[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm August 27, 1999
Dear Fellow Shareholder:
I am writing to ask for your vote on an important matter that will affect your
investment in John Hancock Short-Term Strategic Income Fund.
You may be aware that in addition to your fund, John Hancock Funds offers a
similar multi-sector bond fund called John Hancock Strategic Income Fund.
Strategic Income Fund seeks high current income through flexible investments in
international fixed-income securities, U.S. government issues and high-yielding
corporate bonds.
After careful consideration, your fund's trustees have unanimously agreed that
merging your fund into John Hancock Strategic Income Fund will offer you a
similar investment objective and strategy with lower 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 before voting.
Your Vote Makes a Difference!
No matter what size 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>
Q&A
Q: What are the benefits of merging Short-Term Strategic Income Fund into
Strategic Income Fund?
A: Strategic Income Fund is more widely recognized in the mutual fund
marketplace than your fund, which has made it harder for your fund to raise
assets and reduce expenses. Your trustees firmly believe this merger will
allow you to continue investing for a high level of current income at a lower
expense.
Strategic Income Fund's asset base after the merger is projected to be $1.24
billion. This is significantly larger than Short-Term Strategic Income Fund's
pre-merger asset base of $61 million and should allow for lower operating
expenses than your fund. Following the merger, annual expense ratios are
projected to be 0.89% for Class A shareholders, down from 1.33%, and 1.59%
for Class B and Class C shareholders, down from 2.03%. Expected lower
expenses should help keep more of your money invested, which often helps
bolster an investment's total return over time.
Q: How does Strategic Income Fund's strategy compare with that of Short-Term
Strategic Income Fund?
A: Both funds seek a high level of current income through investments in foreign
government and corporate debt securities from developed and emerging markets,
U.S. government and agency securities and U.S. corporate debt securities.
Unlike Short-Term Strategic Income Fund, Strategic Income Fund has a wider
investment scope which allows the fund to invest in junk bonds rated as low
as CC/Ca and their unrated equivalents. These bonds entail some credit risk,
which Strategic Income Fund attempts to minimize by applying sound credit
research and a relatively conservative investment approach. This strategy
also allows Strategic Income Fund to seek higher current income than your
fund.
Short-Term Strategic Income Fund maintains an average portfolio quality
rating of A, which is an investment-grade rating, and an average portfolio
maturity of three years or less. While Strategic Income Fund generally
intends to keep its average credit quality in the investment-grade range (as
of July 30, 1999 its average credit quality was A), there is no limit on the
fund's average maturity. Over the past three years, Strategic Income Fund
has maintained an average maturity between 8 to 12 years. Lower quality and
longer maturity increase risk, however, management believes they offer
greater diversification and therefore can potentially minimize investment
risks.
<PAGE>
Q: Who manages Strategic Income Fund?
A: Both funds are managed by the same team of portfolio managers, led by
Frederick L. Cavanaugh, Jr. A senior vice president, Mr. Cavanaugh has more
than 25 years of investment experience and has managed Strategic Income Fund
since its inception on August 18, 1986. His expertise includes the high-yield
bond market and international economies.
Q: How has Strategic Income Fund performed?
A: Although past performance does not necessarily guarantee future results,
Strategic Income Fund has been a steady performer over the years. As of May
31, 1999, the fund's Class A shares have posted average annual total returns
at public offering price of -1.86% over the past year, 8.89% over the past
five years and 7.80% since inception. The fund's Class B shares have posted
average annual total returns of -2.70% over the past year, 8.87% over the
past five years and 7.88% since inception on October 4, 1993. The fund's
Class C shares have posted an average annual total return of 1.09% over the
past year and 2.07% since inception on May 1, 1998.* This performance has
earned Strategic Income Fund a **** (4-star) rating as of May 31, 1999.** To
review Strategic Income Fund in more detail, please refer to the "Comparative
Performance" chart on page 21, or the John Hancock Income Funds prospectus
and Strategic Income Fund's most recent annual 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 October 13,
1999 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 Short-Term Strategic Income Fund shares will
be converted to Strategic Income Fund shares, using the funds' net asset
value share prices, excluding sales charges, as of the close of trading on
October 22, 1999. This conversion will not affect the total dollar value of
your investment.
<PAGE>
Q&A continued
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 1999 tax return.
* Performance figures assume that distributions are reinvested and
reflect a maximum sales charge on Class A shares of 4.5% and the
applicable contingent deferred sales charge (CDSC) on Class B shares
and Class C shares. The CDSC on Class B shares 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. Class C shares held
for less than one year are subject to a 1% CDSC. 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.
** Morningstar proprietary ratings reflect historical risk-adjusted
performance as of 5/31/99. The ratings are subject to change every
month. Past performance is no guarantee of future results. Morningstar
ratings are calculated from the funds' three-, five- and ten-year
average annual returns (if applicable) in excess of 90-day Treasury
bill returns with appropriate fee adjustments, and a risk factor that
reflects fund performance below 90-day T-bill returns. Strategic Income
Fund Class B received three and five stars for the three- and five-year
periods, respectively. Strategic Income Fund Class A received three
stars, five stars and two stars for the three-, five- and ten-year
periods, respectively. The top 10% of the funds in a broad asset class
receive five stars, the next 22.5% receive four stars, the next 35%
receive three stars, the next 22.5% receive two stars and the bottom
10% receive one star. The fund was rated among 1,536, 1,085 and 369
taxable bond funds for the three-, five- and ten-year periods,
respectively.
<PAGE>
JOHN HANCOCK SHORT-TERM STRATEGIC INCOME FUND
(a series of John Hancock Investment Trust III)
101 Huntington Avenue Boston, MA 02199
NOTICE OF MEETING OF SHAREHOLDERS
SCHEDULED FOR OCTOBER 13, 1999
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 Short-Term Strategic Income Fund:
A shareholder meeting for your fund will be held at 101 Huntington Avenue,
Boston, Massachusetts on Wednesday, October 13, 1999 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 Strategic Income Fund. Under this
Agreement, your fund would transfer all of its assets to Strategic
Income Fund in exchange for shares of Strategic Income Fund. These
shares would be distributed proportionately to you and the other
shareholders of your fund. Strategic 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 August 11, 1999 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 the other shareholders.
By order of the board of trustees,
/s/Susan S. Newton
------------------
Susan S. Newton
Secretary
August 27, 1999
320PX 8/99
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
PROXY STATEMENT OF
JOHN HANCOCK SHORT-TERM STRATEGIC INCOME FUND
(a series of John Hancock Investment Trust III)
PROSPECTUS FOR
CLASS A, CLASS B AND CLASS C SHARES OF
JOHN HANCOCK STRATEGIC INCOME FUND
(a series of John Hancock Strategic Series)
101 Huntington Avenue Boston, MA 02199
This proxy statement and prospectus contains the information you should know
before voting on the proposed reorganization of your fund into John Hancock
Strategic 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 Strategic Income Fund.
