=======================================
Important Information
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[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm September 24, 1998
Dear Fellow Shareholder:
I am writing to ask for your vote on an important matter that will affect your
investment in the John Hancock Sovereign U.S. Government Income Fund.
You may be aware that in addition to your Fund, John Hancock Funds offers a
similar U.S. government fund -- the John Hancock Government Income Fund. The
Government Income Fund seeks to earn a high level of current income with
preservation of capital by investing primarily in U.S. government and agency
securities.
After careful consideration, your Fund's Trustees have unanimously agreed that
merging your Fund into the John Hancock Government Income Fund will offer you a
similar investment objective and strategy with lower anticipated operating
expenses. This proposed merger is detailed in the enclosed proxy statement and
summarized in the questions and answers on the following page. I suggest you
read both thoroughly prior to voting.
Your Vote Makes a Difference!
No matter what the size of your investment may be, your vote is critical. I urge
you to review the enclosed materials and to complete, sign and return the
enclosed proxy ballot to us immediately. Your prompt response will help avoid
the need for additional mailings at your Fund's expense. For your convenience,
we have provided a postage-paid envelope.
If you have any questions or need additional information, please contact your
investment professional or call your Customer Service Representative at
1-800-225-5291, Monday through Friday between 8:00 A.M. and 8:00 P.M. Eastern
Time. I thank you for your prompt vote on this matter.
Sincerely,
/s/ Edward J. Boudreau, Jr.
Edward J. Boudreau, Jr.
Chairman and CEO
<PAGE>
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Q & A
Q: What are the benefits of merging the Sovereign U.S. Government Income Fund
into the Government Income Fund?
A: Offering two similar U.S. government funds has made it more difficult for
both your Fund and the Government Income Fund to raise assets and reduce
expenses. Your Trustees firmly believe this merger will allow you to continue
pursuing a high level of income through investment in U.S. government and agency
securities at a lower overall anticipated operating expense.
The Government Income Fund's larger asset base after the merger, coupled with
the adviser's plan to limit management fees to 0.50%, is expected to allow for
lower operating expenses than your Fund has now. Following the merger, annual
fees are projected to be 1.01% for Class A shareholders, down from 1.14%, and
1.76% for Class B shareholders, down from 1.84%. These projected lower expenses
should help keep more of your money invested, which often helps to bolster an
investment's total return over time.
Q: How does the Government Income Fund's strategy compare with that of the
Sovereign U.S. Government Income Fund?
A: The Government Income Fund seeks to earn a high level of current income
consistent with preservation of capital. Your Fund seeks to provide as high a
level of income as is consistent with long-term total return. Both funds focus
on securities of varying maturities issued by the U.S. government, its agencies
or instrumentalities. Unlike your Fund, the Government Income Fund can invest up
to 20% of its assets in U.S. dollar-denominated bonds of foreign governments as
noted in the enclosed prospectus. This investment flexibility makes the
Government Income Fund somewhat less conservative than your Fund, due to the
increased potential risk associated with these securities. However, the
Government Income Fund applies a relatively conservative investment approach,
which attempts to minimize these risks. Keep in mind that this approach also
allows the Government Income Fund to seek higher current income than your Fund,
while still focusing on preservation of capital.
<PAGE>
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Q & A continued
Q: How has the Government Income Fund performed?
A: Although past performance does not guarantee future results, the Government
Income Fund has been a steady performer over the years. The Fund's Class B
shares have posted average annual returns of 4.69% over the past year, 5.12%
over the past five years and 7.30% over the past ten years, with maximum sales
charges, as of June 30, 1998. As of this ending date, the Fund's Class A shares
have posted average annual total returns of 5.53% for the year and 7.54% since
inception on September 30, 1994, with maximum sales charges.* To review the
Government Income Fund in greater detail, please refer to the John Hancock
Income Funds prospectus and the Government Income Fund's most recent shareholder
report, both of which are enclosed.
Q: How do I vote?
A: Most shareholders typically vote by completing, signing and returning the
enclosed proxy card using the postage-paid envelope provided. If you prefer to
vote in person, you are cordially invited to attend a meeting of shareholders of
your Fund, which will be held at 9:00 A.M. on November 11, 1998 at our 101
Huntington Avenue headquarters in Boston, Massachusetts. If you vote now, you
will help avoid further solicitations at your Fund's expense.
Q: How will the merger happen?
A: If the merger is approved, your Sovereign U.S. Government Fund shares will be
exchanged for Government Income Fund shares, using the Funds' net asset value
share prices, excluding sales charges, at the close of trading on December 4,
1998. This conversion will not affect the total dollar value of your investment.
Q: Will the merger have tax consequences?
A: Although taxable dividends and capital gains will be paid prior to the
merger, the merger itself is a non-taxable event and does not need to be
reported on your 1998 tax return.
*Performance figures assume all distributions are reinvested and reflect a
maximum sales charge on Class A shares of 4.5% and the applicable contingent
deferred sales charge on Class B shares. The CDSC declines annually between
years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales
charge will be assessed after the sixth year. The return and principal value of
any mutual fund investment will fluctuate, so that shares, when redeemed, may be
worth more or less than their original cost.
<PAGE>
JOHN HANCOCK SOVEREIGN U.S. GOVERNMENT INCOME FUND
(a series of John Hancock Strategic Series)
101 Huntington Avenue
Boston, MA 02199
NOTICE OF MEETING OF SHAREHOLDERS
SCHEDULED FOR NOVEMBER 11, 1998
This is the formal agenda for your fund's shareholder meeting. It tells you what
matters will be voted on and the time and place of the meeting, in case you want
to attend in person.
To the shareholders of John Hancock Sovereign U.S. Government Income Fund:
A shareholder meeting for your fund will be held at 101 Huntington Avenue,
Boston, Massachusetts on Wednesday, November 11, 1998 at 9:00 A.M., Eastern
Time, to consider the following:
1. A proposal to approve an Agreement and Plan of Reorganization between your
fund and John Hancock Government Income Fund. Under this Agreement, your
fund would transfer all of its assets to Government Income Fund in
exchange for shares of Government Income Fund. These shares would be
distributed proportionately to you and the other shareholders of your
fund. Government Income Fund would also assume your fund's liabilities.
Your board of trustees recommends that you vote FOR this proposal.
2. Any other business that may properly come before the meeting.
Shareholders of record as of the close of business on September 16, 1998 are
entitled to vote at the meeting and any related follow-up meetings.
Whether or not you expect to attend the meeting, please complete and return the
enclosed proxy card. If shareholders do not return their proxies in sufficient
numbers, your fund will incur the cost of extra solicitations, which is
indirectly borne by you and other shareholders.
By order of the board of trustees,
Susan S. Newton
Secretary
September 24, 1998
<PAGE>
PROXY STATEMENT OF
JOHN HANCOCK SOVEREIGN U.S. GOVERNMENT INCOME FUND
(a series of John Hancock Strategic Series)
PROSPECTUS FOR
CLASS A AND CLASS B SHARES OF
JOHN HANCOCK GOVERNMENT INCOME FUND
(a series of John Hancock Bond Trust)
This proxy statement and prospectus contains the information you should know
before voting on the proposed reorganization of your fund into John Hancock
Government Income Fund. Please read it carefully and retain it for future
reference.
How the Reorganization Will Work
o Your fund will transfer all of its assets to Government Income Fund.
Government Income Fund will assume your fund's liabilities.
o Government Income Fund will issue Class A shares to your fund in an amount
equal to the value of your fund's Class A shares. These shares will be
distributed to your fund's Class A shareholders in proportion to their
holdings on the reorganization date.
o Government Income Fund will issue Class B shares to your fund in an amount
equal to the value of your fund's Class B shares. These shares will be
distributed to your fund's Class B shareholders in proportion to their
holdings on the reorganization date.
o The reorganization will be tax-free.
o Your fund will be liquidated and you will become a shareholder of
Government Income Fund.
Shares of Government Income Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank or other depository institution. These
shares are not federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
Shares of Government Income Fund have not been approved or disapproved by the
Securities and Exchange Commission. The Securities and Exchange Commission has
not passed upon the accuracy or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>
Why Your Fund's Trustees are Recommending the Reorganization
The trustees of your fund believe that reorganizing your fund into a larger fund
with similar investment policies will enable the shareholders of your fund to
benefit from increased diversification, the ability to achieve better net prices
on securities trades and economies of scale that could contribute to a lower
expense ratio. Therefore, the trustees recommend that your fund's shareholders
vote FOR the reorganization.
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Investment Objectives
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Sovereign U.S. Government Income Government Income
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High level of income consistent with High level of current income consistent
long-term total return. with preservation of capital.
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For More Information
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Source Where Found
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Prospectus of your fund and In the same envelope as this proxy
Government Income Fund dated 5/1/98. statement and prospectus.
Incorporated by reference into this
proxy statement and prospectus.
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Government Income Fund's annual
report to shareholders.
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Your fund's annual report to On file with the Securities and
shareholders. Exchange Commission ("SEC") and
available at no charge by calling
1-800-225-5291. Incorporated by
reference into this proxy statement
and prospectus.
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A statement of additional information
dated 9/24/98. It contains additional
information about your fund and
Government Income Fund.
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To ask questions Call our toll-free telephone
about this proxy number: 1-800-225-5291
statement and prospectus.
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The date of this proxy statement and prospectus is September 24, 1998.
2
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION..............................................................4
SUMMARY...................................................................4
INVESTMENT RISKS.........................................................13
PROPOSAL TO APPROVE THEAGREEMENT
AND PLAN OF REORGANIZATION..............................................15
CAPITALIZATION...........................................................21
ADDITIONAL INFORMATION ABOUT
THE FUNDS' BUSINESSES...................................................21
BOARDS' EVALUATION AND RECOMMENDATION....................................22
VOTING RIGHTS AND REQUIRED VOTE..........................................23
INFORMATION CONCERNING THE MEETING.......................................23
OWNERSHIP OF SHARES OF THE FUNDS.........................................25
EXPERTS..................................................................26
AVAILABLE INFORMATION....................................................26
EXHIBITS
A - Agreement and Plan of Reorganization between John Hancock Sovereign U.S.
Government Income Fund and John Hancock Government Income Fund (attached
to this document).
3
<PAGE>
INTRODUCTION
This proxy statement and prospectus is being used by your fund's board of
trustees to solicit proxies to be voted at a special meeting of your fund's
shareholders. This meeting will be held at 101 Huntington Avenue, Boston,
Massachusetts on Wednesday, November 11, 1998 at 9:00 A.M., Eastern Time. The
purpose of the meeting is to consider a proposal to approve an Agreement and
Plan of Reorganization providing for the reorganization of your fund into John
Hancock Government Income Fund. This proxy statement and prospectus is being
mailed to your fund's shareholders on or about September 24, 1998.
