment return (%) 1.96(4) 6.08 2.51 3.98 5.60
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended March 31, 1992(1) 1993 1994 1995(2) 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <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
Net investment income (loss) 0.17 0.58 0.41 0.49 0.62
Net realized and unrealized gain (loss) on investments 0.03 0.02 (0.16) (0.11) (0.08)
Total from investment operations 0.20 0.60 0.25 0.38 0.54
Less distributions:
Dividends from net investment income (0.17) (0.58) (0.41) (0.48) (0.64)
Net asset value, end of period $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69
Total investment return at net asset value(3) (%) 1.96(4) 6.08 2.51 3.98 5.60
Total adjusted investment return at net asset value(3,5) 0.84(4) 5.53 2.27 3.43 4.83
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 13,775 33,273 24,310 12,950 29,024
Ratio of expenses to average net assets(6) (%) 0.50(7) 0.50 0.75 0.80 0.75
Ratio of adjusted expenses to average net assets(6,8) (%) 1.62(7) 1.05 0.99 1.35 1.45
Ratio of net investment income (loss) to average net assets (%) 6.47(7) 5.47 4.09 4.91 6.49
Ratio of adjusted net investment income (loss) to average assets(8) (%) 5.35(7) 4.92 3.85 4.36 5.79
Portfolio turnover rate (%) 1 186 244 341 423
Fee reduction per share ($) 0.11(7) 0.06 0.02 0.05 0.07
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - year ended March 31, 1992(1) 1993 1994 1995(2) 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $ 10.00 $ 10.03 $ 10.05 $ 9.89 $ 9.79
Net investment income (loss) 0.15 0.51 0.34 0.43 0.57
Net realized and unrealized gain (loss) on investments 0.03 0.02 (0.16) (0.11) (0.10)
Total from investment operations 0.18 0.53 0.18 0.32 0.47
Less distributions:
Dividends from net investment income (0.15) (0.51) (0.34) (0.42) (0.57)
Net asset value, end of period $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69
Total investment return at net asset value(3) (%) 1.80(4) 5.40 1.85 3.33 4.92
Total adjusted investment return at net asset value(3,5) 0.68(4) 4.85 1.61 2.78 4.15
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,630 13,753 11,626 9,506 8,532
Ratio of expenses to average net assets(6) (%) 1.15(7) 1.15 1.40 1.45 1.40
Ratio of adjusted expenses to average net assets(6,8) (%) 2.27(7) 1.70 1.64 2.00 2.10
Ratio of net investment income (loss) to average net assets (%) 5.85(7) 4.82 3.44 4.26 5.80
Ratio of adjusted net investment income (loss) to average assets(8) (%) 4.73(7) 4.27 3.20 3.71 5.10
Portfolio turnover rate (%) 1 186 244 341 423
Fee reduction per share ($) 0.11(7) 0.06 0.02 0.05 0.07
</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) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) 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.
(7) Annualized.
(8) 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
[Icon]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
[Icon]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
[Icon]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
[Icon]Barry H. Evans, 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
[Icon]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
[Icon]The figures below have been audited by the fund's independent auditors,
Ernst & Young LLP.
[The table below was represented by a bar graph in the printed material]
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class A
year-by-year total investment return (%) 14.59 (0.49) 5.67 11.59 7.75 12.54 4.19 7.13 (1.31) 11.23
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended December 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 9.24 $ 9.71 $ 8.83 $ 8.56 $ 8.73 $ 8.61 $ 8.97 $ 8.77 $ 8.80 $ 8.31
Net investment income (loss) 0.83 0.78 0.77 0.79 0.74 0.67 0.54 0.48 0.38(1) 0.50(1)
Net realized and unrealized gain
(loss) on investments 0.47 (0.83) (0.28) 0.18 (0.11) 0.36 (0.18) 0.14 (0.49) 0.42
Total from investment operations 1.30 (0.05) 0.49 0.97 0.63 1.03 0.36 0.62 (0.11) 0.92
Less distributions:
Dividends from net investment income (0.83) (0.83) (0.76) (0.80) (0.75) (0.67) (0.54) (0.48) (0.38) (0.50)
Distributions from net realized
gain on investments sold -- -- -- -- -- -- (0.02) (0.11) -- --
Total distributions (0.83) (0.83) (0.76) (0.80) (0.75) (0.67) (0.56) (0.59) (0.38) (0.50)
Net asset value, end of period $ 9.71 $ 8.83 $ 8.56 $ 8.73 $ 8.61 $ 8.97 $ 8.77 $ 8.80 $ 8.31 $ 8.73
Total investment return at net
asset value(2) (%) 14.59 (0.49) 5.67 11.59 7.75 12.54 4.19 7.13 (1.31) 11.23
Ratios and supplemental data
Net assets, end of period
(000s omitted) ($) 201,293 202,924 192,315 179,065 176,329 211,322 259,170 262,903 218,846 198,681
Ratio of expenses to average
net assets (%) 0.90 0.97 1.02 1.01 1.53 1.44 1.55 1.51 1.41 1.36
Ratio of net investment income (loss)
to average net assets (%) 8.82 8.52 8.71 8.98 8.56 7.72 6.13 5.34 4.39 5.76
Portfolio turnover rate (%) 6 7 12 26 75 134 185 175 155 105
</TABLE>
- --------------------------------------------------------------------------------
Class B - year ended December 31, 1994(3) 1995
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $ 8.77 $ 8.31
Net investment income (loss) 0.30(1) 0.45(1)
Net realized and unrealized gain (loss) on investment (0.46) 0.42
Total from investment operations (0.16) 0.87
Less distributions:
Dividends from net investment income (0.30) (0.45)
Net asset value, end of period $ 8.31 $ 8.73
Total investment return at net asset value(2) (%) (1.84)(4) 10.60
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 7,111 10,765
Ratio of expenses to average net assets (%) 2.12(5) 1.93
Ratio of net investment income (loss)
to average net assets (%) 3.70(5) 5.21
Portfolio turnover rate (%) 155 105
(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
[Icon]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
[Icon]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
[Icon]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
[Icon]James K. Ho, 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
[Icon]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 $199
Assuming no redemption $19 $58 $100 $199
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
[Icon]The figures below have been audited by the fund's independent auditors,
Ernst & Young LLP.
[The table below was represented by a bar graph in the printed material]
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class A
year-by-year total investment return (%) 13.67 1.58 9.82 12.13 6.71 16.59 8.08 11.80 (2.75) 19.40
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended December 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value,
beginning of period $ 15.85 $ 15.89 $ 14.53 $ 14.51 $ 14.77 $ 14.33 $ 15.31 $ 15.29 $ 15.53 $ 13.90
Net investment income (loss) 1.55 1.40 1.44 1.43 1.32 1.29 1.20 1.14 1.12 1.12
Net realized and unrealized gain
(loss) on investments and
financial futures contracts 0.52 (1.17) (0.06) 0.27 (0.40) 0.98 (0.01) 0.62 (1.55) 1.50
Total from investment operations 2.07 0.23 1.38 1.70 0.92 2.27 1.19 1.76 (0.43) 2.62
Less distributions:
Dividends from net
investment income (1.53) (1.53) (1.40) (1.44) (1.35) (1.29) (1.21) (1.14) (1.12) (1.12)
Distributions from net realized
gain on investments sold
and financial futures contracts (0.50) (0.06) -- -- -- -- -- (0.38) (0.08) --
Distributions from
capital paid-in -- -- -- -- (0.01) -- -- -- -- --
Total distributions (2.03) (1.59) (1.40) (1.44) (1.36) (1.29) (1.21) (1.52) (1.20) (1.12)
Net asset value, end of period $ 15.89 $ 14.53 $ 14.51 $ 14.77 $ 14.33 $ 15.31 $ 15.29 $ 15.53 $ 13.90 $ 15.40
Total investment return at net
asset value(1) (%) 13.67 1.58 9.82 12.13 6.71 16.59 8.08 11.80 (2.75) 19.40
Ratios and supplemental data
Net assets, end of period
(000s omitted) ($) 1,152,407 1,095,208 1,103,691 1,110,394 1,103,391 1,249,980 1,386,260 1,505,754 1,326,058 1,535,204
Ratio of expenses to average
net assets (%) 0.72 0.82 0.82 0.80 1.31 1.27 1.44 1.41 1.26 1.13
Ratio of net investment income
(loss) to average net assets (%) 9.65 9.32 9.77 9.68 9.18 8.81 7.89 7.18 7.74 7.58
Portfolio turnover rate (%) 163 159 66 64 92 90 87 107 85 103
</TABLE>
- --------------------------------------------------------------------------------
Class B - year ended December 31, 1993(2) 1994 1995
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $ 15.90 $ 15.52 $ 13.90
Net investment income (loss) 0.11 1.04 1.02
Net realized and unrealized gain
(loss) on investments and
financial futures contracts -- (1.54) 1.50
Total from investment operations 0.11 (0.50) 2.52
Less distributions:
Dividends from net investment income (0.11) (1.04) (1.02)
Distributions from net realized
gain on investments sold
and financial futures contracts (0.38) (0.08) --
Total distributions (0.49) (1.12) (1.02)
Net asset value, end of period $ 15.52 $ 13.90 $ 15.40
Total investment return at net asset value(1) (%) 0.90(3) (3.13) 18.66
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,125 40,299 98,739
Ratio of expenses to average net assets (%) 1.63(4) 1.78 1.75
Ratio of net investment income
(loss) to average net assets (%) 0.57(4) 7.30 6.87
Portfolio turnover rate (%) 107 85 103
(1) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(2) Class B shares commenced operations on November 23, 1993.
(3) Not annualized.
(4) 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
[Icon]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
[Icon]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
[Icon]As with most income investments, the value of your investment in the fund
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
[Icon]Barry H. Evans, 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
[Icon]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 0.32% 0.32%
Total fund operating expenses 1.12% 1.82%
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 $175
Class B shares
Assuming redemption
at end of period $68 $87 $119 $195
Assuming no redemption $18 $57 $ 99 $195
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
14 SOVEREIGN U.S. GOVERNMENT INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Icon]The figures below have been audited by the fund's independent accountants,
Price Waterhouse LLP.