Strategic Income Fund will assume your fund's liabilities.
o Strategic 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 Strategic 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 Strategic Income Fund will issue Class C shares to your fund in an
amount equal to the value of your fund's Class C shares. These shares
will be distributed to your fund's Class C 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
Strategic Income Fund.
Shares of Strategic 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 Strategic 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.
- --------------------------------------------------------------------------------
Where to Get More Information
- --------------------------------------------------------------------------------
Prospectus of Strategic Income In the same envelope as this proxy
Fund dated April 1, 1999. statement and prospectus. Incorporated
- --------------------------------------- by reference into this proxy statemen
Strategic Income Fund's and prospectus.
annual report to shareholders.
- --------------------------------------------------------------------------------
Your fund's annual and semi-annual On file with the Securities and
reports to shareholders. Exchange Commission ("SEC") and
- --------------------------------------- available at no charge by calling
A statement of additional 1-800-225-5291. Incorporated by
information dated August 27, 1999. reference into this proxy statement
It contains additional information and prospectus.
about your fund and Strategic Income
Fund.
- --------------------------------------------------------------------------------
To ask questions about this proxy Call our toll-free telephone
statement and prospectus. number: 1-800-225-5291.
- --------------------------------------------------------------------------------
The date of this proxy statement and prospectus is August 27, 1999.
2
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION...................................................... 4
SUMMARY .......................................................... 4
INVESTMENT RISKS ................................................. 16
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION ...................................... 19
CAPITALIZATION ................................................... 26
ADDITIONAL INFORMATION ABOUT
THE FUNDS' BUSINESSES ........................................... 27
BOARDS' EVALUATION AND RECOMMENDATION ............................ 27
VOTING RIGHTS AND REQUIRED VOTE .................................. 28
INFORMATION CONCERNING THE MEETING ............................... 29
OWNERSHIP OF SHARES OF THE FUNDS ................................. 31
EXPERTS .......................................................... 32
AVAILABLE INFORMATION ............................................ 32
EXHIBITS
A - Agreement and Plan of Reorganization between John Hancock
Short-Term Strategic Income Fund and John Hancock Strategic Income Fund
(attached to this proxy statement).
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, October 13, 1999 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 Strategic Income Fund. This proxy statement and prospectus is being
mailed to your fund's shareholders on or about August 27, 1999.
Who is Eligible to Vote?
Shareholders of record on August 11, 1999 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 Short-Term Strategic Income Fund
to Strategic Income Fund
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Strategic Strategic Income
Income Fund Fund
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Business: A diversified series of John A diversified series of John
Hancock Investment Trust III. Hancock Investment Trust III.
The trust is an open-end The trust is an open-end
investment company organized investment company organized
as a Massachusetts business trust. as a Massachusetts business trust.
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets as of $61 million. $1,183 million.
May 31, 1999:
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Investment John Hancock Advisers, Inc. John Hancock Advisers, Inc.
adviser and
portfolio Fredrick L. Cavanaugh, Jr. Fredrick L. Cavanaugh, Jr.
managers: oSenior vice pres. of adviser oSenior vice pres. of adviser
oJoined team in 1998 oJoined team in 1986
oJoined adviser in 1986 oJoined adviser in 1986
oBegan career in 1975 oBegan career in 1975
Arthur N. Calavritinos, CFA Arthur N. Calavritinos, CFA
oVice pres. of adviser oVice pres. of adviser
oJoined team in 1998 oJoined team in 1995
oJoined adviser in 1988 oJoined adviser in 1988
oBegan career in 1986 oBegan career in 1986
- ------------------------------------------------------------------------------------------------------------------------------------
5
<PAGE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Strategic Strategic Income
Income Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Investment objective/ The fund seeks a high level The fund seeks a high level
primary of current income. This of current income. This
investments: objective cannot be changed objective cannot be changed
without shareholder approval. without shareholder approval.
The fund invests primarily The fund invests primarily
in: in:
o foreign government o foreign government
and corporate debt and corporate debt
securities from securities from
developed and developed and
emerging markets; emerging markets;
o U.S. government and o U.S. government and
agency securities; agency securities;
o U.S. corporate debt o U.S. junk bonds.
securities.
Under normal Under normal
circumstances, the fund circumstances, the fund
invests in all three of these invests in all three of these
sectors, but may invest up sectors, but may invest up
to 100% of assets in any one to 100% of assets in any one
sector. sector.
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign debt Each fund may invest in foreign debt securities without any percentage limit.
securities:
- ------------------------------------------------------------------------------------------------------------------------------------
Junk bonds: The fund may invest up to The fund may invest without
67% of assets in junk bonds limit in junk bonds rated as
rated as low as B and their low as CC/Ca and their unrated
unrated equivalents. equivalents.
- ------------------------------------------------------------------------------------------------------------------------------------
Average The fund maintains an average The fund generally intends
portfolio quality portfolio quality rating of A, to keep its average credit
rating: which is an investment-grade quality in the investment-
rating. grade range.
- ------------------------------------------------------------------------------------------------------------------------------------
Average portfolio The fund maintains an There is no limit on the
maturity: average portfolio maturity fund's average maturity.
of three years or less.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities: The fund typically does not The fund may invest up to
invest in equity securities. 10% of net assets in U.S. or
foreign equity securities.
- ------------------------------------------------------------------------------------------------------------------------------------
6
<PAGE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Strategic Strategic Income
Income Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Diversification: The fund became The fund is diversified and
diversified in April, 1999. cannot invest more than
5% of total assets in
securities of a single issuer,
except that the fund may
invest up to 25% of assets
in securities of a single
foreign government.
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Pay-in-kind, Each fund may invest in pay-in-kind, delayed and zero
delayed and coupon debt securities.
zero coupon
debt securities:
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Illiquid Each fund may invest up to 15% of net assets in illiquid
securities: securities.
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Structured Each fund may invest without limit in structured securities, which include
securities: indexed and/or leveraged mortgage-backed and other debt securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage- Each fund may invest without limit in mortgage-backed and asset-backed
backed and securities.
asset-backed
securities:
- ------------------------------------------------------------------------------------------------------------------------------------
Currency Each fund may enter into currency contracts for hedging or speculative purposes.
contracts:
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Each fund may invest without limit in financial futures, options on futures and
futures and options on securities and indices.
related options;
options on
securities and
indices:
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When-issued Both funds may purchase when-issued securities and purchase or sell securities
and forward in forward commitment transactions.
commitment
transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term Neither fund is subject to any limitations on short-term trading.
trading:
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase Both funds may invest without limitation in repurchase agreements.
agreements:
- ------------------------------------------------------------------------------------------------------------------------------------
Securities The fund may lend portfolio The fund may lend portfolio
lending: securities up to 30% of total assets. securities up to 30% of total assets.