Who is Eligible to Vote?
Shareholders of record on September 16, 1998 are entitled to attend and vote at
the meeting or any adjourned meeting. Each share is entitled to one vote. Shares
represented by properly executed proxies, unless revoked before or at the
meeting, will be voted according to shareholders' instructions. If you sign a
proxy but do not fill in a vote, your shares will be voted to approve the
Agreement and Plan of Reorganization. If any other business comes before the
meeting, your shares will be voted at the discretion of the persons named as
proxies.
SUMMARY
The following is a summary of more complete information appearing later in this
proxy statement. You should read the entire proxy statement, Exhibit A and the
enclosed documents carefully, because they contain details that are not in the
summary.
4
<PAGE>
Comparison of Sovereign U.S. Government Income Fund to Government Income Fund
<TABLE>
<CAPTION>
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Sovereign U.S.
Government Income Government Income
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<S> <C> <C>
Business: A diversified series of John A diversified series of John
Hancock Strategic Series. Hancock Bond Trust. The trust is
The trust is an open-end an open-end investment company
investment company organized as a Massachusetts
organized as a Massachusetts business trust.
business trust.
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Net assets as $367.9 million. $457.4 million.
of May 31,
1998:
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Investment Each fund's investment adviser is John Hancock Advisers, Inc.
adviser and Barry H. Evans, CFA, has been the leader of each fund's portfolio
portfolio management team since January 1995. He is a senior vice
managers: president of the adviser and has been in the investment business
since joining John Hancock Funds in 1986.
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Investment As high a level of income as High level of current income
objective: is consistent with long-term consistent with preservation of
total return by investing in capital by investing primarily in
securities issued, guaranteed securities that are issued or
or otherwise backed by the guaranteed as to principal and
U.S. government, its agencies interest by the U.S. government,
or instrumentalities. This its agencies or instrumentalities.
objective cannot be changed Government Income Fund's
without shareholder approval. objective can be changed without
shareholder approval.
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Primary At least 65% of total assets in At least 80% of total assets in
Investments: government securities which U.S. government securities which
include obligations issued by include obligations issued by the
the U.S. Treasury differing U.S. Treasury differing only in
only in their interest rates, their interest rates, maturities and
maturities and times of times of issuance; and obligations
issuance; and obligations issued or guaranteed by the U.S.
issued or guaranteed by the government, its agencies or
U.S. government, its agencies instrumentalities.
or instrumentalities.
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</TABLE>
5
<PAGE>
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Sovereign U.S.
Government Income Government Income
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Foreign debt May not invest in foreign May invest up to 20% of total
securities: debt securities or in Brady assets in U.S. dollar-denomi-
bonds. nated securities issued by
foreign governments as well
as up to 10% of total assets
in Brady bonds. Up to 10%
of total assets may be invest-
ed in securities rated as low
as B by S&P or Moody's.
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Pay-in-kind, Each fund may invest in pay-in-kind, delayed and zero
delayed and coupon debt securities. There are no percentage limits
zero coupon on the amounts of fund assets that the funds may invest
debt securities: in these instruments.
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Illiquid May invest up to 15% of May invest up to 10% of total
securities: net assets in illiquid securi- assets in illiquid securities.
ties. This limitation does This limitation does not apply
not apply to liquid Rule to liquid Rule 144A securi-
144A securities, but does ties, but does apply to other
apply to other restricted restricted securities.
securities.
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Financial Each fund may use financial futures, options on futures and
futures and options on securities and indices. There are no percentage
related limits on the amounts of fund assets that the funds may
options; invest in these instruments.
options on
securities
and indices:
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Structured Each fund may invest in structured securities, which include
securities: indexed and/or leveraged mortgage-backed and other debt
securities. There is no limit on the amount of fund assets
that may be invested in these securities.
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Swaps, caps, Each fund may, but typically does not, invest in swaps, caps,
floors and floors and collars, which are over-the-counter contracts that
collars: involve the right or obligation to receive or make payments
based on two different income streams. There is no limit on
the amount of fund assets that may be invested in these
securities.
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6
<PAGE>
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Sovereign U.S.
Government Income Government Income
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When-issued Both funds may purchase when-issued securities and purchase
and forward or sell securities in forward commitment transactions.
commitment
transactions:
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Short-term Neither fund is subject to any limitations on short-term
trading: trading.
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Repurchase Both funds may invest without limitation in repurchase
agreements: agreements.
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Securities Each fund may lend portfolio securities representing up to 30%
lending: of total assets.
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Borrowing Both funds may temporarily borrow from banks or through
and reverse reverse repurchase agreements for extraordinary or emergency
repurchase purposes. These borrowings may not exceed 33.3% of each
agreements: fund's total assets.
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Covered Each fund may engage in covered mortgage dollar roll
mortgage transactions. There is no limit on the amount of fund assets
dollar roll that may be engaged in these transactions.
transactions:
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Asset-backed May invest up to 35% of May invest up to 20% of
securities: total assets in asset-backed total assets in asset-backed
securities. securities.
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Mortgage- Each fund may purchase mortgage-backed securities.
backed There are no limits on the amount of fund assets that
securities: may be invested in these securities.
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Rights and May not invest in rights and May invest in rights and
warrants: warrants. warrants.
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7
<PAGE>
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CLASSES OF SHARES
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Sovereign U.S.
Government Income Government Income
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Class A sales The Class A shares of both funds have the same characteristics
charges: characteristics and fee structure except for Class A
12b-1 fees.
o Class A shares are offered with front-end sales
charges ranging from 2% to 4.5% of each fund's
offering price, depending on the amount invested.
o There is no front-end sales charge for investments
of $1 million or more, but there is a contingent
deferred sales charge ranging from 0.25% to 1.00%
on shares sold within one year of purchase.
o Investors can combine multiple purchases of Class
A shares to take advantage of breakpoints in the
sales charge schedule.
o Sales charges are waived for the categories of
investors listed in the funds' prospectus.
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Class A 12b-1 Class A shares are subject Class A shares are subject
fees: to a 12b-1 distribution fee to a 12b-1 distribution fee
equal to 0.30% annually equal to 0.25% annually
of average net assets. of average net assets.
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Class B sales The Class B shares of both funds have the same
charges and characteristics and fee structure.
12b-1 fees:
o Class B shares are offered without a front-end sales
charge, but are subject to a contingent deferred sales
charge (CDSC) if sold within six years after pur-
chase. The CDSC ranges from 1.00% to 5.00%
depending on how long they are held. No CDSC is
imposed on shares held more than six years.
o CDSCs are waived for the categories of investors
listed in the funds' prospectus.
o Class B shares are subject to 12b-1 distribution and
service fees equal to 1.00% annually of average net
assets.
o Class B shares automatically convert to Class A
shares after eight years.
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8
<PAGE>
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BUYING, SELLING AND EXCHANGING SHARES
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Both Sovereign U.S. Government Income and
Government Income Funds
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Buying shares: Investors may buy shares at their public offering
price through a financial representative or the
funds' transfer agent, John Hancock Signature
Services, Inc. After September 16, 1998, investors
will not be allowed to open new accounts in
Sovereign U.S. Government Income Fund but can
add to existing accounts.
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Minimum initial $1,000 for non-retirement accounts and $250 for
Investments: retirement accounts and group investments.
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Exchanging Shareholders may exchange their shares at net asset
shares: value with no sales charge for shares of the same
class of any other John Hancock fund.
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Selling shares: Shareholders may sell their shares by submitting a
proper written or telephone request to John
Hancock Signature Services, Inc.
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Net asset value: All purchases, exchanges and sales are made at a
price based on the next determined net asset value
per share (NAV) of the fund. Both funds' NAVs are
determined at the close of regular trading on the
New York Stock Exchange, which is normally
4:00 p.m. Eastern Time.
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The Funds' Expenses
Shareholders of both funds pay various expenses, either directly or indirectly.
The first two expense tables appearing below show the expenses for the
twelve-month period ended May 31, 1998, adjusted to reflect any changes. Future
expenses may be greater or less. The examples contained in each expense table
show what you would pay if you invested $1,000 over the various time periods
indicated. Each example assumes that you reinvested all dividends and that the
average annual return was 5%. The examples are for comparison purposes only and
are not a representation of either fund's actual expenses or returns, either
past or future.
Sovereign U.S. Government Income Fund
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
9
<PAGE>
Annual fund operating expenses
(as a % of average net assets) Class A Class B
Management fee.............................................. 0.50% 0.50%
12b-1 fee(3)................................................ 0.30% 1.00%
Other expenses.............................................. 0.34% 0.34%
Total fund operating expenses............................... 1.14% 1.84%
Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares......................... $56 $80 $105 $177
Class B shares
Assuming redemption at end of period... $69 $88 $120 $197
Assuming no redemption................. $19 $58 $100 $197
Government Income Fund
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) Class A Class B
Management fee............................................... 0.64% 0.64%
12b-1 fee(3)................................................. 0.25% 1.00%
Other expenses............................................... 0.21% 0.21%
Total fund operating expenses................................ 1.10% 1.85%
Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares........................... $56 $78 $103 $173
Class B shares
Assuming redemption at end of period..... $69 $88 $120 $197
Assuming no redemption................... $19 $58 $100 $197
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
equivalent of the maximum permitted front-end sales charge.
10
<PAGE>
Pro Forma Expense Table
The next expense table shows the pro forma expenses of Government Income Fund
assuming that a reorganization with your fund occurred on May 31, 1998. The
expenses shown in the table are based on fees and expenses incurred during the
twelve months ended May 31, 1998, adjusted to reflect any changes. Government
Income Fund's actual expenses after the reorganization may be greater or less
than those shown. The example contained in the pro forma expense table shows
what you would pay on a $1,000 investment if the reorganization had occurred on
May 31, 1998. The example assumes that you reinvested all dividends and that the
average annual return was 5%. The pro forma example is for comparison purposes
only and is not a representation of Government Income Fund's actual expenses or
returns, either past or future.
Government Income Fund (PRO FORMA)
(Assuming reorganization with Sovereign U.S. Government Income Fund)
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) Class A Class B
Management fee (after expense limitation)(3)................. 0.50% 0.50%
12b-1 fee(4)................................................. 0.25% 1.00%
Other expenses............................................... 0.26% 0.26%
Total fund operating expenses (after expense limitation)(3).. 1.01% 1.76%
Pro Forma Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares........................... $55 $76 $98 $163
Class B shares
Assuming redemption at end of period... $68 $85 $115 $187
Assuming no redemption................. $18 $55 $95 $187
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's voluntary agreement to limit expenses (except for
12b-1 and transfer agent expenses). Without this limitation, management fees
would be 0.62% for each class and total fund operating expenses would be
1.13% for Class A and 1.88% for Class B. The adviser may discontinue this
limitation at any time.
