<PAGE> 1
File Nos. 33-16048 and 811-5254
As filed with the Securities and Exchange Commission on June 15, 1995.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
_____
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_X__/
____
Pre-Effective Amendment No. __ /____/
____
Post-Effective Amendment No. ___ /____/
(Check appropriate box or boxes)
JOHN HANCOCK SERIES, INC.
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(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
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(Address of principal executive office) Zip Code
(617) 375-1700
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(Registrant's Telephone Number, including Area Code)
With a copy to:
---------------
Thomas H. Drohan Jeffrey N. Carp, Esq.
John Hancock Advisers, Inc. Hale and Dorr
101 Huntington Avenue 60 State Street
Boston, MA 02199 Boston, MA 02109
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(Name and address of agent for service)
Approximate Date of Proposed Public Offering: As soon as
practicable after the effectiveness of the registration statement.
No filing fee is required because an indefinite number of shares
have previously been registered pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. This Registration
Statement relates to shares previously registered on Form N-1A
(File No. 811-5254)
It is proposed that this filing will become effective on
July 15, 1995, pursuant to Rule 488 under the Securities Act of
1933.
<PAGE> 2
JOHN HANCOCK SERIES, INC.
<TABLE>
CROSS-REFERENCE SHEET
Items Required by Form N-14
---------------------------
<CAPTION>
PART A
- ------
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
<S> <C> <C>
1. Beginning of Registration COVER PAGE OF REGISTRATION
Statement and Outside Front STATEMENT; FRONT COVER PAGE
Cover Page of Prospectus OF PROSPECTUS
2. Beginning and Outside Back TABLE OF CONTENTS
Cover Page of Prospectus
3. Synopsis Information and SUMMARY; RISK FACTORS AND
Risk Factors SPECIAL CONSIDERATIONS
4. Information About the INFORMATION CONCERNING THE
Transaction MEETING; PROPOSAL TO APPROVE THE
AGREEMENT AND PLAN OF
REORGANIZATION; CAPITALIZATION
5. Information About the PROSPECTUS COVER PAGE: INTRO-
Registrant DUCTION; SUMMARY; BUSINESS OF
GOVERNMENT INCOME FUND; BUSINESS
OF GOVERNMENT SECURITIES TRUST
6. Information About the PROSPECTUS COVER PAGE: INTRO-
Company Being Acquired DUCTION; SUMMARY; BUSINESS OF
GOVERNMENT INCOME FUND; BUSINESS
OF GOVERNMENT SECURITIES TRUST
7. Voting Information PROSPECTUS COVER PAGE; NOTICE
OF SPECIAL MEETING OF SHARE-
HOLDERS; SUMMARY; INFORMATION
CONCERNING THE MEETING
8. Interest of Certain Persons NONE
and Experts
9. Additional Information NOT APPLICABLE
Required for Reoffering by
Persons Deemed to be Under-
writers
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PART B
------
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ------------------
<S> <C> <C>
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. Additional Information ADDITIONAL INFORMATION
About the Registrant ABOUT GOVERNMENT INCOME FUND
13. Additional Information About ADDITIONAL INFORMATION
the Company Being Acquired ABOUT GOVERNMENT SECURITIES
TRUST
14. Financial Statements ADDITIONAL INFORMATION ABOUT
GOVERNMENT SECURITIES TRUST;
ADDITIONAL INFORMATION ABOUT
GOVERNMENT INCOME FUND; PRO
FORMA COMBINED FINANCIAL
STATEMENTS
PART C
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Item No. Item Caption
-------- ------------
15. Indemnification INDEMNIFICATION
16. Exhibits EXHIBITS
17. Undertakings UNDERTAKINGS
</TABLE>
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<PAGE> 4
John Hancock Funds Letterhead
July 21, 1995
GOVERNMENT SECURITIES TRUST
Dear Fellow Shareholder:
As you may know, your mutual fund was one of 17 former Transamerica Funds
recently brought into the John Hancock family of funds. We feel this now
presents an opportunity to combine the money management efforts serving
your investment with those of a similar mutual fund. For this reason, we are
proposing a merger of your fund, John Hancock Government Securities Trust,
into the John Hancock Government Income Fund.