- ------------------------------------------------------------------------------------------------------------------------------------
7
<PAGE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Strategic Strategic Income
Income Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing The fund will not purchase The fund may borrow
and reverse securities for investment money in an amount that
repurchase while borrowings equaling does not exceed 33% of its
agreements: 5% or more of the Fund's total assets.
total assets are outstanding.
- ------------------------------------------------------------------------------------------------------------------------------------
Neither will borrow money or enter into reverse repurchase
agreements except from banks temporarily for extraordinary
or emergency purposes (not for leveraging or investment)
and then in an aggregate amount not in excess of 10%
of the value of the fund's total assets at the time of
such borrowing.
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CLASSES OF SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Strategic Strategic Income
Income Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Class A sales Class A shares are offered Class A shares are offered
charges and with front-end sales charges with front-end sales charges
12b-1 fees: ranging from 2% to 3% of ranging from 2% to 4.5% of the
the fund's offering price, fund's offering price, depending
depending on the amount on the amount invested. Class
invested. Class A shares are A shares are subject to a 12b-1
subject to a 12b-1 distribution distribution fee equal to 0.30%
fee equal to 0.30% annually annually of average net assets.
of average net assets.
- ------------------------------------------------------------------------------------------------------------------------------------
The Class A shares of both funds have the following
characteristics in common:
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' prospectuses.
- ------------------------------------------------------------------------------------------------------------------------------------
8
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
CLASSES OF SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Strategic Strategic Income
Income Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Class B sales Class B shares are offered Class B shares are offered
charges and without a front-end sales without a front-end sales
12b-1 fees: charge, but are subject to charge, but are subject to
a contingent deferred sales a contingent deferred sales
charge (CDSC) if sold within charge (CDSC) if sold within
four years after purchase. four years after purchase.
The CDSC ranges from 1.00% The CDSC ranges from 1.00%
to 3.00% depending on how to 3.00% depending on how
long the shares are held. long the shares are held.
No CDSC is imposed on shares No CDSC is imposed on shares
held more than four years. held more than four years.
Class B shares are subject Class B shares are subject
to 12b-1 distribution and to 12b-1 distribution and
service fees equal to 1.00% service fees equal to 1.00%
annually of average net annually of average net
assets. assets.
CDSCs are waived for the CDSCs are waived for the
categories of investors categories of investors
listed in the funds' listed in the funds'
prospectus. prospectus.
Class B shares automatically Class B shares automatically
convert to Class A shares convert to Class A shares
after five years. after five years.
- ------------------------------------------------------------------------------------------------------------------------------------
Class C sales The Class C shares of both funds have the same characteristics and fee
charges and structure.
12b-1 fees:
o Class C shares are offered without a front-end sales charge, but are subject
to a contingent deferred sales charge of 1.00% on shares sold within one year of
purchase.
o Class C shares are subject to 12b-1 distribution and service fees equal to
1.00% annually of average net assets.
o No automatic conversion to Class A shares, so annual expenses continue at the
Class C level throughout the life of the investment.
- ------------------------------------------------------------------------------------------------------------------------------------
12b-1 fees: o These fees are paid out of a fund's assets on an ongoing basis. Over time
these fees will increase the cost of investments and may cost more than other
types of sales charges.
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9
<PAGE>
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BUYING, SELLING AND EXCHANGING SHARES
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Both Short-Term Strategic Income Fund and Strategic Income Funds
- ------------------------------------------------------------------------------------------------------------------------------------
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 June 11, 1999, investors will not be allowed to open new accounts in
Short-Term Strategic Income Fund but can add to existing accounts.
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum initial $1,000 for non-retirement accounts and $250 for retirement accounts and group
investment: investments.
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Exchanging Shareholders may exchange their shares at net asset value with no sales charge
shares: for shares of the same class of any other John Hancock fund.
- ------------------------------------------------------------------------------------------------------------------------------------
Selling shares: Shareholders may sell their shares by submitting a proper written or telephone
request to John Hancock Signature Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------------------------------------------------------------
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, 1999, 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 $10,000 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.
Pro Forma Expenses
The following expense table shows the pro forma expenses of Strategic Income
Fund for the year ending May 31, 1999 assuming that a reorganization with your
fund had occurred May 31, 1998. The expenses shown in the table are based on
fees and expenses incurred during the twelve months ended May 31, 1999, adjusted
to reflect any changes. Strategic Income Fund's actual expenses after the
reorganization may be greater or less than those shown.
10
<PAGE>
The example contained in the pro forma expense table shows what you would have
paid on a $10,000 investment if the reorganization had occurred on May 31, 1998.
The example assumes that you had 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 Strategic Income Fund's actual expenses or returns,
either past or future.
Strategic Income
(PRO FORMA for
the year ended
5/31/99)
(Assuming
reorganization
Short-Term Strategic with Short-Term
Shareholder Strategic Income Income Strategic Income)
transaction expenses Class A Class A Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases
(as a % of offering price) 3.00% 4.50% 4.50%
Maximum sales charge imposed
on Reinvested dividends none none none
Maximum deferred sales charge
(load) as a % of purchase or
sale price, whichever is less none(1) none(1) none(1)
Redemption fee none(2) none(2) none(2)
Exchange fee none none none
Annual fund operating expenses
(as a % of average net assets) Class A Class A Class A
- ------------------------------------------------------------------------------------------------------------------------------------
Management fee 0.65% 0.38% 0.37%
Distribution and service (12b-1) fee 0.30% 0.30% 0.30%
Other expenses 0.38% 0.21% 0.22%
---------- ---------- ----------
Total fund operating expenses 1.33% 0.89% 0.89%
Shareholder
transaction expenses Class B Class B Class B
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum sales charge (load)
imposed on purchases
(as a % of offering price) none none none
Maximum sales charge imposed
on reinvested dividends none none none
Maximum deferred sales charge
(load) as a % of purchase or sale
price, whichever is less 3.00% 5.00% 5.00%(3)
Redemption fee none(2) none(2) none(2)
Exchange fee none none none
11
<PAGE>
Strategic Income
(PRO FORMA for
the year ended
5/31/99)
(Assuming
reorganization
Short-Term Strategic with Short-Term
Annual fund operating expenses Strategic Income Income Strategic Income)
(as a % of average net assets)
Class B Class B Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee 0.65% 0.38% 0.37%
Distribution and service (12b-1) fee 1.00% 1.00% 1.00%
Other expenses 0.38% 0.21% 0.22%
Total fund operating expenses 2.03% 1.59% 1.59%
Shareholder
transaction expenses Class C Class C Class C
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum sales charge (load)
imposed on purchases (as a %
of offering price) none none none
Maximum sales charge imposed
on reinvested dividends none none none
Maximum deferred sales charge
(load) as a % of purchase or sale
price, whichever is less 1.00% 1.00% 1.00%
Redemption fee none(2) none(2) none(2)
Exchange fee none none none
Annual fund operating expenses
(as a % of average net assets) Class C Class C Class C
- ------------------------------------------------------------------------------------------------------------------------------------
Management fee 0.65% 0.38% 0.37%
Distribution and service (12b-1) fee 1.00% 1.00% 1.00%
Other expenses 0.38% 0.21% 0.22%
---------- ---------- ----------
Total fund operating expenses 2.03% 1.59% 1.59%
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) Class B Strategic Income Fund shares received by Class B Short-Term
Strategic Income Fund shareholders in the reorganization will retain their
lower maximum sales charge and shorter conversion period. Strategic Income
Fund Class B shares purchased after the reorganization will be subject to
Strategic Income Fund's maximum deferred sales change of 5.00% and its
longer conversion period (eight years) and longer contingent deferred sales
charge period (six years).