[The table below was represented by a bar graph in the printed material]
<TABLE>
<CAPTION>
1987 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class B
year-by-year total investment return (%) 2.61 3.70 11.53 11.52 6.24 14.46 7.58 12.66 (7.05) 15.27 (0.79)(5)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended October 31, 1992(1) 1993 1994 1995 1996(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<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(3) 0.65 0.65 0.32
Net realized and unrealized gain (loss) on investments and
financial futures contracts (0.22) 0.61 (1.34) 0.77 (0.36)
Total from investment operations 0.42 1.29 (0.69) 1.42 (0.04)
Less distributions:
Dividends from net investment income (0.64) (0.68) (0.65) (0.65) (0.32)
Distributions from net realized gain on investments sold -- (0.01) (0.31) -- --
Total distributions (0.64) (0.69) (0.96) (0.65) (0.32)
Net asset value, end of period $ 10.29 $ 10.89 $ 9.24 $ 10.01 $ 9.65
Total investment return at net asset value(4) (%) 5.33(5) 12.89 (6.66) 15.90 (0.46)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 350,907 375,416 315,372 370,966 343,842
Ratio of expenses to average net assets (%) 1.06(6) 1.30 1.23 1.17 1.13(6)
Ratio of net investment income (loss) to average net assets (%) 7.11(6) 6.47 6.62 6.76 6.43(6)
Portfolio turnover rate (%) 140 273 127 94 51
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - year ended October 31, 1987(7) 1987(8) 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(4) (%) 2.61 3.70 11.53 11.52 6.24 14.46 7.58
Total adjusted investment return at
net asset value(4,9) (%) -- 3.62 11.47 11.29 6.23 -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 164,001 170,030 161,163 144,756 133,778 164,347 197,032
Ratio of expenses to average net assets (%) 1.26(6) 1.24(6) 1.29 1.35 1.54 1.51 1.55
Ratio of adjusted expenses to
average net assets(10) (%) -- 1.32(6) 1.35 1.58 1.55 -- --
Ratio of net investment income (loss) to
average net assets (%) 7.56(6) 7.94(6) 8.09 8.34 8.54 8.53 7.35
Ratio of adjusted net investment income
(loss) to average net assets(10) (%) -- 7.86(6) 8.03 8.11 8.53 -- --
Portfolio turnover rate (%) 108(6) 83(6) 79 45 63 62 140
Fee reduction per share ($) -- 0.01 0.01 0.02 0.01 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - year ended October 31, 1993 1994 1995 1996(2)
- ------------------------------------------------------------------------------------------------------------------------------------
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 0.29
Net realized and unrealized gain (loss) on
investments and financial futures contracts 0.61 (1.34) 0.77 (0.36)
Total from investment operations 1.27 (0.73) 1.37 (0.07)
Less distributions:
Dividends from net investment income (0.66) (0.61) (0.60) (0.29)
Distributions from net realized gain on
investments sold (0.01) (0.31) -- --
Total distributions (0.67) (0.92) (0.60) (0.29)
Net asset value, end of period $ 10.88 $ 9.23 $ 10.00 $ 9.64
Total investment return at net asset value(4) (%) 12.66 (7.05) 15.27 (0.79)(5)
Total adjusted investment return at
net asset value(4,9) (%) -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 244,133 196,899 130,824 119,489
Ratio of expenses to average net assets (%) 1.51 1.64 1.72 1.78(6)
Ratio of adjusted expenses to
average net assets(10) (%) -- -- -- --
Ratio of net investment income (loss) to
average net assets (%) 6.23 6.19 6.24 5.78(6)
Ratio of adjusted net investment income
(loss) to average net assets(10) (%) -- -- -- --
Portfolio turnover rate (%) 273 127 94 51
Fee reduction per share ($) -- -- -- --
</TABLE>
(1) Class A shares commenced operations on January 3, 1992.
(2) Six months ended April 30, 1996. (Unaudited.)
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
(7) For the period June 5, 1986 (commencement of operations) to March 31, 1987.
(8) For the period April 1, 1987 to October 31, 1987.
(9) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(10) Unreimbursed, without fee reduction.
SOVEREIGN U.S. GOVERNMENT INCOME FUND 15
<PAGE>
Strategic Income Fund
REGISTRANT NAME: JOHN HANCOCK STRATEGIC SERIES
TICKER SYMBOL CLASS A: JHFIX CLASS B: STIBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Icon]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
[Icon]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
[Icon]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
[Icon]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
[Icon]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
The figures below have been audited
by the fund's independent accountants, Price Waterhouse LLP.
[The table below was represented by a bar graph in the printed material]
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class A
year-by-year total investment return (%) 4.81(5) 6.89 9.72 (7.36) 12.31 19.92 6.81 4.54 9.33 11.37
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended May 31, 1987(1) 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <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 $ 7.78 $ 7.55 $ 7.17 $ 7.15
Net investment income (loss) 0.79 1.13 1.12 1.04 0.93 0.80 0.71 0.68 0.64 0.66(2)
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 (0.22) (0.33) (0.02) 0.12
Total from investment operations 0.50 0.66 0.86 (0.61) 0.80 1.32 0.49 0.35 0.62 0.78
Less distributions:
Dividends from net
investment income (0.79) (1.13) (1.12) (1.04) (0.93) (0.74)(3) (0.72) (0.58)(3) (0.55) (0.66)
Distributions in excess of net
investment income -- -- -- -- -- -- -- (0.05) -- --
Distributions from
capital paid-in -- -- -- -- -- -- -- (0.10) (0.09) --
Total distributions (0.79) (1.13) (1.12) (1.04) (0.93) (0.74) (0.72) (0.73) (0.64) (0.66)
Net asset value, end of period $ 9.71 $ 9.24 $ 8.98 $ 7.33 $ 7.20 $ 7.78 $ 7.55 $ 7.17 $ 7.15 $ 7.27
Total investment return at net
asset value(4) (%) 4.81(5) 6.89 9.72 (7.36) 12.31 19.92 6.81 4.54 9.33 11.37
Total adjusted investment return
at net asset value(4,6) (%) 3.64 6.49 9.58 (7.45) -- -- -- -- -- --
Ratios and supplemental data
Net assets, end of period
(000s omitted) ($) 30,260 67,140 95,430 80,890 79,272 153,568 262,137 335,261 327,876 369,127
Ratio of expenses to average
net assets (%) 1.00(7) 1.09 1.33 1.53 1.75 1.69 1.58 1.32 1.09 1.03
Ratio of adjusted expenses to
average net assets (%) 2.17(7) 1.49 1.47 1.62 -- -- -- -- -- --
Ratio of net investment income
(loss) to average
net assets (%) 10.87(7) 12.07 12.28 12.60 13.46 10.64 9.63 8.71 9.24 9.13
Ratio of adjusted net investment
income (loss) to average
net assets (%) 9.70(7) 11.67 12.14 12.51 -- -- -- -- -- --
Portfolio turnover rate (%) 207 67 125 81 60 80 97 91 55 78
Fee reduction per share ($) 0.09 0.04 0.01 0.01 -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Class B - year ended May 31, 1994(1) 1995 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $7.58. $7.17 $7.15
Net investment income (loss) 0.40 0.60(2) 0.61(2)
Net realized and unrealized gain (loss) on investments,
foreign currency transactions and financial futures contracts (0.41) (0.02) 0.12
Total from investment operations (0.01) 0.58 0.73
Less distributions:
Dividends from net investment income (0.32)(3) (0.52) (0.61)
Distributions in excess of net investment income (0.03)(3) -- --
Distributions from capital paid-in (0.05) (0.08) --
Total distributions (0.40) (0.60) (0.61)
Net asset value, end of period $7.17 $7.15 $7.27
Total investment return at net asset value(4) (%) (0.22)(5) 8.58 10.61
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 77,691 134,527 206,751
Ratio of expenses to average net assets (%) 1.91(7) 1.76 1.73
Ratio of net investment income (loss) to average net assets (%) 8.12(7) 8.55 8.42
Portfolio turnover rate (%) 91 55 78
</TABLE>
(1) Class A and Class B shares commenced operations on August 18, 1986 and
October 4, 1993, respectively.
(2) Based on the average of the shares outstanding at the end of each month.
(3) The dividend policy of the fund was changed, effective August 1, 1991, from
one that utilized daily dividend declarations to one that declares
dividends monthly. Additionally, the dividend policy of the fund was
changed, effective October 1, 1993, from one that declared dividends
monthly to daily dividend declarations.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) 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
several ways to reduce these you right away.
charges, also described below.
o Higher annual expenses than
o Lower annual expenses than Class A shares.
Class B shares.
o A deferred sales charge, as
described below.
o Automatic conversion to Class
A shares after either five
years (Group 1) or eight years
(Group 2) (see below), thus
reducing future annual
expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Use the table below to find out which group the fund is in, then consult the
sales charge information for that group.
- --------------------------------------------------------------------------------
Group 1 Group 2
- --------------------------------------------------------------------------------
o Intermediate Maturity Government o Government Income
o Limited-Term Government o High-Yield Bond
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 Investor Services to add these options (see the
back cover of this prospectus).
Group Investment Program Allows established groups of four or more investors to
invest as a group. 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 you may terminate the program at any time.
To utilize: contact your financial representative or Investor Services to find
out how to qualify.
CDSC waivers As long as Investor 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 Investor Services, or consult the SAI (see the back
cover of this prospectus).
Reinstatement privilege If you sell shares in a John Hancock fund, you may
invest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge. 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 Investor Services.
19 YOUR ACCOUNT
<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 income 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
Investor 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 Investor 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 can
initiate any purchase, exchange or sale of shares through your financial
representative.
20 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account
- --------------------------------------------------------------------------------
By check
- --------------------------------------------------------------------------------
[Icon]
o Make out a check for the investment amount, payable to "John Hancock
Investor Services Corporation."
o Deliver the check and your completed application to your financial
representative, or mail to Investor Services (address below).
Adding to an account
o Make out a check for the investment amount payable to "John Hancock
Investor Services Corporation."
o Fill out the detachable investment slip from an account statement. If
no slip is available, include a note specifying the fund 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 Investor Services (address below).
- --------------------------------------------------------------------------------
By exchange
- --------------------------------------------------------------------------------
Opening an account
[Icon]
o Call your financial representative or Investor Services to request an
exchange.
Adding to an account
o Call Investor Services to request an exchange.
- --------------------------------------------------------------------------------
By wire
- --------------------------------------------------------------------------------
Opening an account
[Icon]
o Deliver your completed application to your financial representative,
or mail it to Investor Services.
o Obtain your account number by calling your financial representative or
Investor Services.
o Instruct your bank to wire 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.
Adding to an account
o Instruct your bank to wire the amount of your investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your share class, your account number and the
name(s) in which the account is registered. Your bank may charge a fee
to wire funds.
- --------------------------------------------------------------------------------
By phone
- --------------------------------------------------------------------------------
Opening an account
[Icon]
See "By wire" and "By exchange."
Adding to an account
o Verify that your bank or credit union is a member of the Automated
Clearing House (ACH) system.
o Complete the "Invest-By-Phone" and "Bank Information" sections on your
account application.
o Call Investor Services to verify that these features are in place on
your account.
o Tell the Investor 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 Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
Phone number
1-800-225-5291
Or contact your financial representative for instructions and assistance.
To open or add to an account using the Monthly Automatic Accumulation
Program, see "Additional investor services."
21 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for
- --------------------------------------------------------------------------------
By letter
- --------------------------------------------------------------------------------
[Icon]
o Accounts of any type.
o Sales of any amount.
To sell some or all of your shares
o Write a letter of instruction or complete a 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 Investor 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
- --------------------------------------------------------------------------------
[Icon]
Designed for
o Most accounts.
o Sales of up to $100,000.