(4) Because of the 12b-1 fee, long-term shareholders may pay more than the
equivalent of the maximum permitted front-end sales charge.
11
<PAGE>
The Reorganization
o The reorganization is scheduled to occur at 5:00 p.m., Eastern Time, on
December 4, 1998, but may occur on any later date before June 1, 1999.
Your fund will transfer all of its assets to Government Income Fund.
Government Income Fund will assume your fund's liabilities. The net asset
value of both funds will be computed as of 5:00 p.m., Eastern Time, on the
reorganization date.
o Government Income Fund will issue to your fund Class A shares in an amount
equal to the aggregate net asset value of your fund's Class A shares.
These shares will immediately be distributed to your fund's Class A
shareholders in proportion to their holdings on the reorganization date.
As a result, Class A shareholders of your fund will end up as Class A
shareholders of Government Income Fund.
o Government Income Fund will issue to your fund Class B shares in an amount
equal to the aggregate net asset value of your fund's Class B shares.
These shares will immediately be distributed to your fund's Class B
shareholders in proportion to their holdings on the reorganization date.
As a result, Class B shareholders of your fund will end up as Class B
shareholders of Government Income Fund.
o After the reorganization is over, your fund will be terminated.
o The reorganization will be tax-free and will not take place unless both
funds receive a satisfactory opinion concerning the tax consequences of
the reorganization from Hale and Dorr LLP, counsel to the funds.
The following diagram shows how the reorganization would be carried out.
------------------------ -------------------------
Sovereign U.S. Sovereign U.S. Government Income
Government Income Government Income Fund receives assets
Fund transfers assets Fund assets and assumes liabiliites
and liabilities to and liabilities of Sovereign U.S.
Government Income Fund Government Income Fund
------------------------ -------------------------
-------------- -------------- ---------------- ----------------
Class A Class B Issues Class B Issues Class A
shareholders shareholders Shares Shares
-------------- -------------- ---------------- ----------------
Your fund receives Government Income Fund Class B shares
and distributes them to your fund's Class B shareholders
Your fund receives Government Income Fund Class A shares
and distributes them to your fund's Class A shareholders
12
<PAGE>
Other Consequences of the Reorganization. Each fund pays monthly advisory fees
equal to the following annual percentage of its average daily net assets:
- --------------------------------------------------------------------------------
Sovereign U.S. Government
Fund Asset Breakpoints Government Income Income
- --------------------------------------------------------------------------------
First $200 million 0.50% 0.650%
- --------------------------------------------------------------------------------
Next $300 million 0.50% 0.625%
- --------------------------------------------------------------------------------
Over $500 million 0.45% 0.600%
- --------------------------------------------------------------------------------
Although at all asset levels the advisory fee rates paid by your fund are lower
than the rates paid by Government Income Fund, the adviser has agreed to limit
Government Income Fund's management fee to an annual rate of 0.50% of the Fund's
average daily net assets if Sovereign U.S. Government Income Fund's shareholders
approve the Reorganization.
In addition to the same advisory fee rates, Government Income Fund's other
expenses of 0.21%, as well as its pro forma other expenses of 0.26%, are lower
than your fund's other expenses of 0.34%. Furthermore, Government Income Fund's
12b-1 fee rate of 0.25% for Class A shares is below your fund's Class A fee rate
of 0.30%. Both funds pay the same Class B 12b-1 fee rate of 1.00%. Government
Income Fund's current annual Class A expense ratio (equal to 1.10% of average
net assets) is lower than your fund's current Class A expense ratio (equal to
1.14% of average net assets) and its current annual Class B expense ratio (equal
to 1.85% of average net assets) is higher than your fund's current Class B
expense ratio (equal to 1.84% of average net assets). However, Government Income
Fund's pro forma total annual operating expenses for both Class A and Class B
shares are expected to be less than your fund's current Class A and Class B
total annual operating expenses.
INVESTMENT RISKS
The funds are exposed to various risks that could cause shareholders to lose
money on their investments in the funds. The following table shows that the
risks affecting each fund are similar.
13
<PAGE>
- --------------------------------------------------------------------------------
Both Sovereign U.S. Government Income and Government Income Funds
- --------------------------------------------------------------------------------
Risks of debt The value of the funds' portfolios will change in response
securities to movements of the bond market. As with any fund that
invests primarily in debt securities, a rise in interest rates
typically causes the value of debt securities and hence the
value of the fund to fall. A fall in interest rates typically
causes the value of debt securities to rise. The debt securities
held by the funds are also subject to the risk that the issuer
of a security will default or otherwise fail to meet its
obligations.
- --------------------------------------------------------------------------------
Foreign Government Income Fund's investments in foreign securities
securities are subject to the risks of adverse foreign government
and currency actions, political instability or a lack of adequate and
risks accurate information.
- --------------------------------------------------------------------------------
Risks of Each fund's investments in restricted and illiquid securities
restricted may be difficult or impossible to sell at a desirable time or
and illiquid a fair price. Restricted and illiquid securities also present a
securities greater risk of inaccurate valuation.
- --------------------------------------------------------------------------------
Risks of Unleveraged derivative instruments involve the risk that a
unleveraged rise in interest rates will cause the value of the instrument
derivative to fall. A fall in interest rates will typically cause the value
instruments of these instruments to rise. These instruments are also
including subject to the risk that the issuer will default or otherwise
asset-backed fail to meet its obligations. In addition, mortgage-backed
and mortgage- securities are subject to the risk that the life of the security
backed will be extended beyond its expected repayment time. This
securities typically occurs during periods of rising interest rates and
often reduces the security's value. During periods of falling
interest rates, unanticipated prepayments may occur which
also reduce the security's value.
- --------------------------------------------------------------------------------
Risks of Most derivative instruments involve leverage, which
derivative increases market risks. Leverage magnifies gains and
instruments, losses on derivatives relative to changes in the value of
including underlying assets. If a derivative is used for hedging
financial purposes, changes in the value of the derivative may not
futures, match those of the hedged asset. Over the counter
options on derivatives may be illiquid or hard to value accurately.
futures, In addition, the other party may default on its obligations.
securities If markets for underlying assets do not move in the right
and index direction, a fund's performance may be worse than if it
options, had not used derivatives.
swaps, caps,
floors,
collars
and structured
securities
- --------------------------------------------------------------------------------
14
<PAGE>
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
Description of Reorganization
You are being asked to approve an Agreement and Plan of Reorganization, a copy
of which is attached as Exhibit A. The Agreement provides for a reorganization
on the following terms:
o The reorganization is scheduled to occur at 5:00 p.m., Eastern Time, on
December 4, 1998, but may occur on any later date before June 1, 1999.
Your fund will transfer all of its assets to Government Income Fund and
Government Income Fund will assume all of your fund's liabilities. This
will result in the addition of your fund's assets to Government Income
Fund's portfolio. The net asset value of both funds will be computed as of
5:00 p.m., Eastern Time, on the reorganization date.
o Government Income Fund will issue to your fund Class A shares in an amount
equal to the aggregate net asset value of your fund's Class A shares. As
part of the liquidation of your fund, these shares will immediately be
distributed to Class A shareholders of record of your fund in proportion
to their holdings on the reorganization date. As a result, Class A
shareholders of your fund will end up as Class A shareholders of
Government Income Fund.
o Government Income Fund will issue to your fund Class B shares in an amount
equal to the aggregate net asset value of your fund's Class B shares. As
part of the liquidation of your fund, these shares will immediately be
distributed to Class B shareholders of record of your fund in proportion
to their holdings on the reorganization date. As a result, Class B
shareholders of your fund will end up as Class B shareholders of
Government Income Fund.
o After the reorganization is over, the existence of your fund will be
terminated.
Reasons for the Proposed Reorganization
The board of trustees of your fund believes that the proposed reorganization
will be advantageous to the shareholders of your fund for several reasons. The
board of trustees considered the following matters, among others, in approving
the proposal.
First, shareholders may be better served by a fund offering greater
diversification. Government Income Fund has a larger asset size than your fund
and may invest in a broader range of debt securities including those of foreign
issuers. Combining the funds' assets into a single investment portfolio will
allow your fund's shareholders to diversify their investments to a greater
degree than may be possible through your
15
<PAGE>
fund alone. Greater diversification is expected to benefit the shareholders of
your fund because it may reduce the negative effect that the adverse performance
of any one security or security type may have on the performance of the entire
portfolio.
Second, Government Income Fund Class A shares have performed better than your
fund over the past 1 and 3 year periods and Class B shares have performed better
than your fund over the past 1, 3, and 5 year periods. While past performance
cannot predict future results, the trustees believe that Government Income Fund
is better positioned than your fund to continue to generate strong returns,
because of its superior diversification and greater flexibility to choose from
among a broader range of investment opportunities.
Third, a combined fund offers economies of scale that are expected to lead to
better control over expenses than is possible for your fund. Both funds incur
substantial costs for accounting, legal, transfer agency services, insurance,
and custodial and administrative services.
Fourth, because John Hancock Funds has offered two funds with substantially
similar investment characteristics simultaneously, it has been increasingly
difficult to attract assets to your fund.
Fifth, the Government Income Fund shares received in the reorganization will
provide your fund's shareholders with substantially the same investment at a
comparable level of risk.
The board of trustees of Government Income Fund considered that the
reorganization presents an excellent opportunity for Government Income Fund to
acquire investment assets without the obligation to pay commissions or other
transaction costs that are normally associated with the purchase of securities.
The trustees believe that Government Income Fund shareholders will also benefit
from improved diversification as a result of the reorganization. Because
Government Income Fund is a larger fund than your fund, the trustees feel that
the addition of your fund's assets will improve the diversification of
Government Income Fund's overall portfolio. This opportunity provides an
economic benefit to Government Income Fund and its shareholders. The trustees
also considered the fact that the management fee of Government Income Fund is
higher than the management fee of Sovereign U.S. Government Income Fund.
However, if Sovereign U.S. Government Income Fund's shareholders approve the
Reorganization, the adviser has agreed to limit Government Income Fund's
management fee to an annual rate of 0.50% of the fund's average daily net
assets.
The boards of trustees of both funds also considered that the adviser and the
funds' distributor will also benefit from the reorganization. For example, the
adviser might realize time savings from a consolidated portfolio management
effort and from the need to prepare fewer reports and regulatory filings as well
as prospectus disclosure for one fund instead of two. The trustees believe,
however, that these savings will not amount to a significant economic benefit.
16
<PAGE>
Comparative Fees and Expense Ratios. As discussed above in the Summary, at all
asset levels, the advisory fee rates paid by your fund are lower than the rates
paid by Government Income Fund. However, the adviser has agreed to limit
Government Income Fund's management fee to an annual rate of 0.50% of the Fund's
average daily net assets if Sovereign U.S. Government Income Fund's shareholders
approve the Reorganization.