12
<PAGE>
EXAMPLES
Strategic Income
(PRO FORMA)
(Assuming reorganization
Short-Term Strategic with Short-Term
Class A Strategic Income Income Strategic Income)
- ------------------------------------------------------------------------------------------------------------------------------------
Year 1 $ 431 $ 537 $ 537
Year 3 $ 709 $ 721 $ 721
Year 5 $ 1,007 $ 921 $ 921
Year 10 $ 1,853 $ 1,497 $ 1,497
Class B-assuming
redemption at end of period
- ------------------------------------------------------------------------------------------------------------------------------------
Year 1 $ 506 $ 662 $ 662
Year 3 $ 837 $ 802 $ 802
Year 5 $ 1,093 $ 1,066 $ 1,066
Year 10 $ 1,937 $ 1,702 $ 1,702
Class B-
assuming no redemption
- ------------------------------------------------------------------------------------------------------------------------------------
Year 1 $ 206 $ 162 $ 162
Year 3 $ 637 $ 502 $ 502
Year 5 $ 1,093 $ 866 $ 866
Year 10 $ 1,937 $ 1,702 $ 1,702
Class C-assuming
redemption at end of period
- ------------------------------------------------------------------------------------------------------------------------------------
Year 1 $ 306 $ 262 $ 262
Year 3 $ 637 $ 502 $ 502
Year 5 $ 1,093 $ 866 $ 866
Year 10 $ 2,358 $ 1,889 $ 1,889
Class C-
assuming no redemption
- ------------------------------------------------------------------------------------------------------------------------------------
Year 1 $ 206 $ 162 $ 162
Year 3 $ 637 $ 502 $ 502
Year 5 $ 1,093 $ 866 $ 866
Year 10 $ 2,358 $ 1,889 $ 1,889
13
<PAGE>
The Reorganization
o The reorganization is scheduled to occur at 5:00 p.m., Eastern Time,
on October 22, 1999, but may occur on any later date before April 30,
2000. Your fund will transfer all of its assets to Strategic Income
Fund. Strategic 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 Strategic 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 Strategic Income Fund.
o Strategic 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 Strategic Income Fund.
o Strategic Income Fund will issue to your fund Class C shares in an
amount equal to the aggregate net asset value of your fund's Class C
shares. These shares will immediately be distributed to your fund's
Class C shareholders in proportion to their holdings on the
reorganization date. As a result, Class C shareholders of your fund
will end up as Class C shareholders of Strategic 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.
14
<PAGE>
The following diagram shows how the reorganization would be carried out:
- ------------------------- ---------------------
Short-Term Strategic Short-Term Strategic Strategic Income
Income Fund Income Fund Fund receives assets
transfers assets & assets and & assumes liabilities
liabilities to Strategic liabilities of Short-Term
Income Fund ------------------->------------------------ Strategic Income
Fund
- ------------------------ ---------------------
- --------------- ------------- ------------ -----------
Class A Class B & C Issues Class Issues
shareholders shareholders B & C Class A
shares shares
- --------------- ------------- ------------ -----------
---------------<-----------------
Your fund receives Strategic Income Fund
Class A, B & C shares and distributes
them to your fund's Class A, B & C shareholders
--------------------------------------<-----------------------------------------
Other Consequences of the Reorganization. Each fund pays monthly advisory fees
equal to the following annual percentage of its average daily net assets:
----------------------------------------------------------
Fund Asset Breakpoints Short-Term
Strategic Income
----------------------------------------------------------
First $500,000,000 0.65%
----------------------------------------------------------
Amount over $500,000,000 0.60%
----------------------------------------------------------
----------------------------------------------------------
Fund Asset Breakpoints Strategic Income
----------------------------------------------------------
First $100,000,000 0.60%
----------------------------------------------------------
Next $150,000,000 0.45%
----------------------------------------------------------
Next $250,000,000 0.40%
----------------------------------------------------------
Next $150,000,000 0.35%
----------------------------------------------------------
Amount over $650,000,000 0.30%
----------------------------------------------------------
Strategic Income Fund's management fee rate of 0.38% and its pro forma
management fee rate of 0.37% are substantially lower than your fund's management
fee rate of 0.65%. Strategic Income Fund's other expenses of 0.21% and its pro
forma other expenses of 0.22% are also substantially lower than your
15
<PAGE>
fund's other expenses of 0.38%. Both funds have the same 12b-1 fees for Class A
shares (0.30%) and the same 12b-1 fees for Class B and Class C shares (1.00%)
although your fund's Class B distribution payment last year was 0.96%. Strategic
Income Fund's current annual Class A expense ratio (equal to 0.89% of average
net assets) and its pro forma Class A expense ratio (equal to 0.89% of average
net assets) are substantially lower than your fund's current Class A expense
ratio (equal to 1.33% of average net assets). Strategic Income Fund's current
annual Class B and Class C expense ratio (equal to 1.59% of average net assets)
and its pro forma Class B and Class C expense ratio (equal to 1.59% of average
net assets) are also substantially lower than your fund's current Class B and
Class C expense ratio (equal to 2.03% of average net assets).
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 compares the risks
affecting each fund.
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Strategic Strategic Income
Income Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Risks of debt The value of the funds' portfolios will change in response to movements of the
securities: bond market. When interest rates rise, bond prices generally fall. A fund with a
higher average maturity is generally more sensitive to interest rate risk. Your
fund maintains an average portfolio maturity of 3 years or less. There is no
limit on Strategic Income Fund's average portfolio maturity (in recent years it
has ranged from 8-12 years). Debt securities held by the funds are also subject
to the risk that the issuer of a security will have its credit rating
downgraded, will default or will otherwise fail to meet its obligations.