To sell some or all of your shares
o For automated service 24 hours a day using your touch-tone phone, call
the EASI-Line at 1-800-338-8080.
o To place your order with a representative at John Hancock Funds, call
Investor Services between 8 a.m. and 4 p.m. on most business days.
- --------------------------------------------------------------------------------
By wire or electronic funds transfer (EFT)
- --------------------------------------------------------------------------------
[Icon]
Designed for
o Requests by letter to sell any amount (accounts of any type).
o Requests by phone to sell up to $100,000 (accounts with telephone
redemption privileges).
To sell some or all of your shares
o Fill out the "Telephone Redemption" section of your new account
application.
o To verify that the telephone redemption privilege is in place on an
account, or to request the forms to add it to an existing account,
call Investor 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
- --------------------------------------------------------------------------------
[Icon]
Designed for
o Accounts of any type.
o Sales of any amount.
To sell some or all of your shares
o Obtain a current prospectus for the fund into which you are exchanging
by calling your financial representative or Investor Services.
o Call Investor Services to request an exchange.
- --------------------------------------------------------------------------------
By check
- --------------------------------------------------------------------------------
[Icon]
Designed for
o Government Income, Limited-Term Government, Sovereign U.S. Government
and Strategic Income Funds only.
o Any account with checkwriting privileges.
o Sales of over $100.
To sell some or all of your shares
o Request checkwriting on your account application.
o Verify that the shares to be sold were purchased more than 15 days
earlier or were purchased by wire.
o Write a check for any amount over $100.
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
Address
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
Phone number
1-800-225-5291
Or contact your financial representative 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.
- --------------------------------------------------------------------------------
Seller Requirements for written requests [Icon]
- --------------------------------------------------------------------------------
Owners of individual, joint, sole
proprietorship, UGMA/UTMA
(custodial accounts for minors) or
general partner accounts. o Letter of instruction.
o On the letter, the signatures
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
accounts. o Letter of instruction.
o Corporate resolution,
certified within the past 90
days.
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
accounts. o Letter of instruction.
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 60
days.
o Signature guarantee if
applicable (see above).
Joint tenancy shareholders whose
co-tenants are deceased. o Letter of instruction signed
by 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,
guardians and other sellers or
account types not listed above. o Call 1-800-225-5291 for
instructions.
23 YOUR ACCOUNT
<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
Investor 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, Investor 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 not taken, Investor Services is
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 your John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
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 that of the new fund if the new fund's 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 change or cancel its exchange
privilege at any time, upon 60 days' notice to its shareholders. A fund may also
refuse any exchange order.
Certificated shares Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Investor Services. Certificated
shares can only be sold by returning the certificates to Investor 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 calendar 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, Investor 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 Investor Services
Corporation." Deliver your check and application to your financial
representative or Investor Services.
Systematic withdrawal plan This plan may be used for routine bill payment 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 Investor Services.
Retirement plans John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, SARSEPs, 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 with a low minimum investment of $250 or, for
some group plans, no minimum investment at all. To find out more, call Investor
Services at 1-800-225-5291.
25 YOUR ACCOUNT
<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").
--------------
Shareholders
--------------
-----------------------------------------------
Financial services firms and
their representatives
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
-----------------------------------------------
Distribution and
shareholder services
- -------------------------------- --------------------------------------------
Principal distributor Travel Agent
John Hancock Funds, Inc. John Hancock Investor Services Corporation
101 Huntington Avenue P.O. Box 9115
Boston, MA 02199-7603 Boston, MA 02205-9116
Markets the funds and distributes Handles shareholder services,
shares through selling brokers, including record-keeping and
financial planners and other statements, distribution of
financial representatives. dividends and processing of buy and
sell requests.
- -------------------------------- --------------------------------------------
Asset Management
- ---------------------------------- --------------------------------------
Investment adviser Custodian
John Hancock Advisers, Inc. Investors Bank & Trust Co.
101 Huntington Avenue 89 South Street
Boston, MA 02199-7603 Boston, MA 02111
Manages the funds' business and Holds the funds' assets, settles all
investment activities. portfolio trades and collects most of
the valuation data required for
calculating each fund's NAV.
- ---------------------------------- --------------------------------------
--------------------------------
Trustees
Supervise the funds' activities.
--------------------------------
26 FUND DETAILS
<PAGE>
Accounting compensation The funds compensate the adviser for performing tax and
financial management services. Annual compensation for 1996 will not 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 fund in 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' respective boards. 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 $8,575,319 3.69%
High Yield Bond $6,471,589 3.90%
Intermediate Maturity Gov. $253,107 2.30%
Limited-Term Government $195,672 2.31%
Sovereign Bond $2,970,686 4.64%
Sovereign U.S. Gov. Income $5,318,736 3.16%
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. Firms affiliated
with John Hancock, which include Tucker Anthony, Sutro & Company and John
Hancock Distributors, may receive an additional fee of up to 0.05% a year of
their total eligible net assets.
To compensate for continuing services, John Hancock Funds will pay Merrill
Lynch, Pierce, Fenner & Smith, Inc. an annual fee equal to 0.15% of the value of
Class A shares held by its customers for more than four years.
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 and more above that -- 0.00% 0.25% 0.25%
Waiver investments(2) -- 0.00% 0.25% 0.25%
</TABLE>
- --------------------------------------------------------------------------------
Class B investments
- --------------------------------------------------------------------------------
Maximum
reallowance First year Maximum
or commission service fee total compensation
(% of offering price) (% of net investment) (% of offering price)
Group 1 funds
All amounts 2.75% 0.25% 3.00%
Group 2 funds
All amounts 3.75% 0.25% 4.00%
(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 fund commission
payments 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 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>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Higher-risk securities and practices
- ------------------------------------------------------------------------------------------------------------------------------------
This table shows each fund's investment limitations as a percentage of portfolio
assets. In each case the principal types of risk are listed (see previous page
for definitions). Numbers in this table show allowable usage only; for actual
usage, consult the fund's annual/semi-annual reports.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
@ No policy limitation on usage; fund may be using currently
o Permitted, but has not typically been used
- -- Not permitted
Sovereign
High Intermediate Limited- U.S.
Government Yield Maturity Term Sovereign Gov't Strategic
Income Bond Gov't Government Bond Income Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment practices
Borrowing; reverse repurchase agreements
The borrowing of money from banks or
through reverse repurchase agreements.
Leverage, credit risks. 33.3 33.3 33.3 33.3 33.3 33.3 33
Covered mortgage dollar roll
transactions The sale of mortgage-backed
securities with the commitment to buy
back similar securities at a future
date. Credit, interest rate, leverage,
market, opportunity risks. @ @ @ @ @ @ @
Repurchase agreements The purchase of a
security that must later be sold back to
the issuer at the same price plus
interest. Credit risk. @ @ @ @ @ @ @
Securities lending The lending of
securities to financial institutions,
which provide cash or government
securities as collateral. Credit risk. 30 30 33.3 33.3 33.3 30 33.3
Short-term trading Selling a security
soon after purchase. A portfolio
engaging in short-term trading will have
higher turnover and transaction
expenses. Market risk. @ @ @ @ @ @ @
When-issued securities and forward
commitments The purchase or sale of
securities for delivery at a future
date; market value may change before
delivery. Market, opportunity, leverage
risks. @ @ @ @ @ @ @
- ------------------------------------------------------------------------------------------------------------------------------------
Conventional securities
Brady bonds Dollar-denominated
securities issued to refinance foreign
government bank loans and other debt.
Credit, interest rate, market, political
risks. 10 o(1) -- -- 25 -- o(1)
Foreign debt securities Debt securities
issued by foreign governments or
companies. Credit, currency, interest rate, market,
political risks. 20 @(1) -- -- 25 -- @(1)
In-kind, delayed and zero coupon debt
securities Securities offering non-cash
or delayed-cash payment. Their prices
are typically more volatile than those
of conventional debt securities. Credit,
interest rate, market risks. @ @ @ @ @ @ @
Restricted and illiquid securities
Securities not traded on the open
market. May include illiquid Rule 144A
securities. Liquidity, valuation, market
risks. 10 10 15 15 15 15 15
- ------------------------------------------------------------------------------------------------------------------------------------
Unleveraged derivative securities
Asset-backed securities Securities
backed by unsecured debt, such as credit
card debt; these securities are often
guaranteed or over-collateralized to
enhance their credit quality. Credit,
interest rate risks. 20 @ 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.
(3) Applies to purchased options only.
30 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Higher-risk securities and practices (cont'd)
- ------------------------------------------------------------------------------------------------------------------------------------
Sovereign
High Intermediate Limited- U.S.
Government Yield Maturity Term Sovereign Gov't Strategic
Income Bond Gov't Government Bond Income Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leveraged derivative securities
Currency contracts Contracts involving
the right or obligation to buy or sell a
given amount of foreign currency at a
specified price and future date.
o Hedged. Currency, hedged leverage,
correlation, liquidity, opportunity
risks. -- @ -- -- -- -- @
o Speculative. Currency, speculative
leverage, liquidity risks. -- -- -- -- -- -- o
Financial futures and options;
securities and index options Contracts
involving the right or obligation to
deliver or receive assets or money
depending on the performance of one or
more assets or an economic index.
oFutures 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. 5(3) 5(3) 5(3) 5(3) 5(3) 5(3) 5(3)
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. o o o o o o o
</TABLE>
- --------------------------------------------------------------------------------
Analysis of funds with 5% or more in junk bonds(1)
- --------------------------------------------------------------------------------
Quality rating High Yield Sovereign Strategic
(S&P/Moody's)(2) Bond Fund Bond Fund Income Fund
AAA/Aaa 2.0% 42.2% 25.13%
AA/Aa 0.0% 9.1% 8.4%
A/A 0.0% 14.6% 4.2%
BBB/Baa 1.7% 12.5% 1.4%
BB/Ba 14.7% 11.1% 8.11%
B/B 63.7% 7.8% 41.1%
CCC/Caa 5.6% 0.2% 1.5%
CC/Ca 0.0% 0.0% 0.0%
C/C 0.0% 0.0% 0.0%
D 0.0% 0.0% 0.1%
% of portfolio in bonds 87.7% 97.5% 92.1%
n Rated by S&P or Moody's n Rated by the adviser
(1) Data as of fund's last fiscal year end.
(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 Investor Services Corporation
P.O. Box 9116
Boston, MA 02205-9116
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
[Logo] John Hancock Funds
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts 02199-7603
John Hancock(R)
Financial Services
(C) 1996 John Hancock Funds, Inc.
INCPN 8/96
<PAGE>
JOHN HANCOCK
LIMITED-TERM GOVERNMENT FUND
Class A and Class B Shares
Statement of Additional Information
August 30, 1996
This Statement of Additional Information provides information about John
Hancock Limited-Term Government Fund (the "Fund") in addition to the information
that is contained in the Fund's Class A and Class B Prospectus (the
"Prospectus") dated August 30, 1996.