In addition to the same advisory fee rates, Government Income Fund's other
expenses of 0.21%, as well as its pro forma other expenses of 0.26%, are lower
than your fund's other expenses of 0.34%. Furthermore, Government Income Fund's
12b-1 fee rate of 0.25% for Class A shares is below your fund's Class A fee rate
of 0.30%. Both funds pay the same Class B 12b-1 fee rate of 1.00%. Government
Income Fund's current annual Class A expense ratio (equal to 1.10% of average
net assets) is lower than your fund's current Class A expense ratio (equal to
1.14% of average net assets) and its current annual Class B expense ratio (equal
to 1.85% of average net assets) is higher than your fund's current Class B
expense ratio (equal to 1.84% of average net assets). However, Government Income
Fund's pro forma total annual operating expenses for both Class A and Class B
shares are expected to be less than your fund's current Class A and Class B
total annual operating expenses.
Your fund has not increased its asset size. The trustees do not believe, given
your fund's current size and historical growth rate, that your fund will grow to
an asset size that would allow your fund to realize the benefits of economies of
scale, including better control over expenses. The trustees also do not believe
that your fund will reach an asset size which will allow your fund to
significantly broaden the diversification of its investment portfolio.
Comparative Performance. The trustees also took into consideration the relative
performance of your fund and Government Income Fund.
- --------------------------------------------------------------------------------
Average Annual Total Sovereign U.S. Government
Return (without Government Income Income
including sales charges)
--------------------------------------------------
Class A Class B Class A Class B
- --------------------------------------------------------------------------------
1 year ended 5/31/98 5.70% 4.93% 5.84% 5.01%
- --------------------------------------------------------------------------------
3 years ended 5/31/98 5.15% 5.20% 5.53% 5.50%
- --------------------------------------------------------------------------------
5 years ended 5/31/98 5.07% 5.17% 7.47%(B) 5.32%
- --------------------------------------------------------------------------------
10 years ended 5/31/98 5.74%(A) 8.10% N/A 7.38%
- --------------------------------------------------------------------------------
(A) Since January 3, 1992
(B) Since September 30, 1994
Your fund's Class A performance has lagged behind the performance of Government
Income Fund for the 1 and 3 year periods as shown above and Class B performance
has lagged behind for the 1, 3 and 5 year periods as shown above.
17
<PAGE>
Unreimbursed Distribution and Shareholder Service Expenses
The boards of trustees of your fund and Government Income Fund have determined
that, if the reorganization occurs, unreimbursed distribution and shareholder
service expenses incurred under your fund's Rule 12b-1 Plans will be
reimbursable expenses under Government Income Fund's Rule 12b-1 Plans. However,
the maximum amounts payable annually under Government Income Fund's Rule 12b-1
Plans (0.25% and 1.00% of average daily net assets attributable to Class A
shares and Class B shares, respectively) will not increase.
The following table shows the actual and pro forma unreimbursed distribution and
shareholder service expenses of both classes of your fund and Government Income
Fund. The table shows both the dollar amount of these expenses and the
percentage of each class' average net assets that they represent.
- --------------------------------------------------------------------------------
Unreimbursed Distribution Sovereign U.S. Government
and Shareholder Government Income Income
Service Expenses
--------------------------------------------------
Class A Class B Class A Class B
- --------------------------------------------------------------------------------
Actual expenses as of $411,357 $6,178,787 $155,402 $12,062,593
May 31, 1998 0.141% 7.133% 0.045% 8.979%
- --------------------------------------------------------------------------------
Pro forma combined expenses $566,759 $18,241,380
as of May 31, 1998 0.089% 8.255%
- --------------------------------------------------------------------------------
If the reorganization had taken place on May 31, 1998, the pro forma combined
unreimbursed expenses of Government Income Fund's Class A and Class B shares
would have been higher than if no reorganization had occurred. Nevertheless,
Government Income Fund's assumption of your fund's unreimbursed Rule 12b-1
expenses will have no immediate effect upon the payments made under Government
Income Fund's Rule 12b-1 Plans. Their payments will continue to be 0.25% and
1.00% of average daily net assets attributable to Class A and Class B shares,
respectively.
John Hancock Funds, Inc. hopes to recover unreimbursed distribution and
shareholder service expenses for Class B shares over an extended period of time.
However, if Government Income Fund's board terminates either class' Rule 12b-1
Plan, that class will not be obligated to reimburse these distribution and
shareholder service expenses. Accordingly, until they are paid or accrued,
unreimbursed distribution and shareholder service expenses do not and will not
appear as an expense or liability in the financial statements of either fund. In
addition, unreimbursed expenses are not reflected in a fund's net asset value or
the formula for calculating Rule 12b-1 payments. The staff of the SEC has not
approved or disapproved the treatment of the unreimbursed distribution and
shareholder service expenses described in this proxy statement.
18
<PAGE>
Tax Status of the Reorganization
The reorganization will be tax-free for federal income tax purposes and will not
take place unless both funds receive a satisfactory opinion from Hale and Dorr
LLP, counsel to the funds, substantially to the effect that:
o The reorganization described above will be a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986 (the
"Code"), and each fund will be "a party to a reorganization" within the
meaning of Section 368 of the Code;
o No gain or loss will be recognized by your fund upon (1) the transfer of
all of its assets to Government Income Fund as described above or (2) the
distribution by your fund of Government Income Fund shares to your fund's
shareholders;
o No gain or loss will be recognized by Government Income Fund upon the
receipt of your fund's assets solely in exchange for the issuance of
Government Income Fund shares and the assumption of all of your fund's
liabilities by Government Income Fund;
o The basis of the assets of your fund acquired by Government Income Fund
will be the same as the basis of those assets in the hands of your fund
immediately before the transfer;
o The tax holding period of the assets of your fund in the hands of
Government Income Fund will include your fund's tax holding period for
those assets;
o The shareholders of your fund will not recognize a gain or a loss upon the
exchange of all their shares of your fund solely for Government Income
Fund shares as part of the reorganization;
o The basis of Government Income Fund shares received by your fund's
shareholders in the reorganization will be the same as the basis of the
shares of your fund surrendered in exchange; and
o The tax holding period of the Government Income Fund shares you receive
will include the tax holding period of the shares of your fund surrendered
in the exchange, provided that the shares of your fund were held as
capital assets on the reorganization date.
Additional Tax Considerations
As of May 31, 1998, Sovereign U.S. Government Income Fund had capital loss
carryovers of approximately $44,710,231, which expire as follows: May 31, 2002
19
<PAGE>
- -- $12,665,411, May 31, 2003 -- $26,193,155, May 31, 2004 -- $3,597,046 and May
31, 2005 -- $2,254,619. Capital loss carryovers are used to reduce the amount of
realized capital gains that a fund is required to distribute to its shareholders
in order to avoid paying taxes on undistributed capital gain.
If the reorganization occurs, Government Income Fund will be able to use
Sovereign U.S. Government Income Fund's capital loss carryovers to offset future
realized capital gains, subject to limitations that may, in certain
circumstances, result in the expiration of a portion of these carryovers before
they can be used.
Additional Terms of Agreement and Plan of Reorganization
Surrender of Share Certificates. If your shares are represented by one or more
share certificates before the reorganization date, you must either surrender the
certificates to your fund or deliver to your fund a lost certificate affidavit,
in the form and accompanied by the surety bonds that your fund may require
(collectively, an "Affidavit"). On the reorganization date, all certificates
that have not been surrendered will be canceled, will no longer evidence
ownership of your fund's shares and will evidence ownership of Government Income
Fund shares. Shareholders may not redeem or transfer Government Income Fund
shares received in the reorganization until they have surrendered their fund
share certificates or delivered an Affidavit. Government Income Fund will not
issue share certificates in the reorganization.
Conditions to Closing the Reorganization. The obligation of your fund to
consummate the reorganization is subject to the satisfaction of certain
conditions, including the performance by Government Income Fund of all its
obligations under the Agreement and the receipt of all consents, orders and
permits necessary to consummate the reorganization (see Agreement, paragraph 6).
The obligation of Government Income Fund to consummate the reorganization is
subject to the satisfaction of certain conditions, including your fund's
performance of all of its obligations under the Agreement, the receipt of
certain documents and financial statements from your fund and the receipt of all
consents, orders and permits necessary to consummate the reorganization (see
Agreement, paragraph 7).
The obligations of both funds are subject to the approval of the Agreement by
the necessary vote of the outstanding shares of your fund, in accordance with
the provisions of your fund's declaration of trust and by-laws. The funds'
obligations are also subject to the receipt of a favorable opinion of Hale and
Dorr LLP as to the federal income tax consequences of the reorganization (see
Agreement, paragraph 8).
Termination of Agreement. The board of trustees of either your fund or Govern-
ment Income Fund may terminate the Agreement (even if the shareholders of
your fund have already approved it) at any time before the reorganization date,
if that
20
<PAGE>
board believes that proceeding with the reorganization would no longer be
advisable.
Expenses of the Reorganization. Government Income Fund and your fund will each
be responsible for its own expenses incurred in connection with entering into
and carrying out the provisions of the Agreement, whether or not the
reorganization occurs. These expenses are estimated to be approximately $250,410
in total.
CAPITALIZATION
The following table sets forth the capitalization of each fund as of May 31,
1998, and the pro forma combined capitalization of both funds as if the
reorganization had occurred on such date. The table reflects pro forma exchange
ratios of approximately 1.0724 Class A Government Income Fund shares being
issued for each Class A share of your fund and approximately 1.0724 Class B
Government Income Fund shares being issued for each Class B share of your fund.
If the reorganization is consummated, the actual exchange ratios on the
reorganization date may vary from the exchange ratios indicated. This is due to
changes in the market value of the portfolio securities of both Government
Income Fund and your fund between May 31, 1998 and the reorganization date,
changes in the amount of undistributed net investment income and net realized
capital gains of Government Income Fund and your fund during that period
resulting from income and distributions, and changes in the accrued liabilities
of Government Income Fund and your fund during the same period.
MAY 31, 1998
Sovereign U.S.
Government Government
Income Income Pro Forma
Net Assets.................... $367,931,348 $457,402,084 $825,333,432
Net Asset Value Per Share
Class A...................... $9.92 $9.25 $9.25
Class B...................... $9.92 $9.25 $9.25
Shares Outstanding
Class A...................... 28,777,805 36,721,182 67,568,291
Class B...................... 8,330,255 12,742,073 13,642,641
It is impossible to predict how many Class A shares and Class B shares of
Government Income Fund will actually be received and distributed by your fund on
the reorganization date. The table should not be relied upon to determine the
amount of Government Income Fund shares that will actually be received and
distributed.
ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES
The following table shows where in the funds' combined prospectus you can find
additional information about the business of each fund.