- ------------------------------------------------------------------------------------------------------------------------------------
Risks of below The value of below investment grade debt securities, also called junk bonds,
investment fluctuates more than that of higher rated debt securities, and there is a
grade debt greater risk of loss of principal and income. Lower ratings reflect a greater
securities: possibility of an adverse change in the financial condition of the issuer. The
market price and liquidity of below investment grade securities generally
respond more to short-term developments affecting the issuer of these securities
than the market price and liquidity of higher rated securities because economic
conditions are perceived to have a closer relationship to the ability of a lower
rated issuer to meet its obligations.
- ------------------------------------------------------------------------------------------------------------------------------------
16
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Strategic Strategic Income
Income Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Risks of below Your fund may invest up to The risk profile of Strategic
investment 67% of its assets in these Income Fund is greater than
grade debt securities. To the extent your fund because Strategic
securities: that the fund invests in Income Fund may invest without
these securities, it is limit in these securities.
exposed to these risks. However, historically, Strategic
Income Fund has invested less
than 67% of its assetes in
these securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Risks of equity The market value of equity securities may move up and down, sometimes rapidly
securities: and unpredictably. These fluctuations may cause the stock to be worth less than
the price originally paid for it, or less than it was worth at an earlier time.
- ------------------------------------------------------------------------------------------------------------------------------------
Your fund typically does Strategic Income Fund may
not invest in equity invest up to 10% of its
securities. assets in equity securities.
To the extent that the fund
invests in these securities,
it is exposed to these
risks.
- ------------------------------------------------------------------------------------------------------------------------------------
Diversification Both funds are diversified and are not subject to the risk of
risks: non-diversification.
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign The funds' investments in foreign securities are subject to the risks of adverse
Securities and foreign government actions, political instability or a lack of adequate and
currency risks: accurate information. Also, currency exchange rate movements could reduce gains
or create losses. The risks of international investing are higher in emerging
markets such as those of Latin America and Southeast Asia.
- ------------------------------------------------------------------------------------------------------------------------------------
17
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Strategic Strategic Income
Income Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Risks of The funds' investments in restricted and illiquid securities may be difficult or
restricted and impossible to sell at a desirable time or a fair price. Restricted and illiquid
illiquid securities also present a greater risk of inaccurate valuation.
securities:
- ------------------------------------------------------------------------------------------------------------------------------------
Risks of These instruments are subject to the risk that the issuer will default or
asset-backed and otherwise fail to meet its obligations. In addition, mortgage-backed securities
mortgage-backed are subject to the risk that the life of the security will be extended beyond
securities: its expected repayment time. This 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 reduces the
security's value.
- ------------------------------------------------------------------------------------------------------------------------------------
Risks of Most of these derivative instruments involve leverage, which increases market
derivative risks. Leverage magnifies gains and losses on derivatives relative to changes in
instruments, the value of underlying assets. If a derivative is used for hedging purposes,
including changes in the value of the derivative may not match those of the hedged asset.
financial futures, Over-the-counter derivatives may be illiquid or hard to value accurately. In
options on addition, the other party may default on its obligations. If markets for
futures, underlying assets do not move in the right direction, a fund's performance may
securities and be worse than if it had not used derivatives.
index options
and structured
securities:
- ------------------------------------------------------------------------------------------------------------------------------------
18
<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 October 22, 1999, but may occur on any later date before April 30,
2000. Your fund will transfer all of its assets to Strategic Income
Fund and Strategic Income Fund will assume all of your fund's
liabilities. This will result in the addition of your fund's assets to
Strategic 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 Strategic 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 Strategic Income Fund.
o Strategic 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 Strategic Income Fund.
o Strategic Income Fund will issue to your fund Class C shares in an
amount equal to the aggregate net asset value of your fund's Class C
shares. As part of the liquidation of your fund, these shares will
immediately be distributed to Class C shareholders of record of your
fund in proportion to their holdings on the reorganization date. As a
result, Class C shareholders of your fund will end up as Class C
shareholders of Strategic Income Fund.
o After the reorganization is over, the existence of your fund will be
terminated.
19
<PAGE>
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. Strategic Income Fund has a larger asset size than your fund
and may invest in a broader range of securities, including domestic high yield
bonds as well as foreign bonds and government bonds. Combining the funds' assets
into a single investment portfolio will afford greater diversification, making
investors less vulnerable to weakness in any single sector of the bond market.
Second, Strategic Income Fund Class A shares have performed better than Class A
shares of your fund over the past 1, 3 and 5 year periods, and Strategic Income
Fund Class B shares have performed better than Class B shares of your fund over
the past 1, 3 and 5 year periods. While past performance cannot predict future
results, the trustees believe that Strategic 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 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.
The board of trustees of Strategic Income Fund considered that the
reorganization presents an excellent opportunity for Strategic 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 Strategic Income Fund shareholders will also benefit
from improved diversification as a result of the reorganization. Because
Strategic Income Fund is larger than your fund, the trustees believe that the
addition of your fund's assets will improve the diversification of Strategic
Income Fund's overall portfolio. This opportunity provides an economic benefit
to Strategic Income Fund and its shareholders.
The boards of trustees of both funds also considered that the adviser and the
funds' distributor will benefit from the reorganization. For example, the
adviser might realize timesavings 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 to
the adviser.
20
<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 higher than the rates
paid by Strategic Income Fund.
Strategic Income Fund's management fee rate of 0.38% and pro forma management
fee rate of 0.37%, are substantially lower than your fund's management fee rate
of 0.65%. Strategic Income Fund's other expenses of 0.21% and its pro forma
other expenses of 0.22%, are also substantially lower than your fund's other
expenses of 0.38%. Both funds have the same 12b-1 fees for Class A shares
(0.30%) and the same 12b-1 fees for Class B and Class C shares (1.00%), although
your fund's Class B distribution payment last year was 0.96%. Strategic Income
Fund's current annual Class A expense ratio and pro forma Class A expense ratio
(both equal to 0.89% of average net assets) are substantially lower than your
fund's current Class A expense ratio (equal to 1.33% of average net assets).
Strategic Income Fund's current annual Class B and Class C expense ratio and pro
forma Class B and Class C expense ratio (both equal to 1.59% of average net
assets) are also substantially lower than your fund's current Class B and Class
C expense ratio (equal to 2.03% of average net assets).
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 Strategic Income Fund.