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 Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Statement of
Additional
Information
Page
ORGANIZATION OF THE FUND 2
INVESTMENT OBJECTIVE AND POLICIES 2
CERTAIN INVESTMENT PRACTICES 3
INVESTMENT RESTRICTIONS 12
THOSE RESPONSIBLE FOR MANAGEMENT 16
INVESTMENT ADVISORY AND OTHER SERVICES 26
DISTRIBUTION CONTRACT 28
NET ASSET VALUE 30
INITIAL SALES CHARGE ON CLASS A SHARES 30
DEFERRED SALES CHARGE ON CLASS B SHARES 33
SPECIAL REDEMPTIONS 36
ADDITIONAL SERVICES AND PROGRAMS 36
DESCRIPTION OF THE FUND'S SHARES 38
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TAX STATUS 39
CALCULATION OF PERFORMANCE 43
BROKERAGE ALLOCATION 45
TRANSFER AGENT SERVICES 47
CUSTODY OF PORTFOLIO 48
INDEPENDENT AUDITORS 48
FINANCIAL STATEMENTS F-1
ORGANIZATION OF THE FUND
The Fund is a diversified open-end management investment company organized
as a business trust under the laws of The Commonwealth of Massachusetts. The
Fund was organized in 1984 by John Hancock Advisers, Inc. (the "Adviser") as the
successor to John Hancock U.S. Government Securities Fund, Inc., a Delaware
corporation organized in 1968 by the John Hancock Life Insurance Company (the
"Life Company"), a Massachusetts life insurance company chartered in 1862, with
national headquarters at John Hancock Place, Boston, Massachusetts. On July 1,
1993 the Fund changed its name from "John Hancock U.S. Government Securities
Fund."
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide current income and
security of principal through investment primarily in securities of the United
States government and its agencies. These securities (which are herein referred
to as "Government Obligations") are direct obligations of, or are guaranteed as
to payment of principal and interest by, the United States government or its
agencies.
The Fund intends to invest at least 80% of its total assets in Government
Obligations, including repurchase agreements secured by those obligations.
Investments will be made in an attempt to minimize excessive fluctuations in net
asset value per share, so at times the highest yielding Government Obligations
may not be selected for investment if, in management's view, future interest
rate movements could result in a depreciation in value. While the Fund makes no
commitment concerning the portfolio maturities of particular securities, it
expects that under normal conditions a substantial portion of the portfolio will
be invested in Government Obligations with maturities of up to ten years. In the
past year, the average dollar-weighted maturity was two years.
The Government Obligations in which the Fund will invest include but are
not limited to:
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Treasury Notes and Bonds-These are direct obligations of the United States
government backed by the full faith and credit of the United States. New
issues of notes mature in one to seven years, while bonds generally have a
maturity of five years or more.
Treasury Bills-These are direct obligations of the United States government
backed by the full faith and credit of the United States and mature in one
year or less.
Agency Securities-These securities may be guaranteed by the United States
Treasury or supported by the issuer's right to borrow from the Treasury,
and may be backed by the credit of the Federal agency itself.
Federal agencies include, but are not limited to: Federal Intermediate
Credit Banks, Federal Land Banks, Banks for Cooperatives, Federal Home Loan
Banks, Federal National Mortgage Association, Government National Mortgage
Association, Tennessee Valley Authority, Federal Home Loan Mortgage Corporation
and Farmers Home Administration.
CERTAIN INVESTMENT PRACTICES
Mortgage-Backed and Derivative Securities. Mortgage-backed securities represent
participation interests in pools of adjustable and fixed rate mortgage loans
which are guaranteed by agencies or instrumentalities of the U.S. Government.
Unlike conventional debt obligations, mortgage-backed securities provide monthly
payments derived from the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans. The
mortgage loans underlying mortgage-backed securities are generally subject to a
greater rate of principal prepayments in a declining interest rate environment
and to a lesser rate of principal prepayments in an increasing interest rate
environment. Under certain interest and prepayment rate scenarios, the Fund may
fail to recover the full amount of its investment in mortgage-backed securities
notwithstanding any direct or indirect governmental or agency guarantee. Since
faster than expected prepayments must usually be invested in lower yielding
securities, mortgage-backed securities are less effective than conventional
bonds in "locking in" a specified interest rate. In a rising interest rate
environment, a declining prepayment rate may extend the average life of many
mortgage-backed securities. Extending the average life of a mortgage-backed
security increases the risk of depreciation due to future increases in market
interest rates.
The Fund's investments in mortgage-backed securities may include conventional
mortgage passthrough securities and certain classes of multiple class
collateralized mortgage obligations ("CMOs"). In order to reduce the risk of
prepayment for investors, CMOs are issued in multiple classes, each having
different maturities,
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interest rates, payment schedules and allocations of principal and interest on
the underlying mortgages. Senior CMO classes will typically have priority over
residual CMO classes as to the receipt of principal and/or interest payments on
the underlying mortgages. The CMO classes in which the Fund may invest include
sequential and parallel pay CMOs, including planned amortization class ("PAC")
and target amortization class ("TAC") securities. The Fund does not invest in
residual classes of CMOs.
Risks of Mortgage-Backed Securities. Different types of mortgage-backed
securities are subject to different combinations of prepayment, extension,
interest rate and/or other market risks. Conventional mortgage passthrough
securities and sequential pay CMOs are subject to all of these risks, but are
typically not leveraged. PACs, TACs and other senior classes of sequential and
parallel pay CMOs involve less exposure to prepayment, extension and interest
rate risk than other mortgage-backed securities, provided that prepayment rates
remain within expected prepayment ranges or "collars."
Asset-Backed Securities. The Fund may invest a portion of its assets in
asset-backed securities. Asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During periods
of declining interest rates, prepayment of loans underlying asset-backed
securities can be expected to accelerate. Accordingly, the Fund's ability to
maintain positions in these securities will be affected by reductions in the
principal amount of such securities resulting from prepayments, and its ability
to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at that time.
Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than
residential real property. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
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.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including
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securities offered and sold to "qualified institutional buyers" under Rule 144A
under the 1933 Act. However, the Fund will not invest more than 15% of its net
assets in illiquid investments, which include repurchase agreements maturing in
more than seven days, securities that are not readily marketable and restricted
securities. However, if the Board of Trustees determines, based upon a
continuing review of the trading markets for specific Rule 144A securities, that
they are liquid, then such securities may be purchased without regard to the 15%
limit. The Trustees may adopt guidelines and delegate to the Adviser the daily
function of determining and monitoring the liquidity of restricted securities.
The Trustees, however, will retain sufficient oversight and be ultimately
responsible for the determinations. The Trustees will carefully monitor the
Fund's investments in these securities, focusing on such important factors,
among others, as valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the level of illiquidity
in the Fund if qualified institutional buyers become for a time uninterested in
purchasing these restricted securities.
The Fund may acquire other restricted securities including securities for which
market quotations are not readily available. These securities may be sold only
in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the Securities Act of 1933.
Where registration is required, the Fund may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair market value as determined in good faith by the Fund's
Trustees.
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is a contract under which the Fund acquires a security for
a relatively short period (usually not more than 7 days) subject to the
obligation of the seller to repurchase and the Fund to resell such security at a
fixed time and price (representing the Fund's cost plus interest). The Fund will
enter into repurchase agreements only with member banks of the Federal Reserve
System and with "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
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which the Fund seeks to enforce its rights thereto, possible subnormal levels of
income and lack of access to income during this period and the expense of
enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of 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. The Fund will not enter into reverse repurchase
agreements and other borrowings exceeding in the aggregate 33 1/3% of the market
value of its total assets. The Fund will enter into reverse repurchase
agreements only with federally insured banks or savings and loan associations
which are approved in advance as being creditworthy by the Board of Trustees.
Under procedures established by the Board of Trustees, the Adviser will monitor
the creditworthiness of the banks involved.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities 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
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enter into offsetting contracts for the forward sale of other securities that it
owns. All when-issued and other delayed-delivery transactions will be settled
within 120 days.
REMIC Securities. The Fund may purchase collateralized mortgage obligations
issued by a real estate mortgage investment conduit ("REMIC"). REMIC securities
represent interests in a fixed pool of mortgages secured by an interest in real
property and are typically issued in multiple classes to investors such as the
Fund. The Fund may invest in REMIC securities that are issued or guaranteed by
the Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation or other U.S. government agencies or instrumentalities and for which
the mortgage collateral is insured, guaranteed or otherwise backed by the U.S.
government or one or more of its agencies or instrumentalities. The Fund will
not invest in "residual" interests in REMICs because of certain tax
disadvantages for regulated investment companies that own such interests.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities. 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.
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.
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. Generally, warrants and stock
purchase rights do not carry with them the right to receive dividends or
exercise voting rights with respect to the underlying securities, and they do
not represent any rights in the assets of the issuer. As a result, an investment
in warrants and rights may be considered to
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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.
Structured or Hybrid Notes. The Fund may invest in "structured" or "hybrid"
notes. The distinguishing feature of a structured or hybrid note is that the
amount of interest and/or principal payable on the note is based on the
performance of a benchmark asset or market other than fixed income securities or
interest rates. Examples of these benchmarks include stock prices, currency
exchange rates and physical commodity prices. Investing in a structured note
allows the Fund to gain exposure to the benchmark market while fixing the
maximum loss that the Fund may experience in the event that market does not
perform as expected. Depending on the terms of the note, the Fund may forego all
or part of the interest and principal that would be payable on a comparable
conventional note; the Fund's loss cannot exceed this foregone interest and/or
principal. An investment in structured or hybrid notes involves risks similar to
those associated with a direct investment in the benchmark asset.
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. Caps and floors have an effect similar to buying or
writing options. Depending on how they are used, swap agreements may increase or
decrease the overall volatility of a Fund's investments and its share price and
yield.
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Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Fund may also suffer losses if
it is unable to terminate outstanding swap agreements or reduce its exposure
through offsetting transactions. The Fund will maintain in a segregated account
with its custodian, cash or liquid, 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."
Financial Futures Contracts. The Fund may hedge its portfolio by selling or
purchasing financial futures contracts as an offset against the effects of
changes in interest rates or in security values. Although other techniques could
be used to reduce the Fund's exposure to interest rate fluctuations, the Fund
may be able to hedge its exposure more effectively and perhaps at a lower cost
by using financial futures contracts. The Fund may enter into financial futures
contracts for hedging and speculative purposes to the extent permitted by
regulations of the Commodity Futures Trading Commission ("CFTC").