21
<PAGE>
- --------------------------------------------------------------------------------
Type of Headings in Combined Prospectus for both
Information Sovereign U.S. Government Income Fund
and Government Income Fund
- --------------------------------------------------------------------------------
Organization Fund Details: Business Structure: How the Funds are
and operation Organized
- --------------------------------------------------------------------------------
Investment Goal and Strategy, Portfolio Securities, Risk Factors; Fund
objective and Details: Business Structure: Portfolio Trades, Investment
policies Goals, Diversification; More About Risk
- --------------------------------------------------------------------------------
Portfolio Portfolio Management
management
- --------------------------------------------------------------------------------
Investment Overview: The Management Firm; Fund Details: Business
adviser and Structure, How the Funds are Organized, Sales Compensation
distributor
- --------------------------------------------------------------------------------
Expenses Investor Expenses
- --------------------------------------------------------------------------------
Custodian and Fund Details: Business Structure: How the Funds are
transfer agent Organized
- --------------------------------------------------------------------------------
Shares of Your Account: Choosing a Share Class
beneficial
interest
- --------------------------------------------------------------------------------
Purchase of Your Account: Choosing a Share Class, Sales Charge
shares Reductions and Waivers, Opening an Account, Buying
Shares; Transaction Policies; Additional Investor Services
- --------------------------------------------------------------------------------
Redemption Your Account: Selling Shares, How Sales Charges are
or sale of shares Calculated; Transaction Policies; Additional Investor
Services; Systematic Withdrawal Plan
- --------------------------------------------------------------------------------
Dividends, Dividends and Account Policies
distributions
and taxes
- --------------------------------------------------------------------------------
BOARDS' EVALUATION AND RECOMMENDATION
For the reasons described above, the board of trustees of your fund, including
the trustees who are not "interested persons" of either fund or the adviser
("independent trustees"), approved the reorganization. In particular, the
trustees determined that the reorganization was in the best interests of your
fund and that the interests of your fund's shareholders would not be diluted as
a result of the reorganization. Similarly, the board of trustees of Government
Income Fund, including the independent trustees, approved the reorganization.
They also determined that the reorganization was in the best interests of
Government Income Fund and that the interests of Government Income Fund's
shareholders would not be diluted as a result of the reorganization.
--------------------------------------------------
The trustees of your fund recommend that the
shareholders of your fund vote for the proposal to
approve the agreement and plan of reorganization.
--------------------------------------------------
22
<PAGE>
VOTING RIGHTS AND REQUIRED VOTE
Each share of your fund is entitled to one vote. Approval of the above proposal
requires the affirmative vote of a majority of the shares of your fund
outstanding and entitled to vote. For this purpose, a majority of the
outstanding shares of your fund means the vote of the lesser of:
(1) 67% or more of the shares present at the meeting, if the holders of more
than 50% of the shares of the fund are present or represented by proxy, or
(2) more than 50% of the outstanding shares of the fund.
Shares of your fund represented in person or by proxy, including shares which
abstain or do not vote with respect to the proposal, will be counted for
purposes of determining whether there is a quorum at the meeting. Accordingly,
an abstention from voting has the same effect as a vote against the proposal.
However, if a broker or nominee holding shares in "street name" indicates on the
proxy card that it does not have discretionary authority to vote on the
proposal, those shares will not be considered present and entitled to vote on
the proposal. Thus, a "broker non-vote" has no effect on the voting in
determining whether the proposal has been adopted in accordance with clause (1)
above, if more than 50% of the outstanding shares (excluding the "broker
non-votes") are present or represented. However, for purposes of determining
whether the proposal has been adopted in accordance with clause (2) above, a
"broker non-vote" has the same effect as a vote against the proposal because
shares represented by a "broker non-vote" are considered to be outstanding
shares.
If the required approval of shareholders is not obtained, your fund will
continue to engage in business as a separate mutual fund and the board of
trustees will consider what further action may be appropriate.
INFORMATION CONCERNING THE MEETING
Solicitation of Proxies
In addition to the mailing of these proxy materials, proxies may be solicited by
telephone, by fax or in person by the trustees, officers and employees of your
fund; by personnel of your fund's investment adviser, John Hancock Advisers,
Inc. and its transfer agent, John Hancock Signature Services, Inc.; or by
broker-dealer firms. Signature Services, together with a third party
solicitation firm, has agreed to provide proxy solicitation services to your
fund at a cost of approximately $100,360.
23
<PAGE>
Revoking Proxies
A Sovereign U.S. Government Income Fund shareholder signing and returning a
proxy has the power to revoke it at any time before it is exercised:
o By filing a written notice of revocation with your fund's transfer
agent, John Hancock Signature Services, Inc., 1 John Hancock Way,
Suite 1000, Boston, Massachusetts 02217-1000, or
o By returning a duly executed proxy with a later date before the time
of the meeting, or
o If a shareholder has executed a proxy but is present at the meeting
and wishes to vote in person, by notifying the secretary of your
fund (without complying with any formalities) at any time before it
is voted.
Being present at the meeting alone does not revoke a previously executed and
returned proxy.
Outstanding Shares and Quorum
As of September 16, 1998, 28,607,710 and 9,489,637 Class A and Class B shares of
beneficial interest of your fund were outstanding. Only shareholders of record
on September 16, 1998 (the "record date") are entitled to notice of and to vote
at the meeting. A majority of the outstanding shares of your fund that are
entitled to vote will be considered a quorum for the transaction of business.
Other Business
Your fund's board of trustees knows of no business to be presented for
consideration at the meeting other than the proposal. If other business is
properly brought before the meeting, proxies will be voted according to the best
judgment of the persons named as proxies.
Adjournments
If a quorum is not present in person or by proxy at the time any session of the
meeting is called to order, the persons named as proxies may vote those proxies
that have been received to adjourn the meeting to a later date. If a quorum is
present but there are not sufficient votes in favor of the proposal, the persons
named as proxies may propose one or more adjournments of the meeting to permit
further solicitation of proxies concerning the proposal. Any adjournment will
require the affirmative vote of a majority of your fund's shares at the session
of the meeting to be adjourned. If an adjournment of the meeting is proposed
because there are not sufficient votes in favor of the proposal, the persons
named as proxies will vote those proxies favoring
24
<PAGE>
the proposal in favor of adjournment, and will vote those proxies against the
reorganization against adjournment.
Telephone Voting
In addition to soliciting proxies by mail, by fax or in person, your fund may
also arrange to have votes recorded by telephone by officers and employees of
your fund or by personnel of the adviser or transfer agent. The telephone voting
procedure is designed to verify a shareholder's identity, to allow a shareholder
to authorize the voting of shares in accordance with the shareholder's
instructions and to confirm that the voting instructions have been properly
recorded. If these procedures were subject to a successful legal challenge,
these telephone votes would not be counted at the meeting. Your fund has not
obtained an opinion of counsel about telephone voting, but is currently not
aware of any challenge.
o A shareholder will be called on a recorded line at the telephone
number in the fund's account records and will be asked to provide
the shareholder's social security number or other identifying
information.
o The shareholder will then be given an opportunity to authorize
proxies to vote his or her shares at the meeting in accordance with
the shareholder's instructions.
o To ensure that the shareholder's instructions have been recorded
correctly, the shareholder will also receive a confirmation of the
voting instructions by mail.
o A toll-free number will be available in case the voting information
contained in the confirmation is incorrect.
o If the shareholder decides after voting by telephone to attend the
meeting, the shareholder can revoke the proxy at that time and vote
the shares at the meeting.
OWNERSHIP OF SHARES OF THE FUNDS
To the knowledge of the fund, as of August 14, 1998, no person owned of record
or beneficially 5% or more of the outstanding Class A and Class B shares of your
fund or of the outstanding Class A shares of Government Income Fund. As of
August 14, 1998, the following person owned of record or beneficially 5% or more
of the outstanding Class B shares of Government Income Fund.
25
<PAGE>
- --------------------------------------------------------------------------------
Names and Addresses of Owners of Government Income Fund
More Than 5% of Shares
- --------------------------------------------------------------------------------
MLPF&S 15.22% of Class B
Sole Benefit of Its Customers
ATTN: Fund Administration 974u0
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------
As of August 14, 1998, the trustees and officers of your fund and Government
Income Fund, each as a group, owned in the aggregate less than 1% of the
outstanding shares of their respective funds.
EXPERTS
The financial statements and the financial highlights of Sovereign U.S.
Government Income Fund and Government Income Fund, each as of May 31, 1998 and
for the periods then ended are incorporated by reference into this proxy
statement and prospectus. These financial statements and financial highlights
have been independently audited by PricewaterhouseCoopers LLP and Ernst & Young
LLP, respectively, as stated in their reports appearing in the statement of
additional information. These financial statements and financial highlights have
been included in reliance on their reports given on their authority as experts
in accounting and auditing.
AVAILABLE INFORMATION
Each fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 and files reports,
proxy statements and other information with the SEC. These reports, proxy
statements and other information filed by the funds can be inspected and copied
(at prescribed rates) at the public reference facilities of the SEC at 450 Fifth
Street, N.W., Washington, D.C., and at the following regional offices: Chicago
(500 West Madison Street, Suite 1400, Chicago, Illinois); and New York (7 World
Trade Center, Suite 1300, New York, New York). Copies of such material can also
be obtained by mail from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, copies
of these documents may be viewed on-screen or downloaded from the SEC's Internet
site at http://www.sec.gov.
26
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 11th
day of August, 1998, by and between John Hancock Government Income Fund (the
"Acquiring Fund"), a series of John Hancock Bond Trust, a Massachusetts business
trust (the "Trust II"), and John Hancock Sovereign U.S. Government Income Fund
(the "Acquired Fund"), a series of John Hancock Strategic Series, a
Massachusetts business trust (the "Trust") each with their principal place of
business at 101 Huntington Avenue, Boston, Massachusetts 02199. The Acquiring
Fund and the Acquired Fund are sometimes referred to collectively herein as the
"Funds" and individually as a "Fund."
This Agreement is intended to be and is adopted as a plan of "reorganization,"
as such term is used in Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization will consist of the transfer of all of
the assets of the Acquired Fund to the Acquiring Fund in exchange solely for the
issuance of Class A and Class B shares of beneficial interest of the Acquiring
Fund (the "Acquiring Fund Shares") to the Acquired Fund and the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund, followed by
the distribution by the Acquired Fund, on or promptly after the Closing Date
hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the
Acquired Fund in liquidation and termination of the Acquired Fund as provided
herein, all upon the terms and conditions set forth in this Agreement.