YOUR BOARD OF TRUSTEES BELIEVES THAT THIS MERGER IS APPROPRIATE GIVEN THAT
BOTH FUNDS PURSUE A SIMILAR INVESTMENT OBJECTIVE.
Please take the time to read the enclosed materials and cast your vote
on the enclosed proxy card. Please vote promptly. It is extremely important,
no matter how many shares you own.
Comparative performance information, investment objectives and policies are
described at length for both funds in the enclosed Proxy Statement. We
believe that this merger will benefit you in two ways:
1. LOWER FUND EXPENSES. Your Trustees firmly believe that combining these
two funds may benefit shareholders by allowing the Fund to capitalize on
expected economies of scale in investment research, operations and other
important areas. By creating a larger combined fund, the merger should lead
to reduced expenses and, ultimately, lower costs for you.
2. INCREASED INVESTMENT DIVERSIFICATION. By combining both funds' assets
into a single portfolio, the Government Income Fund will be able to
achieve greater diversification.
YOUR VOTE IS IMPORTANT!
At a special meeting of shareholders to be held on September 8, 1995
at 9:00 a.m., you will be asked to approve the merger of the Government
Securities Trust into the John Hancock Government Income Fund. Your Board of
Trustees has unanimously approved the merger.
We urge you to exercise your right as a shareholder and to vote by
completing, signing and returning the enclosed proxy ballot form to us
immediately. Your prompt response will help avoid the necessity for
additional mailings at your Fund's expense. For your convenience, we have
provided a postage-paid envelope.
If you have questions, please call your Financial Advisor or John Hancock
Funds Customer Service Representative at 1-800-225-5291, Monday through
Friday between 8:00 a.m. and 8:00 p.m. Eastern time. Thank you for your
prompt attention to these important matters.
Sincerely,
Edward J. Boudreau, Jr.
Chairman and CEO
Enclosure
<PAGE> 5
JOHN HANCOCK GOVERNMENT SECURITIES TRUST
101 Huntington Avenue
Boston, Massachusetts 02199
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 8, 1995
Notice is hereby given that a Special Meeting of Shareholders
(the "Meeting") of John Hancock Government Securities Trust
("Government Securities Trust"), a series of John Hancock Bond
Fund, a Massachusetts business trust, will be held at 101
Huntington Avenue, Boston, Massachusetts 02199 on Friday,
September 8, 1995 at 9:00 a.m., Boston time, and at any
adjournment thereof, for the following purposes:
1. To consider and act upon a proposal to approve an Agreement
and Plan of Reorganization (the "Reorganization Agreement")
between John Hancock Bond Fund, on behalf of Government
Securities Trust, and John Hancock Series, Inc., on behalf of
John Hancock Government Income Fund ("Government Income
Fund"), providing for Government Income Fund's acquisition
of all Government Securities Trust's assets in exchange solely
for: (a) Government Income Fund's assumption of Government
Securities Trust's liabilities and (b) the issuance of Government
Income Fund Class A and Class B shares to Government Securities
Trust for distribution to its shareholders; and
2. To consider and act upon such other matters as may properly
come before the Meeting or any adjournment of the Meeting.
The Board of Trustees has fixed the close of business on July
14, 1995 as the record date for determination of shareholders who
are entitled to notice of and to vote at the Meeting and any
adjournment of the Meeting.
If you cannot attend the Meeting in person, please complete,
date and sign the enclosed proxy and return it to John Hancock
Investor Services Corporation, 101 Huntington Avenue, Boston,
Massachusetts 02199 in the enclosed envelope. It is important
that you exercise your right to vote. THE ENCLOSED PROXY IS BEING
SOLICITED BY THE BOARD OF TRUSTEES OF JOHN HANCOCK BOND FUND.
By order of the Board of Trustees,
THOMAS H. DROHAN, Secretary
Boston, Massachusetts
July 21, 1995
<PAGE> 6
JOHN HANCOCK GOVERNMENT SECURITIES TRUST
PROXY STATEMENT
______________________
JOHN HANCOCK GOVERNMENT INCOME FUND
PROSPECTUS
______________________
This Proxy Statement and Prospectus sets forth the informa-
tion you should know before voting on the proposed reorganization
of John Hancock Government Securities Trust ("Government
Securities Trust") into John Hancock Government Income Fund
("Government Income Fund"). Government Securities Trust is a
series of John Hancock Bond Fund, a Massachusetts business trust
(the "Trust"). Government Income Fund is series of John Hancock
Series, Inc., a Maryland corporation (the "Company").