Financial futures contracts have been designed by boards of trade which
have been designated "contract markets" by the CFTC. Futures contracts are
traded on these markets in a manner that is similar to the way a stock is traded
on a stock exchange. The boards of trade, through their clearing corporations,
guarantee that the contracts will be performed. Currently, financial futures
contracts are based on interest rate instruments such as long-term U.S. Treasury
bonds, U.S. Treasury notes, Government National Mortgage Association ("GNMA")
modified pass-through mortgage-backed securities, three-month U.S. Treasury
bills, 90-day commercial paper, bank certificates of deposit and Eurodollar
certificates of deposit. It is expected that
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if other financial futures contracts are developed and traded the Fund may
engage in transactions in such contracts.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts are
closed out prior to delivery by offsetting purchases or sales of matching
financial futures contracts (same exchange, underlying security and delivery
month). Other financial futures contracts, such as futures contracts on
securities indices, by their terms call for cash settlements. If the offsetting
purchase price is less than the Fund's original sale price, the Fund realizes a
gain, or if it is more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than the Fund's original purchase price, the Fund realizes a
gain, or if it is less, the Fund realizes a loss. The transaction costs must
also be included in these calculations. The Fund will pay a commission in
connection with each purchase or sale of financial futures contracts, including
a closing transaction. For a discussion of the Federal income tax considerations
of transactions in financial futures contracts, see the information under the
caption "Tax Status" below.
At the time the Fund enters into a financial futures contract, it is
required to deposit with its custodian a specified amount of cash or U.S.
Government securities, known as "initial margin," ranging upward from 1.1% of
the value of the financial futures contract being traded. The margin required
for a financial futures contract is set by the board of trade or exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the financial futures contract which is returned to the Fund
upon termination of the contract, assuming all contractual obligations have been
satisfied. The Fund expects to earn interest income on its initial margin
deposits. Each day, the futures contract is valued at the official settlement
price of the board of trade or exchange on which it is traded. Subsequent
payments, known as "variation margin," to and from the broker are made on a
daily basis as the market price of the financial futures contract fluctuates.
This process is known as "mark to market." Variation margin does not represent a
borrowing or lending by the Fund but is instead settlement between the Fund and
the broker of the amount one would owe the other if the financial futures
contract expired. In computing net asset value, the Fund will mark to market its
open financial futures positions.
Successful hedging depends on a strong correlation between the market for
the underlying securities and the futures contract market for those securities.
There are several factors that may prevent this correlation from being perfect
and even a correct forecast of general interest rate trends may not result in a
successful hedging transaction. There are significant differences between the
securities and futures markets which could create an imperfect correlation
between the markets and which could affect the success of a given hedge. The
degree of imperfection will be affected by variations in speculative market
demand for financial futures and debt securities,
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including technical influences in futures trading. Differences between the
financial instruments being hedged and the instruments underlying the standard
financial futures contracts available for trading will be affected by interest
rate levels, maturities and creditworthiness of issuers. The degree of
imperfection may be increased where the underlying debt securities are
lower-rated and, therefore, subject to greater fluctuation in price than
higher-rated securities.
A decision as to whether, when and how to hedge involves the exercise of
skill and judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected interest rate trends. The Fund
will bear the risk that the price of the securities being hedged will not move
in complete correlation with the price of the futures contracts used as a
hedging instrument. Although the Adviser believes that the use of financial
futures contracts will benefit the Fund, an incorrect prediction could result in
a loss on both the hedged securities in the Fund's portfolio and the hedging
vehicle so that the Fund's return might have been better had hedging not been
attempted. However, in the absence of the ability to hedge, the Adviser might
have taken portfolio actions in anticipation of the same market movements with
similar investment results but, presumably, at greater transaction costs. The
low margin deposits required for futures transactions permit an extremely high
degree of leverage. A relatively small movement in a futures contract may result
in losses or gains in excess of the amount invested.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount the price of a futures contract may vary either up or down
from the previous day's settlement price, at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day
and, therefore, does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses.
Finally, although the Fund engages in financial futures transactions only
on boards of trade or exchanges where there appears to be an adequate secondary
market, there is no assurance that a liquid market will exist for a particular
futures contract at any given time. The liquidity of the market depends on
participants closing out contracts rather than making or taking delivery. In the
event participants decide to make or take delivery, liquidity in the market
could be reduced. In addition, the Fund could be prevented from executing a buy
or sell order at a specified price or closing out a position due to limits on
open positions or daily price fluctuation limits imposed by the exchanges or
boards of trade. If the Fund cannot close out a position,
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it will be required to continue to meet margin requirements until the position
is closed.
Options on Financial Futures Contracts. The Fund may purchase and write
call and put options on financial futures contracts. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract at a specified exercise price at any
time during the period of the option. Upon exercise, the writer of the option
delivers the futures contract to the holder at the exercise price. The Fund
would be required to deposit with its custodian initial and variation margin
with respect to put and call options on futures contracts written by it. Options
on futures contracts involve risks similar to the risks relating to transactions
in financial futures contracts. Also, an option purchased by the Fund may expire
worthless, in which case the Fund would lose the premium it paid for the option.
Other Considerations. The Fund will engage in futures transactions for bona
fide hedging or speculative purposes to the extent permitted by CFTC
regulations. The Fund will determine that the price fluctuations in the futures
contracts and options on futures used for hedging purposes are substantially
related to price fluctuations in securities held by the Fund or which it expects
to purchase. Except as stated below, the Fund's futures transactions will be
entered into for traditional hedging purposes -- i.e., futures contracts will be
sold to protect against 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 the Fund intends to purchase. As evidence of this
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 process of
purchasing equivalent amounts of related securities or assets 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.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits the Fund to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish speculative positions in futures contracts and options on futures
will not exceed 5% of the net asset value of the Fund's portfolio, after taking
into account unrealized profits and losses on any such positions and excluding
the amount by which such options were in-the-money at the time of purchase. The
Fund will engage in transactions in options and futures contracts only to the
extent such transactions are consistent with the requirements of the Code for
maintaining its qualification as a regulated investment company for Federal
income tax purposes.
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When the Fund purchases a financial futures contract, or writes a put
option or purchases a call option thereon, cash and liquid securities will be
deposited in a segregated account with the Fund's custodian in an amount that,
together with the amount of initial and variation margin held in the account of
its broker, equals the market value of the futures contract.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
The following investment restrictions (as well as the Fund's investment
objective) will not be changed without approval of a majority of the Fund's
outstanding voting securities which, as used in the Prospectus and this
Statement of Additional Information means approval of the lesser of (1) 67% or
more of the Fund's outstanding shares represented at a meeting if at least 50%
of the Fund's outstanding shares are present in person or by proxy or (2) 50% of
the Fund's outstanding shares.
The Fund may not:
(1) Make loans, except that the Fund may (1) lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the Fund's total
assets taken at market value, (2) enter into repurchase agreements, and (3)
purchase all or a portion of securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities, bank loan participation
interests, bank certificates of deposit, bankers' acceptances, debentures or
other securities, whether or not the purchase is made upon the original issuance
of the securities.
(2) Purchase securities of an issuer (other than the U.S. government, its
agencies or instrumentalities), if:
(i) such purchase would cause more than 5% of the Fund's total assets
taken at market value to be invested in the securities of such issuer,
or
(ii) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the Fund.
(3) Act as an underwriter, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed to be an underwriter
for purposes of the Securities Act of 1933.
(4) Borrow money, except from banks as a temporary measure for extraordinary
emergency purposes in amounts not to exceed 33 1/3% of the Fund's total assets
(including the amount borrowed) taken at market value. The Fund will not use
leverage
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to attempt to increase income. The Fund will not purchase securities while
outstanding borrowings exceed 5% of the Fund's total assets.
(5) Pledge, mortgage or hypothecate its assets, except to secure indebtedness
permitted by paragraph (4) above and then only if such pledging, mortgaging or
hypothecating does not exceed 33 1/3% of the Fund's total assets taken at market
value.
(6) Purchase or sell real estate or any interest therein, except that the Fund
may invest in securities of corporate or governmental entities secured by real
estate or marketable interests therein or securities issued by companies that
invest in real estate or interests therein.
(7) Issue senior securities, except as permitted by paragraphs (1) and (4)
above. For purposes of this restriction, the issuance of shares of beneficial
interest in multiple classes or series, the purchase or sale of options, futures
contracts and options on futures contracts, forward commitments, forward foreign
currency exchange contracts and repurchase agreements entered into in accordance
with the Fund's investment policy, and the pledge, mortgage or hypothecation of
the Fund's assets within the meaning of paragraph (5) above are not deemed to be
senior securities.
(8) Purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after such purchase, the value of
its investments in such industry would exceed 25% of its total assets taken at
market value at the time of each investment. This limitation does not apply to
investments in obligations of the U.S. Government or any of its agencies or
instrumentalities.
In connection with the lending of portfolio securities under item (1)
above, such loans must at all times be fully collateralized by cash or
securities of the U.S. Government or its agencies or instrumentalities, and the
Fund's custodian must take possession of the collateral either physically or in
book entry form. Any cash collateral will consist of short-term high quality
debt instruments. Securities used as collateral must be marked to market daily.
Nonfundamental Investment Restrictions
The following restrictions are designated as nonfundamental and may be
changed by the Board of Trustees without shareholder approval.
The Fund may not:
(a) Purchase securities on margin or make short sales, except in connection with
arbitrage transactions, or unless, by virtue of its ownership of other
securities, the Fund has the right to obtain securities equivalent in kind and
amount to the securities sold and, if the right is conditional, the sale is made
upon the same conditions, except that
14
<PAGE>
the Fund may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities.
(b) 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.
(c) Invest for the purpose of exercising control over or management of any
company.
(d) 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.
(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, but warrants acquired
by the Fund in units with or attached to debt securities shall be deemed to be
without value.
(f) Invest in interests in oil, gas or other mineral leases or exploration
programs; provided, however, this restriction will not prohibit the acquisition
of securities of companies engaged in the production or transmission of oil,
gas, or other minerals.
(g) Invest more than 10% of its total assets in securities which are restricted
under the Securities Act of 1933 (the "1933 Act"), excluding securities that are
eligible for resale pursuant to Rule 144A under the 1933 Act.
(h) Purchase interests in real estate limited partnerships.
(i) 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.
(The staff of the Securities and Exchange Commission considers over-the-counter
options to be illiquid securities subject to the 15% limit).
(j) 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
15
<PAGE>
apply to (a) the investment of cash collateral, received by the Fund in
connection with lending the Fund's portfolio securities, in the securities of
open-end investment companies or (b) the purchase of shares of any investment
company in connection with a merger, consolidation, reorganization or purchase
of substantially all of the assets of another investment company. Subject to the
above percentage limitations, the Fund may, in connection with the John Hancock
Group of Funds Deferred Compensation Plan of Independent Trustees/Directors,
purchase securities of other investment companies within the John Hancock Group
of Funds. The Fund may not purchase the shares of any closed-end investment
company except in the open market where no commission or profit to a sponsor or
dealer results from the purchase, other than customary brokerage fees.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions or investment
policies more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interests 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 values 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, 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").
The following table sets forth the principal occupations of the Trustees
and principal officers of the Trust during the past five years. Unless otherwise
indicated, the business address of each is 101 Huntington Avenue, Boston,
Massachusetts 02199.