- --------------------------------------------------------------------------------
Average Annual Total Return Strategic Income
(without including sales charges) Class A Class B Class C
- --------------------------------------------------------------------------------
1 year ended 5/31/99 2.77% 2.06% 2.04%
- --------------------------------------------------------------------------------
3 years ended 5/31/99 9.60% 8.84% 2.07%**
- --------------------------------------------------------------------------------
5 years ended 5/31/99 9.91% 9.15%
- --------------------------------------------------------------------------------
Since inception to 5/31/99 8.29% 8.01%*
- --------------------------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
Average Annual Total Return Short-Term
(without including Strategic
Income sales charges) Class A Class B Class C
- --------------------------------------------------------------------------------
1 year ended 5/31/99 -0.30% -0.95% 0.99%+++
- --------------------------------------------------------------------------------
3 years ended 5/31/99 4.13% 3.47%
- --------------------------------------------------------------------------------
5 years ended 5/31/99 5.78% 5.08%
- --------------------------------------------------------------------------------
Since inception to 5/31/99 4.95%+ 4.64%++
- --------------------------------------------------------------------------------
* Since Class B shares began operations on October 4, 1993.
** Since Class C shares began operations on May 1, 1998.
+ Since Class A Shares began operation January 3, 1992.
++ Since Class B Shares began operations December 28, 1990.
+++ Since Class C Shares began operations on March 1, 1999.
Your fund's Class A, Class B and Class C shares performance has lagged behind
the performance of Strategic Income Fund for all periods shown above.
Unreimbursed Distribution and Shareholder Service Expenses
The boards of trustees of your fund and Strategic 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 Strategic Income Fund's Rule 12b-1 Plans. However,
the maximum amounts payable annually under Strategic Income Fund's Rule 12b-1
Plans (0.30%, 1.00% and 1.00% of average daily net assets attributable to Class
A shares, Class B and Class C shares, respectively) will not increase.
The following table shows the actual and pro forma unreimbursed distribution and
shareholder service expenses of Class A, Class B and Class C shares of your fund
and Strategic 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 Short-Term
Distribution and Strategic Income Strategic Income
Shareholder Service -----------------------------------------------------------------------------------------------------
Expenses Class A Class B Class C Class A Class B Class C
- ------------------------------------------------------------------------------------------------------------------------------------
Actual expenses as $229,156 $2,755,533 - $2,526,315 $16,319,321 $121,664
of May 31, 1999 0.45% 14.64% 0.00% 0.49% 2.95% 1.22%
- ------------------------------------------------------------------------------------------------------------------------------------
Pro forma combined expenses $2,755,471 $19,074,854 $121,664
as of May 31, 1999 0.49% 3.33% 1.21%
- ------------------------------------------------------------------------------------------------------------------------------------
22
<PAGE>
If the reorganization had taken place on May 31, 1998, the pro forma combined
unreimbursed expenses of Strategic Income Fund's Class A and Class B shares
would have been higher than if no reorganization had occurred. Nevertheless,
Strategic Income Fund's assumption of your fund's unreimbursed Rule 12b-1
expenses will have no immediate effect upon the payments made under Strategic
Income Fund's Rule 12b-1 Plans. These payments will continue to be 0.30%, 1.00%
and 1.00% of average daily net assets attributable to Class A, Class B and Class
C shares, respectively.
John Hancock Funds, Inc. may recover unreimbursed distribution and shareholder
service expenses for Class B and Class C shares in future years. However, if
Strategic Income Fund's board terminates either class's 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.
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 Strategic Income Fund as described above or (2)
the distribution by your fund of Strategic Income Fund shares to your
fund's shareholders;
o No gain or loss will be recognized by Strategic Income Fund upon the
receipt of your fund's assets solely in exchange for the issuance of
Strategic Income Fund shares and the assumption of all of your fund's
liabilities by Strategic Income Fund;
o The basis of the assets of your fund acquired by Strategic Income
Fund will be the same as the basis of those assets in the hands of your
fund immediately before the transfer;
23
<PAGE>
o The tax holding period of the assets of your fund in the hands of
Strategic 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 Strategic
Income Fund shares as part of the reorganization;
o The basis of Strategic 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 Strategic 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, 1999, Short-Term Strategic Income Fund had capital loss carryovers
of approximately $28,893,267 which expire as follows: October 31, 2000 -
$16,879,029; October 31, 2001 - $3,127,414; October 31, 2002 - $2,774,082;
October 31, 2003 - $5,103,942; and October 31, 2006 - $1,008,800. 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, Strategic Income Fund will be able to use
Short-Term Strategic 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 Strategic Income
Fund shares. Shareholders may not redeem or transfer Strategic Income Fund
shares received in the reorganization until they have surrendered their fund
share certificates or delivered an Affidavit. Strategic 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 Strategic 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 Strategic 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 Strategic
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
board believes that proceeding with the reorganization would no longer be
advisable.
Expenses of the Reorganization. Strategic 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 $67,000 in total.
25
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of each fund as of May 31,
1999, and the pro forma combined capitalization of both funds as if the
reorganization had occurred on that date. The table reflects pro forma exchange
ratios of approximately 1.0481 Class A Strategic Income Fund shares being issued
for each Class A share of your fund, approximately 1.0481 Class B Strategic
Income Fund shares being issued for each Class B share of your fund and
approximately 1.0480 Class C Strategic Income Fund shares being issued for each
Class C 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 Strategic Income Fund and your fund between May 31, 1999 and
the reorganization date, changes in the amount of undistributed net investment
income and net realized capital gains of Strategic Income Fund and your fund
during that period resulting from income and distributions, and changes in the
accrued liabilities of Strategic Income Fund and your fund during the same
period.
May 31, 1999
Short-Term
Strategic Strategic
Income Income Pro Forma
Net Assets................ $61,230,619 $1,182,836,146 $1,244,066,765
Net Asset Value Per Share
Class A ................ $7.82 $7.46 $7.46
Class B ................ $7.82 $7.46 $7.46
Class C ................ $7.82 $7.46 $7.46
Shares Outstanding
Class A ................ 5,816,773 72,523,366 78,619,668
Class B ................ 2,008,232 83,046,054 85,150,864
Class C ................ 7,382 3,007,588 3,015,324
It is impossible to predict how many Class A shares, Class B shares or Class C
shares of Strategic 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 Strategic Income Fund shares that will actually be
received and distributed.
26
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES
The following table shows where in each fund's prospectus you can find
additional information about the business of each fund.
- ------------------------------------------------------------------------------------------------------------------------------------
Types of Headings in Each Prospectus
Information
- ------------------------------------------------------------------------------------------------------------------------------------
Organization Fund Details: Business Structure
And operation
- ------------------------------------------------------------------------------------------------------------------------------------
Investment objective Goal and Strategy, Main Risks, Fund Details: Business Structure
and policies
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Portfolio Management
Management
- ------------------------------------------------------------------------------------------------------------------------------------
Investment adviser Overview: The Management Firm; Fund Details: Business Structure
and distributor
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses Your Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian and Fund Details: Business Structure
Transfer agent
- ------------------------------------------------------------------------------------------------------------------------------------
Shares of beneficial Your Account: Choosing a Share Class
interest
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase of shares Your Account: Choosing a Share Class, How Sales Charges are
Calculated, Sales Charge 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 is 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 Strategic
Income
27
<PAGE>
Fund, including the independent trustees, approved the reorganization. They also
determined that the reorganization is in the best interests of Strategic Income
Fund and that the interests of Strategic 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.