This Proxy Statement and Prospectus relates to Class A and
Class B shares of common stock, $0.01 par value per share, of
Government Income Fund (collectively, the "Government Income Fund
Shares") which will be issued in exchange for all of Government
Securities Trust's assets. In exchange for these assets,
Government Income Fund will also assume all of the liabilities of
Government Securities Trust.
The Government Income Fund Class A Shares issued to
Government Securities Trust for distribution to Government
Securities Trust's Class A shareholders will have an aggregate net
asset value equal to the aggregate net asset value of Government
Securities Trust's Class A shares. The Government Income Fund
Class B Shares issued to Government Securities Trust for
distribution to Government Securities Trust's Class B shareholders
will have an aggregate net asset value equal to the aggregate net
asset value of Government Securities Trust's Class B shares. The
asset values of Government Securities Trust and Government Income
Fund will be determined at the close of business (4:00 p.m.
Eastern Time) on the Closing Date (as defined below) for purposes
of the proposed reorganization.
Following the receipt of Government Income Fund Shares (1)
Government Securities Trust will be liquidated, (2) the Government
Income Fund Shares will be distributed to Government Securities
Trust's shareholders pro rata in exchange for their shares of
<PAGE> 7
Government Securities Trust and (3) Government Securities Trust
will be terminated. Consequently, Class A Government Securities
Trust shareholders will become Class A shareholders of Government
Income Fund, and Class B Government Securities Trust shareholders
will become Class B shareholders of Government Income Fund. These
transactions are collectively referred to in this Proxy Statement
and Prospectus as the "Reorganization."
The Reorganization is being structured as a tax-free reorga-
nization so that, in the opinion of tax counsel, no gain or loss
will be recognized by Government Income Fund, Government
Securities Trust or the shareholders of Government Securities
Trust. The terms and conditions of the Reorganization are more
fully described in this Proxy Statement and Prospectus, and in the
Form of Agreement and Plan of Reorganization that is attached as
EXHIBIT A.
Government Income Fund is a diversified series of the
Company, an open-end management investment company organized as a
Maryland corporation in 1987. Government Income Fund seeks to
earn a high level of current income consistent with preservation
of capital by investing primarily in securities that are issued or
guaranteed as to principal and interest by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Securities").
The principal place of business of both the Company and the
Trust is at 101 Huntington Avenue, Boston, Massachusetts 02199.
Their toll-free telephone number is 1-800-225-5291.
Please read this Proxy Statement and Prospectus carefully and
retain it for future reference. This Proxy Statement and Prospec-
tus, which is accompanied by the Prospectus of Government Income
Fund for Class A and Class B shares dated May 15, 1995 (EXHIBIT
B), sets forth information that you should know before approving
the Reorganization. Information about Government Securities Trust
is incorporated by reference to the Prospectus of Government
Securities Trust for Class A and Class B shares dated May 15, 1995
which is available, upon oral or written request and at no charge,
from the Trust.
A Statement of Additional Information dated July 15, 1995
relating to this Proxy Statement and Prospectus, and containing
additional information about each of Government Income Fund and
Government Securities Trust, including historical financial state-
ments, is on file with the Securities and Exchange Commission
("SEC"). It is available, upon oral or written request and at no
charge, from the Company. The Statement of Additional Information
is incorporated by reference into this Prospectus.
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<PAGE> 8
SHARES OF GOVERNMENT INCOME FUND ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER
DEPOSITORY INSTITUTION, AND THE SHARES OF GOVERNMENT INCOME FUND
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COM-
MISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Proxy Statement and Prospectus is July 15,
1995.
-3-
<PAGE> 9
TABLE OF CONTENTS
Page
----
INTRODUCTION.............................................
SUMMARY..................................................
RISK FACTORS AND SPECIAL CONSIDERATIONS .................
INFORMATION CONCERNING THE MEETING.......................
PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION.
CAPITALIZATION...........................................
COMPARATIVE PERFORMANCE INFORMATION......................
BUSINESS OF GOVERNMENT INCOME FUND.......................
General............................................
Investment Objective and Policies..................
Portfolio Management...............................
Directors..........................................