16
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
*Edward J. Boudreau, Jr. Chairman (1,2) Chairman and Chief Executive
October 1944 Officer, the Adviser and The
Berkeley Financial Group ("The
Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited ("Advisers
International"); John Hancock
Funds; John Hancock Investor
Services Corporation ("Investor
Services") and Sovereign Asset
Management Corporation
("SAMCorp"); (hereinafter the
Adviser, the Berkeley Group, NM
Capital, Advisers International,
John Hancock Funds, Investor
Services and SAMCorp are
collectively referred to as the
"Affiliated Companies");
Chairman, First Signature Bank &
Trust; Director, John Hancock
Freedom Securities Corp., John
Hancock Capital Corp. 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).
Dennis S. Aronowitz Trustee (3) Professor of Law, Boston
Boston University University School of Law;
Boston, Massachusetts Trustee, Brookline Savings Bank.
June 1931
- ----------
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940 (the "Investment Company Act").
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
17
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
Richard P. Chapman, Jr. Trustee (1,3) President, Brookline Savings
160 Washington Street Bank; Director, Federal Home
Brookline, Massachusetts Loan Bank of Boston (lending);
February 1935 Director, Lumber 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
20 Buttonwood Place and Senior Credit Officer,
Saddle River, New Jersey Citibank, N.A. (retired
January 1933 September 1991); Executive Vice
President, Citadel Group
Representatives, Inc., EVP
Resource Evaluation, Inc.
(consulting) (until October
1993); Trustee, the Hudson City
Savings Bank (since 1995).
- ----------
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act.
(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>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
Douglas M. Costle Trustee (1,3) Director, Chairman of the Board
RR2 Box 480 and Distinguished Senior Fellow,
Woodstock, Vermont 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).
- ----------
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act.
(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>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
Leland O. Erdahl Trustee (3) Director of Santa Fe Ingredients
9449 Navy Blue Court Company of California, Inc. and
Las Vegas, NV 89117 Santa Fe Ingredients Company,
December 1928 Inc. (private food processing
companies); Director of Uranium
Resources, Inc.; President of
Stolar, Inc. (from 1987-1991)
and President of Albuquerque
Uranium Corporation (from
1985-1992); Director of
Freeport-McMoRan Copper & Gold
Company Inc., Hecla Mining
Company, Canyon Resources
Corporation and Original Sixteen
to One Mine, Inc. (from
1984-1987 and from 1991 to 1995)
(management consultant).
Richard A. Farrell President of Farrell, Healer &
Farrell, Healer & Company, Trustee (3) Co., (venture capital management
Inc. firm) (since 1980); Prior to
160 Federal Street 1980, headed the venture capital
23rd Floor group at Bank of Boston
Boston, MA 02110 Corporation.
November 1932
- ----------
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act.
(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>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
Gail D. Fosler Trustee (3) Vice President and Chief
4104 Woodbine Street Economist, The Conference Board
Chevy Chase, MD (non-profit economic and
December 1947 business research).
William F. Glavin Trustee (3) President, Babson College; Vice
Babson College Chairman, Xerox Corporation
Horn Library (until June 1989); Director,
Babson Park, MA 02157 Caldor Inc., Reebok, Ltd. (since
March 1931 1994), and Inco Ltd.
*Anne C. Hodsdon Trustee and President and Chief Operating
April 1953 President (1,2) Officer, the Adviser; Executive
Vice President, The Adviser
(until December 1994); Senior
Vice President; the Adviser
(until December 1993); Vice
President, the Adviser (until
1991).
Dr. John A. Moore Trustee (3) President and Chief Executive
Institute for Evaluating Officer, Institute for
Health Risks Evaluating Health Risks,
1101 Vermont Avenue N.W. (nonprofit institution) (since
Suite 608 September 1989).
Washington, DC 20005
February 1939
- ----------
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act.
(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>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
Patti McGill Peterson Trustee (3) President, St. Lawrence
Institute for Public University; Director, Niagara
Affairs Mohawk Power Corporation
364 Upson Hall (electric utility) and Security
Cornell University Mutual Life (insurance).
Ithaca, NY 14853
May 1943
John W. Pratt Trustee (3) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
1961).
*Richard S. Scipione Trustee (1) General Counsel, the Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 the Affiliated Companies, John
Boston, Massachusetts Hancock Distributors, Inc., JH
August 1937 Networking Insurance Agency,
Inc., John Hancock Subsidiaries,
Inc., John Hancock Property and
Casualty Insurance and its
affiliates (until November,
1993).
Edward J. Spellman, CPA Trustee (3) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Fort Lauderdale, FL
November 1932
- ----------
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act.
(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>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
*Robert G. Freedman Vice Chairman and Vice Chairman and Chief
July 1938 Chief Investment Investment Officer, the Adviser;
Officer (2) President, the Adviser (until
December 1994); Director, the
Adviser, Advisers International,
John Hancock Funds, Investor
Services, SAMCorp., and NM
Capital; Senior Vice President,
The Berkeley Group.
*James B. Little Senior Vice Senior Vice President, the
February 1935 President, Chief Adviser, The Berkeley Group,
Financial Officer John Hancock Funds and Investor
Services; Senior Vice President
and Chief Financial Officer,
each of the John Hancock funds.
*John A. Morin Vice President Vice President and Secretary,
July 1950 the Adviser; Vice President,
Investor Services, John Hancock
Funds and each of the John
Hancock funds; Compliance
Officer, certain John Hancock
funds; Counsel, the Life
Company; Vice President and
Assistant Secretary, The
Berkeley Group.
- ----------
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act.
(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>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
*Susan S. Newton Vice President, Vice President and Assistant
March 1950 Secretary Secretary, the Adviser; Vice
President and Secretary, certain
John Hancock funds; Vice
President and Secretary, John
Hancock Funds, Investor Services
and John Hancock Distributors,
Inc. (until 1994); Secretary,
SAMCorp; Vice President, The
Berkeley Group.
*James J. Stokowski Vice President Vice President, the Adviser;
November 1946 and Treasurer Vice President and Treasurer,
each of the John Hancock funds.
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.
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. The three non-Independent Trustees, Messrs.
Boudreau, Scipione and Ms. Hodsdon, 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.
- ----------
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act.
(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.
24
<PAGE>
Total Compensation
Aggregate From the Fund and
Compensation John Hancock Fund
Independent Trustees From the Fund(1) Complex to Trustees(2)
- -------------------- ---------------- ----------------------
(Total of 19 Funds)
Dennis S. Aronowitz $ 3,256 $ 61,050
Richard P. Chapman, Jr.+ 3,368 62,800
William J. Cosgrove+ 3,256 61,050
Gail D. Fosler 3,259 60,800
Bayard Henry(3) 3,155 58,850
Edward J. Spellman 3,256 61,050
------- --------
$19,547 $365,600
(1) Compensation for the fiscal year ended December 31, 1995.
(2) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1995.
(3) Mr. Henry retired from his position as Trustee effective April 26, 1996.
+ As of December 31, 1995, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Fund Complex for Mr.
Chapman was $54,681 and for Mr. Cosgrove was $54,243 under the John Hancock
Deferred Compensation Plan for Independent Trustees.
As of May 31, 1996, the officers and trustees of the Fund as a group owned
less than 1% of the outstanding shares of each class of the Fund.
As of May 31, 1996, the following shareholder beneficially owned 5% of or more
of the outstanding shares of the Fund:
Number of Percentage of
shares of total outstanding
Name and Address of Class of beneficial shares of the class
Shareholder Shares interest owned of the Fund
- ------------------- -------- -------------- -------------------
Merrill Lynch Pierce Class B shares 201,213 16.26%
Fenner & Smith, Inc.
Attn Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
25
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund receives its investment advice from the Adviser. Each of the
Trustees and principal officers of the Fund who is also an affiliated person of
the Adviser is named above, together with the capacity in which such person is
affiliated with the Fund and the Adviser.
The Fund has entered into an investment management contract with the
Adviser. Under the investment management contract, the Adviser provides the Fund
with (i) a continuous investment program, consistent with the Fund's stated
investment objective and policies and (ii) supervision of all aspects of the
Fund's operations except those that are delegated to a custodian, transfer agent
or other agent. The Adviser is responsible for the management of the Fund's
portfolio assets.
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.
No person other than the Adviser and its directors and employees regularly
furnishes advice to the Fund with respect to the desirability of the Fund's
investing in, purchasing or selling securities. The Adviser may from time to
time receive statistical or other similar factual information, and information
regarding general economic factors and trends, from the Life Company and its
affiliates.
All expenses which are not specifically paid by the Adviser and which are
incurred in the operation of the Fund (including fees of Trustees of the Fund
who are not "interested persons," as such term is defined in the Investment
Company Act, but excluding certain distribution related activities required to
be paid by the Adviser or John Hancock Funds) and the continuous public offering
of the shares of the Fund are borne by the Fund.
As provided by the investment management contract, the Fund pays the
Adviser monthly an investment management fee which is based on a stated
percentage of the Fund's average of the daily net assets as follows:
26
<PAGE>
Net Asset Value Annual Rate
--------------- -----------
First $250,000,000 0.60%
Next $250,000,000 0.55%
Amount over $500,000,000 0.50%
From time to time, the Adviser may reduce its fee or make other
arrangements to limit the Fund's expenses to a specified percentage of average
daily net assets. The Adviser retains the right to 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.
On December 31, 1995, the net assets of the Fund were $209,446,375. For the
years ended December 31, 1993, 1994 and 1995, the Adviser received fees of
$1,251,037, $1,506,527 and $1,278,357, respectively. The 1992 and 1993 advisory
fee figures reflect the different advisory fee schedule that was in effect
before January 1, 1994.
If the total of all ordinary business expenses of the Fund for any fiscal
year exceeds limitations prescribed in any state in which shares of the Fund are
qualified for sale, the fee payable to the Adviser will be reduced to the extent
required by these limitations. At this time, the most restrictive limit on
expenses imposed by a state requires that expenses charged to the Fund in any
fiscal year may not exceed 2 1/2% of the first $30,000,000 of the Fund's average
net assets, 2% of the next $70,000,000 of such net assets and 1 1/2% of the
remaining average net assets. When calculating the limit above, the Fund may
exclude interest, brokerage commissions and extraordinary expenses.
Pursuant to the investment management contract, the Adviser is not liable
to the Fund or its shareholders for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which the
investment management 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 by the Adviser of its
obligations and duties under the investment management contract.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and presently has more than $18 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 indirect wholly owned subsidiary of the Life Company, one of
the most recognized and respected financial institutions in the nation. With
total assets under management of $80 billion, the Life Company is one of the ten
largest life insurance companies in the United States, and carries high ratings
from Standard & Poor's and A.M. Best. Founded in 1862, the Life Company has been
serving clients for over 130 years.
27
<PAGE>
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 investment management contract continues in effect from year to year if
approved annually by vote of a majority of the Trustees who are not interested
persons of one of the parties to the contract, cast in person at a meeting
called for the purpose of voting on such approval, and by either the Trustees or
the holders of a majority of the Fund's outstanding voting securities. This
contract automatically terminates upon assignment and may be terminated without
penalty on 60 days' notice at the option of either party to the contract or by
vote of a majority of the outstanding voting securities of the Fund.