In consideration of the premises of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF
LIABILITIES AND ISSUANCE OF ACQUIRING FUND SHARES; LIQUIDATION OF THE
ACQUIRED FUND
1.1 The Acquired Fund will transfer all of its assets (consisting, without
limitation, of portfolio securities and instruments, dividends and
interest receivables, cash and other assets), as set forth in the
statement of assets and liabilities referred to in Paragraph 7.2 hereof
(the "Statement of Assets and Liabilities"), to the Acquiring Fund free
and clear of all liens and encumbrances, except as otherwise provided
herein, in exchange for (i) the assumption by the Acquiring Fund of the
known and unknown liabilities of the Acquired Fund, including the
liabilities set forth in the Statement of Assets and Liabilities (the
"Acquired Fund Liabilities"), which shall be assigned and transferred to
the Acquiring Fund by the Acquired Fund and assumed by the Acquiring Fund,
and (ii) delivery by the Acquiring Fund to the Acquired Fund, for
distribution pro rata by the Acquired Fund to its shareholders in
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proportion to their respective ownership of Class A and/or Class B shares
of beneficial interest of the Acquired Fund, as of the close of business
on December 4, 1998 (the "Closing Date"), of a number of the Acquiring
Fund Shares having an aggregate net asset value equal, in the case of each
class of Acquiring Fund Shares, to the value of the assets, less such
liabilities (herein referred to as the "net value of the assets")
attributable to the applicable class, assumed, assigned and delivered, all
determined as provided in Paragraph 2.1 hereof and as of a date and time
as specified therein. Such transactions shall take place at the closing
provided for in Paragraph 3.1 hereof (the "Closing"). All computations
shall be provided by Investors Bank & Trust Company (the "Custodian"), as
custodian and pricing agent for the Acquiring Fund and the Acquired Fund.
1.2 The Acquired Fund has provided the Acquiring Fund with a list of the
current securities holdings of the Acquired Fund as of the date of
execution of this Agreement. The Acquired Fund reserves the right to sell
any of these securities (except to the extent sales may be limited by
representations made in connection with issuance of the tax opinion
provided for in paragraph 8.6 hereof) but will not, without the prior
approval of the Acquiring Fund, acquire any additional securities other
than securities of the type in which the Acquiring Fund is permitted to
invest.
1.3 The Acquiring Fund and the Acquired Fund shall each bear its own expenses
in connection with the transactions contemplated by this Agreement.
1.4 On or as soon after the Closing Date as is conveniently practicable (the
"Liquidation Date"), the Acquired Fund will liquidate and distribute pro
rata to shareholders of record (the "Acquired Fund shareholders"),
determined as of the close of regular trading on the New York Stock
Exchange on the Closing Date, the Acquiring Fund Shares received by the
Acquired Fund pursuant to Paragraph 1.1 hereof. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund
Shares then credited to the account of the Acquired Fund on the books of
the Acquiring Fund, to open accounts on the share records of the Acquiring
Fund in the names of the Acquired Fund shareholders and representing the
respective pro rata number and class of Acquiring Fund Shares due such
shareholders. Acquired Fund shareholders who own Class A shares of the
Acquired Fund will receive Class A Acquiring Fund Shares and Acquired Fund
shareholders who own Class B shares of the Acquired Fund will receive
Class B Acquiring Fund Shares. The Acquiring Fund shall not issue
certificates representing Acquiring Fund Shares in connection with such
exchange.
1.5 The Acquired Fund shareholders holding certificates representing their
ownership of shares of beneficial interest of the Acquired Fund shall
surrender such certificates or deliver an affidavit with respect to lost
certificates in
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such form and accompanied by such surety bonds as the Acquired Fund may
require (collectively, an "Affidavit"), to John Hancock Signature
Services, Inc. prior to the Closing Date. Any Acquired Fund share
certificate which remains outstanding on the Closing Date shall be deemed
to be canceled, shall no longer evidence ownership of shares of beneficial
interest of the Acquired Fund and shall evidence ownership of Acquiring
Fund Shares. Unless and until any such certificate shall be so surrendered
or an Affidavit relating thereto shall be delivered, dividends and other
distributions payable by the Acquiring Fund subsequent to the Liquidation
Date with respect to Acquiring Fund Shares shall be paid to the holder of
such certificate(s), but such shareholders may not redeem or transfer
Acquiring Fund Shares received in the Reorganization. The Acquiring Fund
will not issue share certificates in the Reorganization.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquired Fund Shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
1.7 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Trust, including, but not limited to,
the responsibility for filing of regulatory reports, tax returns, or other
documents with the Securities and Exchange Commission (the "Commission"),
any state securities commissions, and any federal, state or local tax
authorities or any other relevant regulatory authority, is and shall
remain the responsibility of the Trust.
2. VALUATION
2.1 The net asset values of the Class A and Class B Acquiring Fund Shares and
the net values of the assets and liabilities of the Acquired Fund
attributable to its Class A and Class B shares to be transferred shall, in
each case, be determined as of the close of business (4:00 P.M. Boston
time) on the Closing Date. The net asset values of the Class A and Class B
Acquiring Fund Shares shall be computed by the Custodian in the manner set
forth in the Acquiring Fund's Declaration of Trust as amended and restated
(the "Declaration"), or By-Laws and the Acquiring Fund's then-current
prospectus and statement of additional information and shall be computed
in each case to not fewer than four decimal places. The net values of the
assets of the Acquired Fund attributable to its Class A and Class B shares
to be transferred shall be computed by the Custodian by calculating the
value of the assets of each class transferred by the Acquired Fund and by
subtracting therefrom the amount of the
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<PAGE>
liabilities of each class assigned and transferred to and assumed by the
Acquiring Fund on the Closing Date, said assets and liabilities to be
valued in the manner set forth in the Acquired Fund's then current
prospectus and statement of additional information and shall be computed
in each case to not fewer than four decimal places.
2.2 The number of shares of each class of Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Acquired Fund's
assets shall be determined by dividing the value of the Acquired Fund's
assets attributable to a class, less the liabilities attributable to that
class assumed by the Acquiring Fund, by the Acquiring Fund's net asset
value per share of the same class, all as determined in accordance with
Paragraph 2.1 hereof.
2.3 All computations of value shall be made by the Custodian in accordance
with its regular practice as pricing agent for the Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be December 4, 1998 or such other date on or before
June 30, 1999 as the parties may agree. The Closing shall be held as of
5:00 p.m. at the offices of the Trust II and the Trust, 101 Huntington
Avenue, Boston, Massachusetts 02199, or at such other time and/or place as
the parties may agree.
3.2 Portfolio securities that are not held in book-entry form in the name of
the Custodian as record holder for the Acquired Fund shall be presented by
the Acquired Fund to the Custodian for examination no later than three
business days preceding the Closing Date. Portfolio securities which are
not held in book-entry form shall be delivered by the Acquired Fund to the
Custodian for the account of the Acquiring Fund on the Closing Date, duly
endorsed in proper form for transfer, in such condition as to constitute
good delivery thereof in accordance with the custom of brokers, and shall
be accompanied by all necessary federal and state stock transfer stamps or
a check for the appropriate purchase price thereof. Portfolio securities
held of record by the Custodian in book-entry form on behalf of the
Acquired Fund shall be delivered to the Acquiring Fund by the Custodian by
recording the transfer of beneficial ownership thereof on its records. The
cash delivered shall be in the form of currency or by the Custodian
crediting the Acquiring Fund's account maintained with the Custodian with
immediately available funds.
3.3 In the event that on the Closing Date (a) the New York Stock Exchange
shall be closed to trading or trading thereon shall be restricted or (b)
trading or the reporting of trading on said Exchange or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date
shall be postponed until
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the first business day after the day when trading shall have been fully
resumed and reporting shall have been restored; provided that if trading
shall not be fully resumed and reporting restored on or before June 30,
1999, this Agreement may be terminated by the Acquiring Fund or by the
Acquired Fund upon the giving of written notice to the other party.
3.4 The Acquired Fund shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup withholding
and nonresident alien withholding status of the Acquired Fund shareholders
and the number of outstanding shares of each class of beneficial interest
of the Acquired Fund owned by each such shareholder, all as of the close
of business on the Closing Date, certified by its Treasurer, Secretary or
other authorized officer (the "Shareholder List"). The Acquiring Fund
shall issue and deliver to the Acquired Fund a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares
have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such
bills of sale, checks, assignments, stock certificates, receipts or other
documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Trust on behalf of the Acquired Fund represents, warrants and
covenants to the Acquiring Fund as follows:
(a) The Trust is a business trust, duly organized, validly existing and in
good standing under the laws of The Commonwealth of Massachusetts and has
the power to own all of its properties and assets and, subject to approval
by the shareholders of the Acquired Fund, to carry out the transactions
contemplated by this Agreement. Neither the Trust nor the Acquired Fund is
required to qualify to do business in any jurisdiction in which it is not
so qualified or where failure to qualify would subject it to any material
liability or disability. The Trust has all necessary federal, state and
local authorizations to own all of its properties and assets and to carry
on its business as now being conducted;
(b) The Trust is a registered investment company classified as a management
company and its registration with the Commission as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), is
in full force and effect. The Acquired Fund is a diversified series of the
Trust;
(c) The Trust and the Acquired Fund are not, and the execution, delivery and
performance of their obligations under this Agreement will not result, in
violation of any provision of the Trust's Declaration of Trust, as amended
and
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restated (the "Trust's Declaration") or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Trust or the Acquired Fund is a party or by which it is bound;
(d) Except as otherwise disclosed in writing and accepted by the Acquiring
Fund, no material litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or
threatened against the Trust or the Acquired Fund or any of the Acquired
Fund's properties or assets. The Trust knows of no facts which might form
the basis for the institution of such proceedings, and neither the Trust
nor the Acquired Fund is a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects the Acquired Fund's business or its
ability to consummate the transactions herein contemplated;
(e) The Acquired Fund has no material contracts or other commitments (other
than this Agreement or agreements for the purchase of securities entered
into in the ordinary course of business and consistent with its
obligations under this Agreement) which will not be terminated without
liability to the Acquired Fund at or prior to the Closing Date;
(f) The audited statement of assets and liabilities, including the schedule of
investments, of the Acquired Fund as of May 31, 1998 and the related
statement of operations (copies of which have been furnished to the
Acquiring Fund) present fairly in all material respects the financial
condition of the Acquired Fund as of May 31, 1998 and the results of its
operations for the period then ended in accordance with generally accepted
accounting principles consistently applied, and there were no known actual
or contingent liabilities of the Acquired Fund as of the respective dates
thereof not disclosed therein;
(g) Since May 31, 1998, there has not been any material adverse change in the
Acquired Fund's financial condition, assets, liabilities, or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquiring Fund;
(h) At the date hereof and by the Closing Date, all federal, state and other
tax returns and reports, including information returns and payee
statements, of the Acquired Fund required by law to have been filed or
furnished by such dates shall have been filed or furnished, and all
federal, state and other taxes, interest and penalties shall have been
paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge no such return
is currently under audit and no assessment
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<PAGE>
has been asserted with respect to such returns or reports;
(i) Each of the Acquired Fund and its predecessors has qualified as a
regulated investment company for each taxable year of its operation and
the Acquired Fund will qualify as such as of the Closing Date with respect
to its taxable year ending on the Closing Date;
(j) The authorized capital of the Acquired Fund consists of an unlimited
number of shares of beneficial interest, no par value. All issued and
outstanding shares of beneficial interest of the Acquired Fund are, and at
the Closing Date will be, duly and validly issued and outstanding, fully
paid and nonassessable by the Trust. All of the issued and outstanding
shares of beneficial interest of the Acquired Fund will, at the time of
Closing, be held by the persons and in the amounts and classes set forth
in the Shareholder List submitted to the Acquiring Fund pursuant to
Paragraph 3.4 hereof. The Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares of beneficial interest, nor is there outstanding any security
convertible into any of its shares of beneficial interest;
(k) At the Closing Date, the Acquired Fund will have good and marketable title
to the assets to be transferred to the Acquiring Fund pursuant to
Paragraph 1.1 hereof, and full right, power and authority to sell, assign,
transfer and deliver such assets hereunder, and upon delivery and payment
for such assets, the Acquiring Fund will acquire good and marketable title
thereto subject to no restrictions on the full transfer thereof, including
such restrictions as might arise under the Securities Act of 1933, as
amended (the "1933 Act");
(l) The execution, delivery and performance of this Agreement have been duly
authorized by all necessary action on the part of the Trust on behalf of
the Acquired Fund, and this Agreement constitutes a valid and binding
obligation of the Trust and the Acquired Fund enforceable in accordance
with its terms, subject to the approval of the Acquired Fund's
shareholders;
(m) The information to be furnished by the Acquired Fund to the Acquiring Fund
for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete and
shall comply in all material respects with federal securities and other
laws and regulations thereunder applicable thereto;
(n) The proxy statement of the Acquired Fund (the "Proxy Statement") to be
included in the Registration Statement referred to in Paragraph 5.7 hereof
(other than written information furnished by the Acquiring Fund for
inclusion therein, as covered by the Acquiring Fund's warranty in
Paragraph 4.2(m)
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<PAGE>
hereof), on the effective date of the Registration Statement, on the date
of the meeting of the Acquired Fund shareholders and on the Closing Date,
shall not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading;
(o) No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the Acquired Fund of the
transactions contemplated by this Agreement;
(p) All of the issued and outstanding shares of beneficial interest of the
Acquired Fund have been offered for sale and sold in conformity with all
applicable federal and state securities laws;
(q) The prospectus of the Acquired Fund, dated May 1, 1998 (the "Acquired Fund
Prospectus"), previously furnished to the Acquiring Fund, does not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading.