--------------------------------------------------
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 that
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.
28
<PAGE>
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 $2,000.
Revoking Proxies
A Short-Term Strategic 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 August 11, 1999, 4,830,328 Class A, 1,816,526 Class B and 7,443 Class C
shares of beneficial interest of your fund were outstanding. Only shareholders
of record on August 11, 1999 (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
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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 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.
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OWNERSHIP OF SHARES OF THE FUNDS
To the knowledge of the fund, as of August 11, 1999, no person owned of record
or beneficially 5% or more of the outstanding Class A shares of your fund or of
the outstanding Class A shares of Strategic Income Fund.
As of August 11, 1999, the following person owned of record or beneficially 5%
or more of the funds' outstanding shares:
- ------------------------------------------------------------------------------------------------------------------------------------
Names and Addresses of Owners Short-Term Strategic
of More Than 5% of Shares Income Fund
------------------------------------------------------
Class B Class C
- ------------------------------------------------------------------------------------------------------------------------------------
MLPF & S for the Sole Benefit 15.77%
of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East
Jacksonville, FL 32246
- ------------------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney, Inc. 68.71%
333 West 34th Street, 3rd Floor
New York, NY 10001-2483
- ------------------------------------------------------------------------------------------------------------------------------------
John Hancock Mutual Life Insurance Co. 20.89%
Custodian for the IRA of
Edna Jean Folden
2405 South Laurel Street
Port Angeles, WA 98362-2529
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas L. Duplaga 10.35%
Nancy Duplaga JT Wros.
5502 Quail Run
North Olmsted, OH 44070-3980
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Names and Addresses of Owners Strategic Income
of More Than 5% of Shares Fund
------------------------------------------------------
Class B Class C
- ------------------------------------------------------------------------------------------------------------------------------------
MLPF & S for the Sole Benefit 14.97% 22.37%
of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East
Jacksonville, FL 32246
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of August 11, 1999, the trustees and officers of your fund and Strategic
Income Fund, each as a group, owned in the aggregate less than 1% of the
outstanding shares of their respective funds.
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EXPERTS
The financial statements and the financial highlights of Strategic Income Fund
for the period ended May 31, 1999 and Short-Term Strategic Income Fund for the
period ended October 31, 1998 are incorporated by reference into this proxy
statement and prospectus. The financial statements and financial highlights as
of October 31, 1998 for Short-Term Strategic Income Fund and as of May 31, 1999
for Strategic Income Fund have been independently audited by
PricewaterhouseCoopers LLP 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 this 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.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 9th day
of June, 1999, by and between John Hancock Strategic Income Fund (the "Acquiring
Fund"), a series of John Hancock Strategic Series, a Massachusetts business
trust (the "Trust II"), and John Hancock Short-Term Strategic Income Fund (the
"Acquired Fund"), a series of John Hancock Investment Trust III, 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, Class B, and Class C 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)
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delivery by the Acquiring Fund to the Acquired Fund, for distribution
pro rata by the Acquired Fund to its shareholders in proportion to
their respective ownership of Class A, Class B and/or Class C shares of
beneficial interest of the Acquired Fund, as of the close of business
on October 22, 1999 (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 with respect to the Acquiring Fund shall be provided by
Investors Bank & Trust Company (the "Acquiring Fund's Custodian"), as
custodian and pricing agent for the Acquiring Fund and, and with
respect to the Acquired Fund by State Street Bank and Trust Company
(the "Acquired Fund's Custodian).
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
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<PAGE>
Fund Shares, Acquired Fund shareholders who own Class B shares of the
Acquired Fund will receive Class B Acquiring Fund Shares, and Acquired
Fund shareholders who own Class C shares of the Acquired Fund will
receive Class C Acquiring Fund Shares,. The Acquiring Fund shall not
issue certificates representing Acquiring Fund Shares in connection
with such exchange.
1.5 The Acquired Fund shareholders holding certificates representing
their ownership of shares of beneficial interest of the Acquired Fund
shall surrender such certificates or deliver an affidavit with respect
to lost certificates in such form and accompanied by such surety bonds
as the Acquired Fund may require (collectively, an "Affidavit"), to
John Hancock 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, Class B and Class C Acquiring
Fund Shares and the net values of the assets and liabilities of the
Acquired Fund attributable to its Class A, Class B and Class C shares
to be
35
<PAGE>
transferred shall, in each case, be determined as of the close of
business (4:00 p.m. Eastern time) on the Closing Date. The net asset
values of the Class A, Class B, and Class C Acquiring Fund Shares shall
be computed by the Acquiring Fund's 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,
Class B, and Class C shares to be transferred shall be computed by the
Acquired Fund's Custodian by calculating the value of the assets of
each class transferred by the Acquired Fund and by subtracting
therefrom the amount of the liabilities of each 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 each Custodian in
accordance with its regular practice as pricing agent for its
respective Fund.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be October 22, 1999 or such other date on or
before April 30, 2000 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 Acquired Fund's Custodian as record holder for the Acquired
Fund shall be presented by the Acquired Fund to the Acquiring Fund's
Custodian for examination no later than five business days preceding
the Closing Date. Portfolio securities which are not held in book-entry
form shall be delivered by the Acquired Fund to the Acquiring Fund's
Custodian for the account of the Acquiring Fund on the Closing Date,
duly endorsed in proper form for transfer, in such condition as to
36
<PAGE>
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 Acquired Fund's
Custodian in book-entry form on behalf of the Acquired Fund shall be
delivered to the Acquiring Fund by the Acquiring Fund's 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 Acquiring
Fund's Custodian crediting the Acquiring Fund's account maintained with
the Acquiring Fund's Custodian with immediately available funds.