DISTRIBUTION CONTRACT
The Fund has a distribution contract with John Hancock Funds. Under the
contract, John Hancock Funds is obligated to use its best efforts to sell shares
on behalf of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined plus any applicable sales charge. In connection with the
sale of Class A and Class B shares, John Hancock Funds and Selling Brokers
receive compensation in the form of a sales charge imposed, in the case of Class
A shares, at the time of sale or, in the case of Class B shares, on a deferred
basis. The sales charges are 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. Under the Plans, the Fund will pay distribution and service fees at
an aggregate annual rate of up to 0.30% and 1.00% for Class A and Class B,
respectively, of the Fund's daily net assets attributable to the shares of that
class. However, the service fee will not exceed 0.25% of the Fund's daily net
assets attributable to each class of shares. The distribution fees will be used
to reimburse the Distributor for its distribution expenses, including but not
limited to: (i) initial and ongoing sales compensation to Selling Brokers and
others (including affiliates of the Distributor) engaged in the sale of Fund
shares; (ii) marketing, promotional and overhead expenses incurred in
28
<PAGE>
connection with the distribution of Fund shares; and (iii) with respect to Class
B shares only, interest expenses on unreimbursed distribution expenses. The
service fees will be used to compensate Selling Brokers for providing personal
and account maintenance services to shareholders. In the event that John Hancock
Funds is not fully reimbursed for expenses incurred by it under the Class B Plan
in any fiscal year, John Hancock Funds may carry these expenses forward,
provided, however that the Trustees may terminate the Class B Plan and, thus,
the Fund's obligation to make further payments at any time. Accordingly, the
Fund does not treat unreimbursed expenses relating to the Class B shares as a
liability of the Fund. The Plans were approved by a majority of the voting
securities of the Fund. The Plans and all amendments were approved by a majority
of 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.
During the fiscal year ended December 31, 1995, the Fund paid John Hancock
Funds the following amounts of expenses with respect to the Class A shares and
Class B shares of the Fund:
Expense Items
<TABLE>
<CAPTION>
Printing and
Mailing of Interest
Limited Term Prospectus to Compensation Expenses of Carrying or
Government New to Selling John Hancock Other Finance
Fund Advertising Shareholders Brokers Funds Charges
- ------------ ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Class A Shares $69,807 $8,026 $385,830 $150,439 $ -
Class B Shares 1,741 232 5,485 3,760 73,183
</TABLE>
Each of the Plans provides that it will continue in effect only so long as
its continuance is approved at least annually by a majority of both the Trustees
and the Independent Trustees. Each of the Plans provides that it may be
terminated without penalty (a) by vote of a majority of the Independent
Trustees, (b) by a majority of the Fund's outstanding shares of the applicable
class in each case upon 60 days' written notice to John Hancock Funds, and (c)
automatically in the event of assignment. Each of the Plans further provides
that it may not be amended to increase the maximum amount of the fees for the
services described therein without the approval of a majority of the outstanding
shares of the class of the Fund which has voting rights with respect to the
Plan. And finally, each of the Plans provides that no material amendment to the
Plan will, in any event, be effective unless it is approved by a vote of the
Trustees and
29
<PAGE>
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 each of the Plans will
benefit the holders of the applicable class of shares of the Fund.
When the Fund seeks an Independent Trustee to fill a vacancy or as a
nominee for election by shareholders, the selection or nomination of the
Independent Trustee is, under resolutions adopted by the Trustees
contemporaneously with their adoption of the Plans, committed to the discretion
of the Committee on Administration of the Trustees. The members of the Committee
on Administration are all Independent Trustees and are identified in this
Statement of Additional Information under the heading "Those Responsible for
Management."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
The Fund will not price its securities on the following national holidays: New
Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor
Day; Thanksgiving Day; and Christmas Day.
INITIAL SALES CHARGE ON CLASS A SHARES
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 cumulate 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 Investors, Inc.
30
<PAGE>
("Investor Services") is notified by the investor's dealer or the investor at
the time of the purchase, the cost of the Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his or her spouse and their children under the age of 21,
purchasing securities for his or their own account, (b) a trustee or other
fiduciary purchasing for a single trust estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
Without Sales Charge. 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, mother,
father, sister, brother, mother-in-law, father-in-law) of any of the
foregoing; or any fund, pension, profit sharing or other benefit plan for
the individuals described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into an agreement with John Hancock Funds
providing specifically for the use of Fund shares in fee-based investment
products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o 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.
31
<PAGE>
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 million to $4,999,999 1.00%
---------------------------------------------------------------------
Next $5 million to $9,999,999 0.50%
---------------------------------------------------------------------
Amounts of $10 million and over 0.25%
---------------------------------------------------------------------
Class A shares may also be acquired without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
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 account value of the Class A shares already
held by such person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Prospectus) also are available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares of
the Fund and shares of all other John Hancock funds which carry a sales charge.
Letter of Intention. Reduced sales charges are also applicable to investments
made over a specified period pursuant to a Letter of Intention (the "LOI"),
which should be read carefully prior to its execution by an investor. The Fund
offers two options regarding the specified period for making investments under
the LOI. All investors have the option of making their investments over a
specified period of thirteen (13) months. Investors who are using the Fund as a
funding medium for a qualified retirement plan, however, may opt to make the
necessary investments called for by the LOI over a forty-eight (48) month
period. These qualified retirement plans include IRA, SEP, SARSEP, 401(k),
403(b) (including TSAs) and 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 Investor Services. The sales charge
applicable to all amounts invested under the LOI is computed as if the aggregate
amount intended to be invested had been invested immediately. If such aggregate
amount is not actually invested, the difference in the sales charge actually
paid and the sales charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made within the specified period
(either 13 or 48 months) the sales charge applicable will not be higher than
that which would have applied (including accumulations and combinations) had the
LOI been for the amount actually invested.
32
<PAGE>
The LOI authorizes Investor Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Investor 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 that the Fund will receive
the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within four
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed.
Class B shares are not available to full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, varies 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 this number, all
payments during a month will be aggregated and deemed to have been made on the
first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. It will be assumed that your redemption comes first from shares you
have held beyond the four-year CDSC redemption period or those you acquired
through dividend and capital gain reinvestment, and next from the shares you
have held the longest during the four-year period. For this purpose, the amount
of any increase in a share's value above its initial purchase price is not
regarded as a share exempt from CDSC. Thus, when a share that has appreciated in
value is redeemed during the CDSC period, a CDSC is assessed only on its initial
purchase price. Upon redemption, appreciation
33
<PAGE>
is effective only on a per share basis for those shares being redeemed.
Appreciation of shares cannot be redeemed CDSC fee at the account level.
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 -120
reinvestment)
- --------------------------------------------------------------------------------
* 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. See the
Prospectus for additional information regarding the CDSC.
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account value,
including
34
<PAGE>
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 Investor 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 under
the Internal Revenue Code of 1986, as amended (the "Code")) unless otherwise
noted.
* Redemptions made to effect mandatory or life expectancy distributions under
the Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement under Section 401(a) of the Code (such
as 401(k), Money Purchase Pension Plan and Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for reference.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
401(a) Plan
Type of (401(k), MPP, IRA, IRA
Distribution PSP) 403(b) 457 Rollover Non-retirement
- ------------------------------------------------------------------------------------------
<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
distributions in periodic
payments
- ------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for 12% of account
and 70 1/2 Life value annually
Expectancy in periodic
or 12% of payments
account
value
annually in
periodic
payments
- ------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Under 59 1/2 Waived Waived for Waived for Waived for 12% of account
annuity annuity annuity value annually
payments payments payments in periodic
(72+) (72+) (72+) payments
or 12% of or 12% of or 12% of
account account account
value value value
annually in annually in annually in
periodic periodic periodic
payments payments payments
- ------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- ------------------------------------------------------------------------------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- ------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- ------------------------------------------------------------------------------------------
Return of Waived Waived Waived Waived N/A
Excess
- ------------------------------------------------------------------------------------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services at the time you make your redemption. The waiver will be
granted once Investor Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, he would incur a brokerage charge. Any such
securities would be valued for the purposes of making such payment at the same
value as used in determining net asset value. The Fund has, 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. As described in the Prospectus, the Fund permits exchanges
of shares of any class of the Fund for shares of the same class in any other
John Hancock fund offering that class.
Systematic Withdrawal Plan. As described briefly in the Prospectus, the Fund
permits the establishment of a Systematic Withdrawal Plan. Payments under this
plan represent proceeds arising from the redemption of shares of the Fund. Since
the redemption price of the shares of the Fund may be more or less than the
shareholder's cost, depending
36
<PAGE>
upon the market value of the securities owned by the Fund at the time of
redemption, the distribution of cash pursuant to this plan may result in
recognition 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 Investor Services.
Monthly Automatic Accumulation Program ("MAAP"). The program, as it relates to
automatic investment checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice if
any investment is not honored by the shareholder's bank. The bank shall be under
no obligation to notify the shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the processing date of any investment.
Reinvestment Privilege. A shareholder who has redeemed Fund shares may, within
120 days after the date of redemption, reinvest without payment of a sales
charge any part of the redemption proceeds in shares of the same class of the
Fund or any of the other John Hancock mutual funds, 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 other John Hancock funds.
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. The
Fund may modify or terminate the reinvestment privilege at any time.
37
<PAGE>
A redemption or exchange of shares of the Fund 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 shares of the Fund will be treated for tax purposes as described
under the caption "Tax Status."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Fund are responsible for the management and supervision
of the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have not authorized any additional series of the Fund,
although they may do so in the future. The Declaration of Trust also authorizes
the Trustees to classify and reclassify the shares of the Fund, or any new
series of the Fund, 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.
Class A and Class B shares of the Fund represent an equal proportionate
interest in the aggregate net assets attributable to that class of the Fund.
The holders of Class A and Class B shares each have certain exclusive
voting rights on matters relating to their respective Rule 12b-1 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.
Dividend paid by the Fund, if any, with respect to each class of shares
will be calculated in the same manner at the same time and on the same day and
will be in the same amount, except for differences resulting from the facts that
(i) the distribution and service fees relating to Class A and Class B shares
will be borne exclusively by that class, (ii) Class B shares will pay higher
distribution and service fees than Class A shares and (iii) each class of shares
will bear any other class expenses properly attributable to that class of
shares, subject to conditions imposed by the Internal Revenue Service on funds
with a multiple-class structure. Similarly, the net asset value per share may
vary depending on the class of shares purchased.
In the event of liquidation, shareholders are entitled to share pro rata in
the net assets of the Fund available for distribution of such 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 by the Trust, except as set forth below.
38
<PAGE>
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 Fund'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 Fund. 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 Fund's 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 Fund shareholder held
personally liable by reason of being or having been a shareholder. Liability is
therefore limited to circumstances in which the Fund itself would be unable to
meet its obligations, and the possibility of this occurrence is remote.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities trading
by personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
Notwithstanding the fact that the Prospectus is a combined prospectus for
the Fund and other John Hancock mutual funds, the Fund shall not be liable for
the liabilities of any other John Hancock mutual fund.