4.2 The Trust II on behalf of the Acquiring Fund represents, warrants and
covenants to the Acquired Fund as follows:
(a) The Trust II is a business trust duly organized, validly existing and in
good standing under the laws of The Commonwealth of Massachusetts and has
the power to own all of its properties and assets and to carry out the
Agreement. Neither the Trust II nor the Acquiring Fund is required to
qualify to do business in any jurisdiction in which it is not so qualified
or where failure to qualify would subject it to any material liability or
disability. The Trust II has all necessary federal, state and local
authorizations to own all of its properties and assets and to carry on its
business as now being conducted;
(b) The Trust II is a registered investment company classified as a management
company and its registration with the Commission as an investment company
under the 1940 Act is in full force and effect. The Acquiring Fund is a
diversified series of the Trust II;
(c) The prospectus (the "Acquiring Fund Prospectus") and statement of
additional information for Class A and Class B shares of the Acquiring
Fund, each dated May 1, 1998, and any amendments or supplements thereto on
or prior to the Closing Date, and the Registration Statement on Form N-14
to be filed in connection with this Agreement (the "Registration
Statement") (other than written information furnished by the Acquired Fund
for inclusion therein, as covered by the Acquired Fund's warranty in
Paragraph 4.1(m) hereof) will
34
<PAGE>
conform in all material respects to the applicable requirements of the
1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder, the Acquiring Fund Prospectus does not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading and the
Registration Statement will not include any untrue statement of material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(d) At the Closing Date, the Trust II on behalf of the Acquiring Fund will
have good and marketable title to the assets of the Acquiring Fund;
(e) The Trust II and the Acquiring Fund are not, and the execution, delivery
and performance of their obligations under this Agreement will not result,
in violation of any provisions of the Trust II's Declaration, or By-Laws
or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Trust II or the Acquiring Fund is a party or by
which the Trust II or the Acquiring Fund is bound;
(f) Except as otherwise disclosed in writing and accepted by the Acquired
Fund, no material litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or
threatened against the Trust II or the Acquiring Fund or any of the
Acquiring Fund's properties or assets. The Trust II knows of no facts
which might form the basis for the institution of such proceedings, and
neither the Trust II nor the Acquiring Fund is a party to or subject to
the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects the Acquiring
Fund's business or its ability to consummate the transactions herein
contemplated;
(g) The audited statement of assets and liabilities, including the schedule of
investments, of the Acquiring Fund as of May 31, 1998 and the related
statement of operations (copies of which have been furnished to the
Acquired Fund) present fairly in all material respects the financial
condition of the Acquiring Fund as of May 31, 1998 and the results of its
operations for the period then ended in accordance with generally accepted
accounting principles consistently applied, and there were no known actual
or contingent liabilities of the Acquiring Fund as of the respective dates
thereof not disclosed therein;
(h) Since May 31, 1998, there has not been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by
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<PAGE>
the Trust II on behalf of the Acquiring Fund of indebtedness maturing more
than one year from the date such indebtedness was incurred, except as
disclosed to and accepted by the Acquired Fund;
(i) Each of the Acquiring Fund and its predecessors has qualified as a
regulated investment company for each taxable year of its operation and
the Acquiring Fund will qualify as such as of the Closing Date;
(j) The authorized capital of the Trust II consists of an unlimited number of
shares of beneficial interest, no par value per share. All issued and
outstanding shares of beneficial interest of the Acquiring Fund are, and
at the Closing Date will be, duly and validly issued and outstanding,
fully paid and nonassessable by the Trust II. The Acquiring Fund does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any of its shares of beneficial interest, nor is there
outstanding any security convertible into any of its shares of beneficial
interest;
(k) The execution, delivery and performance of this Agreement has been duly
authorized by all necessary action on the part of the Trust II on behalf
of the Acquiring Fund, and this Agreement constitutes a valid and binding
obligation of the Acquiring Fund enforceable in accordance with its terms;
(l) The Acquiring Fund Shares to be issued and delivered to the Acquired Fund
pursuant to the terms of this Agreement, when so issued and delivered,
will be duly and validly issued shares of beneficial interest of the
Acquiring Fund and will be fully paid and nonassessable by the Trust II;
(m) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply in all
material respects with federal securities and other laws and regulations
applicable thereto; and
(n) No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the Acquiring Fund of the
transactions contemplated by the Agreement, except for the registration of
the Acquiring Fund Shares under the 1933 Act and the 1940 Act.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary, the Trust on
behalf of the Acquired Fund and the Trust II on behalf of Acquiring Fund,
will operate their respective businesses in the ordinary course between
the date hereof
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<PAGE>
and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions and any other
distributions necessary or desirable to avoid federal income or excise
taxes.
5.2 The Trust will call a meeting of the Acquired Fund shareholders to
consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired by the Acquired Fund for the purpose of
making any distribution thereof other than in accordance with the terms of
this Agreement.
5.4 The Trust on behalf of the Acquired Fund will provide such information
within its possession or reasonably obtainable as the Trust II on behalf
of the Acquiring Fund requests concerning the beneficial ownership of the
Acquired Fund's shares of beneficial interest.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund each shall take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate the transactions contemplated by this Agreement.
5.6 The Trust on behalf of the Acquired Fund shall furnish to the Trust II on
behalf of the Acquiring Fund on the Closing Date the Statement of Assets
and Liabilities of the Acquired Fund as of the Closing Date, which
statement shall be prepared in accordance with generally accepted
accounting principles consistently applied and shall be certified by the
Acquired Fund's Treasurer or Assistant Treasurer. As promptly as
practicable but in any case within 60 days after the Closing Date, the
Acquired Fund shall furnish to the Acquiring Fund, in such form as is
reasonably satisfactory to the Trust II, a statement of the earnings and
profits of the Acquired Fund for federal income tax purposes and of any
capital loss carryovers and other items that will be carried over to the
Acquiring Fund as a result of Section 381 of the Code, and which statement
will be certified by the President of the Acquired Fund.
5.7 The Trust II on behalf of the Acquiring Fund will prepare and file with
the Commission the Registration Statement in compliance with the 1933 Act
and the 1940 Act in connection with the issuance of the Acquiring Fund
Shares as contemplated herein.