Investment Adviser and Distributor.................
Expenses...........................................
Custodian and Transfer Agent.......................
Government Income Fund Shares......................
Purchase of Government Income Fund Shares..........
Redemption of Government Income Fund Shares........
Dividends, Distributions and Taxes.................
BUSINESS OF GOVERNMENT SECURITIES TRUST..................
General............................................
Investment Objective and Policies..................
Portfolio Management...............................
Trustees...........................................
Investment Adviser and Distributor.................
Expenses...........................................
Custodian and Transfer Agent.......................
Government Securities Trust Shares.................
Purchase of Government Securities Trust Shares.....
Redemption of Government Securities Trust Shares...
Dividends, Distributions and Taxes.................
EXPERTS..................................................
AVAILABLE INFORMATION....................................
-i-
<PAGE> 10
EXHIBITS
A - Form of Agreement and Plan of Reorganization by and be-
tween John Hancock Bond Fund, on behalf of John Hancock
Government Securities Trust, and John Hancock Series,
Inc., on behalf of John Hancock Government Income Fund
(attached to this document).
B - Prospectus of John Hancock Government Income Fund for
Class A and Class B shares, dated May 15, 1995 (attached
to this document).
C - Annual Report to Shareholders of John Hancock Government
Income Fund, dated October 31, 1994 (included with this
document).
-ii-
<PAGE> 11
PROXY STATEMENT AND PROSPECTUS
FOR SPECIAL MEETING OF SHAREHOLDERS OF
JOHN HANCOCK GOVERNMENT SECURITIES TRUST
TO BE HELD ON SEPTEMBER 8, 1995
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connec-
tion with the solicitation of proxies by the Board of Trustees of
the Trust (the "Board of Trustees"). The proxies will be voted at
the Special Meeting of Shareholders (the "Meeting") of Government
Securities Trust to be held at 101 Huntington Avenue, Boston,
Massachusetts 02199 on Friday, September 8, 1995 at 9:00 a.m.,
Boston time, and at any adjournment or adjournments of the
Meeting. The purposes of the Meeting are set forth in the
accompanying Notice of Special Meeting of Shareholders.
This Proxy Statement and Prospectus incorporates by reference
information about Government Securities Trust from the prospectus
of Government Securities Trust for Class A and Class B shares,
dated May 15, 1995 (the "Government Securities Trust Prospectus"),
and includes the prospectus of Government Income Fund for Class A
and Class B shares, dated May 15, 1995 (the "Government Income
Fund Prospectus"). The Annual Report to Shareholders of
Government Income Fund, dated October 31, 1994, is included with
this Proxy Statement and Prospectus. These materials will be
mailed to shareholders of Government Securities Trust on or after
July 21, 1995. Government Securities Trust's Annual Report to
Shareholders was previously sent to shareholders on or about
May 31, 1995.
As of June 30, 1995, shares of beneficial interest of
Government Securities Trust were outstanding.
All properly executed proxies received by management prior to
the Meeting, unless revoked, will be voted at the Meeting
according to the instructions on the proxies. If no instructions
are given, shares of Government Securities Trust represented by
proxies will be voted FOR the proposal (the "Proposal") to approve
the Agreement and Plan of Reorganization (the "Agreement") between
the Trust, on behalf of Government Securities Trust, and the
Company, on behalf of Government Income Fund.
The Board of Trustees knows of no business that will be
presented for consideration at the Meeting other than what is
mentioned in the immediately preceding paragraph. If other
business is properly brought before the Meeting, proxies will be
voted according to the best judgment of the persons named as
proxies.
<PAGE> 12
In addition to the mailing of these proxy materials, proxies
may be personally solicited by Trustees, officers and employees of
Government Securities Trust; by personnel of Government Securities
Trust's investment adviser, John Hancock Advisers, Inc.,
Government Securities Trust's transfer agent, John Hancock
Investor Services Corporation ("Investor Services"); by broker-
dealer firms; or by a professional solicitation organization, in
person or by telephone. Government Securities Trust and
Government Income Fund (each, a "Fund" and collectively, the
"Funds") will each bear its own fees and expenses in connection
with the Reorganization discussed in this Proxy Statement and
Prospectus.
The information concerning Government Income Fund in this
Proxy Statement and Prospectus has been supplied by the Company.