TAX STATUS
The Fund has qualified and has elected to be treated as a "regulated
investment company" under Subchapter M of the Code and intends to continue to so
qualify for each taxable year. As such and by complying with the applicable
provisions of the Code regarding the sources of its income, the timing of its
distributions and the diversification of its assets, the Fund will not be
subject to Federal income tax on taxable income (including net realized capital
gains, if any) which is distributed to shareholders in accordance with the
timing requirements of the Code.
The Fund will be subject to a four percent nondeductible Federal excise tax
on certain amounts not distributed (and not treated as having been distributed)
on a timely
39
<PAGE>
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
The amount of net realized capital gains, if any, in any given year will
vary depending upon the Adviser's current investment strategy and whether the
Adviser believes it to be in the best interests of the Fund to dispose of
portfolio securities that will generate capital gains. At the time of an
investor's purchase of Fund shares, a portion of the purchase price is often
attributable to realized or unrealized appreciation in the Fund's portfolio.
Consequently, subsequent distributions on these shares from such appreciation
may be taxable to such investor even if the net asset value of the investor's
shares is, as a result of the distributions, reduced below the investor's cost
for such shares, and the distributions in reality represent a return of a
portion of the purchase price.
Upon a redemption of shares of the Fund (including by exercise of the
exchange privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares
and subject to the special rules described below. A sales charge paid in
purchasing Class A shares of the Fund cannot be taken into account for purposes
of determining gain or loss on the redemption or exchange of such shares within
90 days
40
<PAGE>
after their purchase to the extent Class A shares of the Fund or another John
Hancock fund are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. This disregarded charge will
result in an increase in the shareholder's tax basis in the Class A shares
subsequently acquired. Also, any loss realized on a redemption or exchange may
be disallowed to the extent the shares disposed of are replaced with other
shares of the Fund within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of, such as pursuant to automatic
dividend reinvestments. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized upon the redemption
of shares with a tax holding period of six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain with respect to such shares.
Although the Fund's present intention is to distribute, at least annually,
all net capital gain, if any, the Fund reserves the right to retain and reinvest
all or any portion of the excess, as computed for Federal income tax purposes,
of net long-term capital gain over net short-term capital loss in any year. The
Fund will not in any event distribute net capital gain realized in any year to
the extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain in his return for the taxable year in which the last day of the
Fund's taxable year falls, (b) be entitled either to a tax credit on his return
for, or to a refund of, his pro rata share of the taxes paid by the Fund, and
(c) be entitled to increase the adjusted tax basis for his shares in the Fund by
the difference between his pro rata share of such excess and his pro rata share
of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a
net capital loss in any year to offset net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be distributed as such to
shareholders. The Fund has $7,286,040 of capital loss carry forward available,
to the extent provided by regulations, to offset future net realized capital
gains. The carryforward expires December 31, 2002.
The Fund is required to accrue income on any debt securities that have more
than a de minimis amount of original issue discount (or debt securities acquired
at a market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. However, the
Fund must
41
<PAGE>
distribute to shareholders for each taxable year substantially all of its net
income and net capital gains, including such income to qualify as a regulated
investment company and avoid liability for any federal income or excise tax.
Therefore, the Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or may have to leverage itself
by borrowing the cash, to satisfy these distribution requirements.
The Fund's transactions in interest rate swaps, caps, floors and collars
and its dollar rolls are subject to tax rules, the interrelationship of which
with the Code's regulated investment company provisions, as well as certain
other aspects of which, have not been fully addressed or resolved in published
authorities. The Fund may accordingly be required to limit the extent to which
it engages in such transactions in order to preserve its qualification as a
regulated investment company and seek to avoid liability for federal income and
excise taxes.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Dividends and capital gain distributions from the Fund will not qualify for
the dividends-received deduction for corporations.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the Fund's distributions are
derived from interest on (or, in the case of intangibles taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in some
states that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. The Fund will not seek to satisfy any threshold or
reporting requirements that may apply in particular taxing jurisdictions,
although the Fund may in its sole discretion provide relevant information to
shareholders.
The Fund will be required to report to the Internal Revenue Service (the
"IRS") all taxable distributions to shareholders, as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. The
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Fund may refuse to accept an application that does not contain any required
taxpayer identification number or certification that the number provided is
correct. If the backup withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in shares, will
be reduced by the amounts required to be withheld. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability. Investors
should consult their tax advisers about the applicability of the backup
withholding provisions.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
Fund investment is effectively connected will be subject to U.S. Federal income
tax treatment that is different from that described above. These investors may
be subject to non-resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from the Fund and, unless an effective IRS Form W-8 or authorized substitute for
Form W-8 is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company under
the Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
For the 30-day period ended December 31, 1995, the annualized yield on
Class A and Class B shares at the Fund was 4.91% and 4.37%, respectively. The
average annual total return of the Fund's Class A shares for the 1 year, 5 year
and 10 year periods ended December 31, 1995 was 7.89%, 6.00% and 6.83%,
respectively, and reflect payment of the maximum sales charge of 3.00%. The
total return for the one year period ending December 31, 1995 and since
inception on January 3, 1994 for Class B shares was 7.63% and 3.26%,
respectively, and reflects the applicable CDSC.
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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:
Yield = 2 (((a+b) OVER cd RIGHT ) + 1 RIGHT] SUP 6 - 1 RIGHT)
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of shares of the Fund outstanding during the
period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The Fund's total return is computed by finding the average annual
compounded rate of return over the 1 year, 5 year and 10 year periods that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
T = NROOT n {ERV/P} - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at the
beginning of the 1 year, 5 year and 10 year periods.
In the case of Class A shares or Class B shares, this calculation assumes
the maximum sales charge of 3.00% is included in the initial investment or the
CDSC
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applied at the end of the period, respectively. This calculation also assumes
that all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
In addition to average annual total returns, the Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments, and/or a series of redemptions, over any time period.
Total returns may be quoted with or without taking the Fund's 3.00% sales charge
on Class A shares or the CDSC on Class B shares into account. 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 on Class A
shares and the CDSC on Class B shares from a total return calculation produces a
higher total return figure.
From time to time, in reports and promotional literature, the Fund's yield
and total return will be compared to indices of mutual funds and bank deposit
vehicles such as Lipper Analytical Services, Inc. "Lipper -Fixed Income Fund
Performance Analysis," a monthly publication which tracks net assets, total
return, and yield on fixed income mutual funds in the United States. Comparisons
may also be made to bank certificates of deposit ("CDs"), which differ from
mutual funds, such as the Fund, in several ways. The interest rate established
by the sponsoring bank is fixed for the term of a CD, there are penalties for
early withdrawal from CDs, and the principal on a CD is insured.
Performance rankings and ratings reported periodically in national
financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, the WALL
STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may also be
utilized.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
Fund for any period in the future. The performance of the Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by its investment committee, which consists of officers and
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directors of the Adviser and affiliates, and officers and Trustees who are
interested persons of the Fund. Orders for purchases and sales of securities are
placed in a manner which, in the opinion of 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 maker to
reflect a "spread." Investments in debt securities are generally traded on a net
basis through dealers acting for their own account as principals and not as
brokers; no brokerage commissions are payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing primary
policy, the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. and such other policies as the Trustees may determine, the Adviser
may consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in
the selection of brokers and dealers, and the negotiation of brokerage
commission rates and dealer spreads, by the reliability and quality of the
services, including primarily the availability and value of research information
and, to a lesser extent, statistical assistance furnished to the Adviser of the
Fund and their value and expected contribution to the performance of the Fund.
It is not possible to place a dollar value on information and services to be
received from brokers and dealers, since it is only supplementary to the
research efforts of the Adviser. The receipt of research information is not
expected to reduce significantly the expenses of the Adviser. The research
information and statistical assistance furnished by brokers and dealers may
benefit the Life Company or other advisory clients of the Adviser, and,
conversely, brokerage commissions and spreads paid by other advisory clients of
the Adviser may result in research information and statistical assistance
beneficial to the Fund. The Fund will make no commitment to allocate portfolio
transactions upon any prescribed basis. While the Adviser will be primarily
responsible for the allocation of the Fund's brokerage business, the policies
and practices of the Adviser in this regard must be consistent with the
foregoing and will at all times be subject to review by the Trustees. For the
years ended December 31, 1995, 1994, and 1993 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 commission is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the
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period ended December 31, 1995, the Fund did not pay commissions to compensate
any brokers for research services such as industry, economic and company reviews
and evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc. ("Distributors"), a broker-dealer
and John Hancock Freedom Securities Corporation and its three broker-dealer
subsidiaries, Tucker Anthony Incorporated ("Tucker Anthony") and Sutra &
Company, Inc. ("Sutra"), each, ("Affiliated Brokers"). Pursuant to procedures
established by the Trustees and consistent with the above policy of obtaining
best net results, the Fund may execute portfolio transactions with or through
Affiliated Brokers. For the years ended December 31, 1995, 1994 and 1993, the
Fund did not execute any portfolio transactions with Affiliated Brokers.
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the Investment
Company Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those which the Trustees believe to be contemporaneously charged by
other brokers in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be placed with an
Affiliated Broker if the Fund would have to pay a commission rate less favorable
than the Affiliated Broker's contemporaneous charges for comparable transactions
for its other most favored, but unaffiliated, customers except for accounts for
which the Affiliated Broker acts as clearing broker for another brokerage firm,
and any customers of the Affiliated Broker not comparable to the Fund as
determined by a majority of the Trustees who are not interested persons (as
defined in the Investment Company Act) of the Fund, the Adviser or the
Affiliated Broker. Because the Adviser, which is affiliated with the Affiliated
Brokers, has, as an investment adviser to the Fund, the obligation to provide
investment management services, which includes elements of research and related
investment skills, such research and related skills will not be used by the
Affiliated Broker as a basis for negotiating commissions at a rate higher than
that determined in accordance with the above criteria. The Fund will not effect
principal transactions with Affiliated Brokers.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation ("Investor Services"), P.O. Box
9116, Boston, MA 02205-9116, a wholly-owned indirect subsidiary of the Life
Company, is the transfer and dividend paying agent for the Fund. The Fund pays
an annual fee of $20.00 for each Class A shareholder account and $22.50 for each
Class B shareholder account, plus certain out-of-pocket expenses. These expenses
are aggregated and charged to the Fund and allocated to each class on the basis
of the relative net asset values.
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CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 24 Federal Street, Boston,
Massachusetts 02110. Under the custodian agreement, Investors Bank & Trust
performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Ernst & Young LLP, 200 Clarendon
Street, Boston, Massachusetts 02116. Ernst & Young LLP audits and renders an
opinion of the Fund's annual financial statements and prepares the Fund's annual
Federal income tax return.
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FINANCIAL STATEMENTS
F-1