5.8 The Trust on behalf of the Acquired Fund will prepare a Proxy Statement,
to be included in the Registration Statement in compliance with the 1933
Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
the 1940 Act and the rules and regulations thereunder (collectively, the
"Acts") in
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<PAGE>
connection with the special meeting of shareholders of the Acquired Fund
to consider approval of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE ACQUIRED
FUND
The obligations of the Trust on behalf of the Acquired Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Trust II on behalf of the Acquiring Fund of all the
obligations to be performed by it hereunder on or before the Closing Date, and,
in addition thereto, the following further conditions:
6.1 All representations and warranties of the Trust II on behalf of the
Acquiring Fund contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the
Closing Date with the same force and effect as if made on and as of the
Closing Date; and
6.2 The Trust II on behalf of the Acquiring Fund shall have delivered to the
Acquired Fund a certificate executed in its name by the Trust II's
President or Vice President and its Treasurer or Assistant Treasurer, in
form and substance satisfactory to the Acquired Fund and dated as of the
Closing Date, to the effect that the representations and warranties of the
Trust II on behalf of the Acquiring Fund made in this Agreement are true
and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other
matters as the Trust on behalf of the Acquired Fund shall reasonably
request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST II ON BEHALF OF THE
ACQUIRING FUND
The obligations of the Trust II on behalf of the Acquiring Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Acquired Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the Acquired Fund contained in this
Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date;
7.2 The Trust on behalf of the Acquired Fund shall have delivered to the Trust
II on behalf of the Acquiring Fund the Statement of Assets and Liabilities
of the Acquired Fund, together with a list of its portfolio securities
showing the fed-
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<PAGE>
eral income tax bases and holding periods of such securities, as of the
Closing Date, certified by the Treasurer or Assistant Treasurer of the
Trust;
7.3 The Trust on behalf of the Acquired Fund shall have delivered to the Trust
II on behalf of the Acquiring Fund on the Closing Date a certificate
executed in the name of the Acquired Fund by a President or Vice President
and a Treasurer or Assistant Treasurer of the Trust, in form and substance
satisfactory to the Trust II on behalf of the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties
of the Acquired Fund in this Agreement are true and correct at and as of
the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Trust
II on behalf of the Acquiring Fund shall reasonably request; and
7.4 At or prior to the Closing Date, the Acquired Fund's investment adviser,
or an affiliate thereof, shall have made all payments, or applied all
credits, to the Acquired Fund required by any applicable contractual
expense limitation.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND THE TRUST II
The obligations hereunder of the Trust II on behalf of the Acquiring Fund and
the Trust on behalf of the Acquired Fund are each subject to the further
conditions that on or before the Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
beneficial interest of the Acquired Fund in accordance with the provisions
of the Trust's Declaration and By-Laws, and certified copies of the
resolutions evidencing such approval by the Acquired Fund's shareholders
shall have been delivered by the Acquired Fund to the Trust II on behalf
of the Acquiring Fund;
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain
or prohibit, or obtain changes or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and permits
of federal, state and local regulatory authorities (including those of the
Commission and their "no-action" positions) deemed necessary by the Trust
or the Trust II to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a
risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the
39
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Acquired Fund, provided that either party hereto may waive any such
conditions for itself;
8.4 Registration Statement shall have become effective under the 1933 Act and
the 1940 Act and no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or
be pending, threatened or contemplated under the 1933 Act or the 1940 Act;
8.5 Acquired Fund shall have distributed to its shareholders, in a
distribution or distributions qualifying for the deduction for dividends
paid under Section 561 of the Code, all of its investment company taxable
income (as defined in Section 852(b)(2) of the Code determined without
regard to Section 852(b)(2)(D) of the Code) for its taxable year ending on
the Closing Date, all of the excess of (i) its interest income excludable
from gross income under Section 103(a) of the Code over (ii) its
deductions disallowed under Sections 265 and 171(a)(2) of the Code for its
taxable year ending on the Closing Date, and all of its net capital gain
(as such term is used in Sections 852(b)(3)(A) and (C) of the Code), after
reduction by any available capital loss carryforward, for its taxable year
ending on the Closing Date; and
8.6 parties shall have received an opinion of Hale and Dorr LLP, satisfactory
to the Trust on behalf of the Acquired Fund and the Trust II on behalf of
the Acquiring Fund, substantially to the effect that for federal income
tax purposes:
(a) The acquisition by the Acquiring Fund of all of the assets of the Acquired
Fund solely in exchange for the issuance of Acquiring Fund Shares to the
Acquired Fund and the assumption of all of the Acquired Fund Liabilities
by the Acquiring Fund, followed by the distribution by the Acquired Fund,
in liquidation of the Acquired Fund, of Acquiring Fund Shares to the
shareholders of the Acquired Fund in exchange for their shares of
beneficial interest of the Acquired Fund and the termination of the
Acquired Fund, will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and the Acquired Fund and the Acquiring Fund
will each be "a party to a reorganization" within the meaning of Section
368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund upon (i) the
transfer of all of its assets to the Acquiring Fund solely in exchange for
the issuance of Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring Fund;
and (ii) the distribution by the Acquired Fund of such Acquiring Fund
Shares to the shareholders of the Acquired Fund;
(c) No gain or loss will be recognized by the Acquiring Fund upon the receipt
of
40
<PAGE>
the assets of the Acquired Fund solely in exchange for the issuance of the
Acquiring Fund Shares to the Acquired Fund and the assumption of all of
the Acquired Fund Liabilities by the Acquiring Fund;
(d) The basis of the assets of the Acquired Fund acquired by the Acquiring
Fund will be, in each instance, the same as the basis of those assets in
the hands of the Acquired Fund immediately prior to the transfer;
(e) The tax holding period of the assets of the Acquired Fund in the hands of
the Acquiring Fund will, in each instance, include the Acquired Fund's tax
holding period for those assets;
(f) The shareholders of the Acquired Fund will not recognize gain or loss upon
the exchange of all of their shares of beneficial interest of the Acquired
Fund solely for Acquiring Fund Shares as part of the transaction;
(g) The basis of the Acquiring Fund Shares received by the Acquired Fund
shareholders in the transaction will be the same as the basis of the
shares of beneficial interest of the Acquired Fund surrendered in exchange
therefor; and
(h) The tax holding period of the Acquiring Fund Shares received by the
Acquired Fund shareholders will include, for each shareholder, the tax
holding period for the shares of the Acquired Fund surrendered in exchange
therefor, provided that the Acquired Fund shares were held as capital
assets on the date of the exchange.
The Trust II and the Trust agree to make and provide representations with
respect to the Acquiring Fund and the Acquired Fund, respectively, which are
reasonably necessary to enable Hale and Dorr LLP to deliver an opinion
substantially as set forth in this Paragraph 8.6. Notwithstanding anything
herein to the contrary, neither the Trust nor the Trust II may waive the
conditions set forth in this Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust II on behalf of the Acquiring Fund, and the Trust on behalf of
the Acquired Fund each represent and warrant to the other that there are
no brokers or finders entitled to receive any payments in connection with
the transactions provided for herein.
9.2 The Acquiring Fund and the Acquired Fund shall each be liable solely for
its own expenses incurred in connection with entering into and carrying
out the provisions of this Agreement whether or not the transactions
contemplated hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
41
<PAGE>
10.1 The Trust II on behalf of the Acquiring Fund, and the Trust on behalf of
the Acquired Fund agree that neither party has made any representation,
warranty or covenant not set forth herein or referred to in Paragraph 4
hereof and that this Agreement constitutes the entire agreement between
the parties.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Trust II,
on behalf of the Acquiring Fund, and the Trust on behalf of the Acquired
Fund. In addition, either party may at its option terminate this Agreement
at or prior to the Closing Date:
(a) because of a material breach by the other of any representation, warranty,
covenant or agreement contained herein to be performed at or prior to the
Closing Date;
(b) because of a condition herein expressed to be precedent to the obligations
of the terminating party which has not been met and which reasonably
appears will not or cannot be met;
(c) by resolution of the Trust II's Board of Trustees if circumstances should
develop that, in the good faith opinion of such Board, make proceeding
with the Agreement not in the best interests of the Acquiring Fund's
shareholders; or
(d) by resolution of the Trust's Board of Trustees if circumstances should
develop that, in the good faith opinion of such Board, make proceeding
with the Agreement not in the best interests of the Acquired Fund's
shareholders.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Trust II, the Acquiring Fund, the Trust, or the
Acquired Fund, or the Trustees or officers of the Trust II or the Trust,
but each party shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon by the authorized officers of the Trust and the Trust II.
However, following the meeting of shareholders of the Acquired Fund held
pursuant
42
<PAGE>
to Paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions regarding the method for determining the number of
Acquiring Fund Shares to be received by the Acquired Fund shareholders under
this Agreement to the detriment of such shareholders without their further
approval; provided that nothing contained in this Article 12 shall be construed
to prohibit the parties from amending this Agreement to change the Closing Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to the Acquiring Fund or to the Acquired
Fund, each at 101 Huntington Avenue, Boston, Massachusetts 02199, Attention:
President, and, in either case, with copies to Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts 02109, Attention: Pamela J. Wilson, Esq.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any
party without the prior written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or
by reason of this Agreement.
14.5 All persons dealing with the Trust or the Trust II must look solely to the
property of the Trust or the Trust II, respectively, for the enforcement
of any claims against the Trust or the Trust II as the Trustees, officers,
agents and shareholders of the Trust or the Trust II assume no personal
liability for obligations entered into on behalf of the Trust or the Trust
II, respectively. None of the other series of the Trust or the Trust II
shall be responsible for any obligations assumed by on or behalf of the
Acquired Fund or the Acquiring Fund, respectively, under this Agreement.
43
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first set forth above by its President or Vice President
and has caused its corporate seal to be affixed hereto.
JOHN HANCOCK BOND TRUST on behalf of
JOHN HANCOCK GOVERNMENT INCOME FUND
By: /s/ Anne C. Hodsdon
-----------------------------
Anne C. Hodsdon
President
JOHN HANCOCK STRATEGIC SERIES on behalf of
JOHN HANCOCK SOVEREIGN U.S. GOVERNMENT INCOME FUND
By: /s/ Susan S. Newton
-----------------------------
Susan S. Newton
Vice President and Secretary
44
<PAGE>
NOTES
45
<PAGE>
NOTES
46
<PAGE>
=======================================
Thank You
for mailing
your proxy card
promptly!
=======================================
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
John Hancock Funds, Inc., Member NASD
101 Huntington Avenue, Boston, MA 02199-7603
1-800-225-5291 1-800-554-6713 (TDD)
John Hancock(R) 020PX 9/98
<PAGE>
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK SOVEREIGN U.S. GOVERNMENT INCOME FUND
SPECIAL MEETING OF SHAREHOLDERS - NOVEMBER 11, 1998
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward J.
Boudreau, Jr., Susan S. Newton and James B. Little, with full power of
substitution in each, to vote all the shares of beneficial interest of John
Hancock Sovereign U.S. Government Income Fund ("Sovereign U.S. Government Fund")
which the undersigned is (are) entitled to vote at the Special Meeting of
Shareholders (the "Meeting") of Sovereign U.S. Government Fund to be held at 101
Huntington Avenue, Boston, Massachusetts, on November 11, 1998 at 9:00 a.m.,
Boston time, and at any adjournment(s) of the Meeting. All powers may be
exercised by a majority of all proxy holders or substitutes voting or acting,
or, if only one votes and acts, then by that one. Receipt of the Proxy Statement
dated September 24, 1998 is hereby acknowledged. If not revoked, this proxy
shall be voted for the proposal.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date ___________________, 1998
NOTE: Signature(s) should agree with the
the name(s) printed herein. When signing
as attorney, executor, administrator,
trustee or guardian, please give your
full name as such. If a corporation,
please sign in full corporate name by
president or other authorized officer. If
a partnership, please sign in partnership
name by authorized person.
---------------------------------
---------------------------------
Signature(s)
<PAGE>
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
THIS PROXY SHALL BE VOTED IN FAVOR OF (FOR) PROPOSAL 1 IF NO SPECIFICATION IS
MADE BELOW. AS TO ANY OTHER MATTER, THE PROXY OR PROXIES SHALL VOTE IN
ACCORDANCE WITH THEIR BEST JUDGEMENT.
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW.
(1) To approve an Agreement and Plan of Reorganization between Sovereign
U.S. Government Fund and John Hancock Government Income Fund
("Government Income Fund"). Under this Agreement, Sovereign U.S.
Government Fund would transfer all of its assets to Government Income
Fund in exchange for shares of Government Income Fund. These shares
will be distributed proportionately to you and the other shareholders
of Sovereign U.S. Government Fund. Government Income Fund will also
assume Sovereign U.S.
Government Fund's liabilities.
FOR |_| AGAINST |_| ABSTAIN |_|
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