3.3 In the event that on the Closing Date (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be
restricted or (b) trading or the reporting of trading on said Exchange
or elsewhere shall be disrupted so that accurate appraisal of the value
of the net assets of the Acquiring Fund or the Acquired Fund is
impracticable, the Closing Date shall be postponed until the first
business day after the day when trading shall have been fully resumed
and reporting shall have been restored; provided that if trading shall
not be fully resumed and reporting restored on or before April 30,
2000, 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
37
<PAGE>
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 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 October 31, 1998
and the related statement of operations (copies of which have been
furnished to the Acquiring Fund) and the unaudited statements as of
April 30, 1999, present fairly in all material respects the financial
condition of the
38
<PAGE>
Acquired Fund as of October 31, 1998 and April 30, 1999 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 April 30, 1999, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquired Fund of indebtedness
maturing more than one year from the date such indebtedness was
incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund;
(h) At the date hereof and by the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the Acquired Fund required by law to have been filed or
furnished by such dates shall have been filed or furnished, and all
federal, state and other taxes, interest and penalties shall have been
paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge no such
return is currently under audit and no assessment has been asserted
with respect to such returns or reports;
(i) 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");
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<PAGE>
(l) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Trust on
behalf of the Acquired Fund, and this Agreement constitutes a valid and
binding obligation of the Trust and the Acquired Fund enforceable in
accordance with its terms, subject to the approval of the Acquired
Fund's shareholders;
(m) The information to be furnished by the Acquired Fund to the
Acquiring Fund for use in applications for orders, registration
statements, proxy materials and other documents which may be necessary
in connection with the transactions contemplated hereby shall be
accurate and complete and shall comply in all material respects with
federal securities and other laws and regulations thereunder applicable
thereto;
(n) The proxy statement of the Acquired Fund (the "Proxy Statement") to
be included in the Registration Statement referred to in Paragraph 5.7
hereof (other than written information furnished by the Acquiring Fund
for inclusion therein, as covered by the Acquiring Fund's warranty in
Paragraph 4.2(m) hereof), on the effective date of the Registration
Statement, on the date of the meeting of the Acquired Fund shareholders
and on the Closing Date, shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated by this Agreement;
(p) All of the issued and outstanding shares of beneficial interest of
the Acquired Fund have been offered for sale and sold in conformity
with all applicable federal and state securities laws;
(q) The prospectus of the Acquired Fund, dated March 1, 1999 (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.
40
<PAGE>
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, Class B, and Class C shares of the
Acquiring Fund, each dated April 1, 1999, and any amendments or
supplements thereto on or prior to the Closing Date, and the
Registration Statement on Form N-14 to be filed in connection with this
Agreement (the "Registration Statement") (other than written
information furnished by the Acquired Fund for inclusion therein, as
covered by the Acquired Fund's warranty in Paragraph 4.1(m) hereof)
will conform in all material respects to the applicable requirements of
the 1933 Act and the 1940 Act and the rules and regulations of the
Commission thereunder, the Acquiring Fund Prospectus does not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and the Registration Statement will not include any untrue
statement of material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(d) At the Closing Date, the 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;
41
<PAGE>
(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, 1999 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, 1999 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, 1999, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of
business, or any incurrence by the 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;
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(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 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.
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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 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
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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 federal income tax bases and holding
periods of such securities, as of the Closing Date, certified by the
Treasurer or Assistant Treasurer of the Trust;
7.3 The Trust on behalf of the Acquired Fund shall have delivered to
the 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
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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 Acquired Fund,
provided that either party hereto may waive any such conditions for
itself;
8.4 The Registration Statement shall have become effective under the
1933 Act and the 1940 Act and no stop orders suspending the
effectiveness thereof shall have been issued and, to the best knowledge
of the parties hereto, no investigation or proceeding for that purpose
shall have been instituted or be pending, threatened or contemplated
under the 1933 Act or the 1940 Act;
8.5 The Acquired Fund shall have distributed to its shareholders, in a
distribution or distributions qualifying for the deduction for
dividends
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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 The 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 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;
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(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
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.
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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 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.
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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.
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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 STRATEGIC SERIES on behalf of
JOHN HANCOCK STRATEGIC INCOME FUND
By: /s/ Anne C. Hodsdon
-----------------------------------------
Anne C. Hodsdon
President
JOHN HANCOCK INVESTMENT TRUST III on behalf of
JOHN HANCOCK SHORT-TERM STRATEGIC INCOME FUND
By: /s/ Susan S. Newton
------------------------------------------
Susan S. Newton
Vice President and Secretary
51
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NOTES
52
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NOTES
53
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-------------------------------------
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) 320PX 8/99
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
[LOGO] JOHN HANCOCK FUNDS VOTE THIS PROXY CARD TODAY!
A Global Investment Management Firm YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
__ __
\/ Please detach card at perforation \/
JOHN HANCOCK SHORT-TERM STRATEGIC INCOME FUND THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES
A SERIES OF JOHN HANCOCK INVESTMENT TRUST III
The undersigned holder of shares of beneficial interest of John Hancock
Short-Term Strategic Income Fund hereby constitutes and appoints Edward J.
Boudreau, Jr., Anne C. Hodsdon, Susan S. Newton and James J. Stokowski, and each
of them singly, proxies and attorneys of the undersigned, with full power of
substitution to each, for and in the name of the undersigned, to vote and act
upon all matters at the special meeting of shareholders of the fund to be held
on Wednesday, October 13, 1999 at the offices of the fund, 101 Huntington
Avenue, Boston, Massachusetts, at 9:00 a.m., eastern time, and at any and all
adjournments thereof, relating to all shares of the fund held by the undersigned
or relating to all shares of the fund held by the undersigned which the
undersigned would be entitled to vote or act with all the powers the undersigned
would possess if personally present. All proxies previously given by the
undersigned relating to the meeting are hereby revoked.
Date: ____________________________, 1999
o Please complete, sign, date and return this proxy in the
enclosed envelope as soon as possible.
o Please sign exactly as your name or names appear at
left. When signing as attorney, executor, administrator,
trustee or gaurdian, please give your full title as such.
o If a corporation, please sign in full corporate name by
president or other authorized officer.
o If a partnership, please sign in partnership name by
authorized person.
-----------------------------------------------------------
-----------------------------------------------------------
Signature(s) 037,137
<PAGE>
<S> <C>
[LOGO] JOHN HANCOCK FUNDS VOTE THIS PROXY CARD TODAY!
A Global Investment Management Firm YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
__ __
\/ Please detach card at perforation \/
Specify your desired action by check marks in the appropriate space. This proxy
will be voted as specified. If no specification is made, the proxy will be
voted in favor of item 1. The persons named as proxies have discretionary
authority which they intend to exercise in favor of the proposal referred to
and according to their best judgement as to any other matters which properly
come before the meeting.
Please vote by filling in the appropriate box(es) below.
FOR AGAINST ABSTAIN
ITEM 1: To approve an Agreement and Plan of Reorganization between John Hancock [ ] [ ] [ ]
Short-Term Strategic Income Fund ("Short-Term Strategic Income Fund")
and John Hancock Strategic Income Fund ("Strategic Income Fund"). Under
this Agreement, Short-Term Strategic Income Fund will transfer all of
its assets to Strategic Income Fund in exchange for shares of Strategic
Income Fund. These shares will be distributed proportionately to you
and the other shareholders of Short-Term Strategic Income Fund.
Strategic Income Fund will also assume Short-Term Strategic Income
Fund's liabilities.
037,137
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