The information regarding Government Securities Trust in this
Proxy Statement and Prospectus has been supplied by the Trust.
SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement and Prospectus. The summary is
qualified by reference to the more complete information contained
in this Proxy Statement and Prospectus, and in the Exhibits
attached and included with this document. Please read this entire
Proxy Statement and Prospectus carefully.
REASONS FOR THE PROPOSED REORGANIZATION
The Trust's Board of Trustees has determined that the
proposed Reorganization is in the best interests of Government
Securities Trust and its shareholders. In making this determina-
tion, the Trustees considered several relevant factors, including
(1) the fact that the investment objectives and policies of
Government Securities Trust and Government Income Fund are
generally similar, (2) the likelihood that the Reorganization will
result in improved economies of scale and a corresponding decrease
in the expenses currently borne by Government Securities Trust
and, indirectly, its shareholders, and (3) the fact that combining
the Funds' assets into a single portfolio will enable Government
Income Fund to achieve greater diversification than Government
Securities Trust has been able to achieve. The Company's Board of
Directors and the Trust's Board of Trustees have determined that
shareholders of Government Income Fund and Government Securities
Trust, respectively, may benefit from a fund offering greater
diversification in its investment portfolio as a result of the
larger asset base. Greater diversification may reduce the
negative effect which the adverse performance of any one security
may have on the performance of the entire portfolio. The Trust's
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<PAGE> 13
Board of Trustees believes that the Government Income Fund Shares
received in the Reorganization will provide existing Government
Securities Trust shareholders with substantially the same
investment advantages that they currently enjoy at a comparable
level of risk. For a more detailed discussion of the reasons for
the proposed Reorganization, see "Proposal to Approve the
Agreement and Plan of Reorganization--Reasons For The Proposed
Reorganization."
THE FUNDS' EXPENSES
Both Funds and their shareholders are subject to various fees
and expenses. The two tables set forth below show the estimated
operating expenses of Class A and Class B shares of the Funds.
These expenses are based on fees and expenses incurred during the
Funds' most recently completed fiscal years, adjusted to reflect
current fees and expenses.
<TABLE>
Government Securities Trust
---------------------------
<CAPTION>
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(as a percentage of net assets) SHARES SHARES
------- -------
<S> <C> <C>
Management fee............................ 0.63% 0.63%
12b-1 fee................................. 0.25% 1.00%
Other expenses*........................... 0.32% 0.32%
---- ----
Total Fund operating expenses.......... 1.20% 1.95%
<FN>
---------------
*Other expenses include transfer agency, custodial, auditing,
trustees, printing, registration, legal fees and miscellaneous
expenses.
</TABLE>
<TABLE>
Government Income Fund
----------------------
<CAPTION>
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(as a percentage of net assets) SHARES SHARES
------- -------
<S> <C> <C>
Management fee............................ 0.65% 0.65%
12b-1 fee................................. 0.25% 1.00%
Other expenses*........................... 0.29% 0.29%
---- ----
Total Fund operating expenses.......... 1.19% 1.94%
</TABLE>
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<PAGE> 14
---------------
*Other expenses include transfer agency, custodial, auditing,
trustees, printing, registration, legal fees and miscellaneous
expenses.
<TABLE>
Government Income Fund (Pro Forma)
----------------------------------
The table set forth below shows the pro forma estimated
operating expenses of Class A and Class B shares of Government
Income Fund, which assume that the proposed Reorganization took
place on March 31, 1995. These expenses are based on fees and
expenses incurred during the Funds' most recently completed fiscal
years, adjusted to reflect current fees and expenses.
<CAPTION>
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(as a percentage of net assets) SHARES SHARES
------- -------
<S> <C> <C>
Management fee............................ 0.62% 0.62%
12b-1 fee................................. 0.25% 1.00%
Other expenses*........................... 0.30% 0.30%
Total Fund operating expenses.......... 1.17% 1.92%
<FN>
---------------
*Other expenses include transfer agency, custodial, auditing,
trustees, printing, registration, legal fees and miscellaneous
expenses.
</TABLE>
If the proposed Reorganization is consummated, the actual
total operating expenses of Class A and Class B shares of
Government Income Fund may vary from the pro forma operating
expenses indicated above.
THE FUNDS' INVESTMENT ADVISER
John Hancock Advisers, Inc. (the "Adviser") acts as
investment adviser to both Funds.
BUSINESS OF JOHN HANCOCK GOVERNMENT SECURITIES TRUST
Government Securities Trust is a diversified series of the
Trust, an open-end management investment company organized as a
Massachusetts business trust in 1984. As of March 31, 1995,
Government Securities Trust's net assets were $490,509,419.
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<PAGE> 15
All investment decisions for Government Securities Trust are
made by the Adviser's fixed-income portfolio management team. No
single person is primarily responsible for making recommendations
to the team. The Adviser's fixed-income portfolio management team
will continue to make all investment decisions for Government
Securities Trust until the Reorganization.
BUSINESS OF JOHN HANCOCK GOVERNMENT INCOME FUND
Government Income Fund is a diversified series of the
Company, an open-end management investment company organized as a
Maryland corporation in 1987. As of March 31, 1995, Government
Income Fund's net assets were $230,299,750.
All investment decisions for Government Income Fund are made
by the Adviser's fixed-income portfolio management team. No
single person is primarily responsible for making recommendations
to the team. The Adviser's fixed-income portfolio management team
will continue to make all investment decisions for Government
Income Fund after the Reorganization.
COMPARISON OF THE INVESTMENT OBJECTIVES AND POLICIES OF JOHN
HANCOCK GOVERNMENT SECURITIES TRUST AND JOHN HANCOCK GOVERNMENT
INCOME FUND
GOVERNMENT SECURITIES TRUST. The investment objective of
Government Securities Trust is to seek a high level of current
income, consistent with safety of principal. Government
Securities Trust pursues this objective by normally investing at
least 80% of the value of its total assets in U.S. Government
Securities. A substantial portion of the Fund's assets are
invested in Government National Mortgage Association ("GNMA")
certificates and other mortgage-backed securities issued by U.S.
Government agencies. Government Securities Trust may invest in
mortgage-related derivatives, including collateralized mortgage
obligations ("CMOs") and stripped mortgage-backed securities
("SMBSs"). Government Securities Trust may also invest in asset-
backed securities, enter into mortgage dollar rolls and engage in
hedging transactions in options on debt securities, interest rate
futures and options on such futures.
GOVERNMENT INCOME FUND. The investment objective of
Government Income Fund is to achieve a high level of current
income, consistent with preservation of capital, by investing
primarily in U.S. Government Securities. Under normal market
conditions, at least 80% of the value of Government Income Fund's
total assets will be invested in U.S. Government Securities and
related repurchase agreements and forward commitments. Government
Income Fund may invest in mortgage-related derivatives, including
-5-
<PAGE> 16
CMOs and SMBSs, but Government Income Fund currently does not
intend to invest in SMBSs. Government Income Fund may also invest
in U.S. dollar denominated foreign government securities, non-
governmental asset-backed securities and high quality short-term
debt securities with remaining maturities of one year or less, and
engage in hedging transactions in options on debt securities,
interest rate futures and options on such futures.
Both Funds' investment objectives are designated as
fundamental and therefore cannot be changed without shareholder
approval.
In considering whether to approve the Reorganization, you
should consider the differences between the two Funds' investment
objectives and policies. For a discussion of the risks associated
with an investment in the Funds, see "Risk Factors and Special
Considerations."
GOVERNMENT SECURITIES GOVERNMENT
TRUST INCOME FUND
Investment Objective is to achieve Objective is to achieve a
Objective a high level of current high level of current
income, consistent with income, consistent with
safety of principal. preservation of capital,
by investing primarily in
U.S. Government
Securities.
Primary At least 80% of At least 80% of
Investments Government Securities Government Income Fund's
Trust's assets are assets are invested in
invested in U.S. U.S. Government
Government Securities, Securities, including
with emphasis on GNMA mortgage-backed
Certificates and other securities issued by U.S.
mortgage-backed Government agencies, and
securities issued by related repurchase
U.S. Government agreements and forward
agencies. commitments.
-6-
<PAGE> 17
GOVERNMENT SECURITIES GOVERNMENT
TRUST INCOME FUND
Other Government Securities Government Income Fund
Investments Trust may enter into may invest up to 20% of
repurchase agreements its assets in (i) U.S.
and reverse repurchase dollar denominated
agreements, purchase foreign government
securities on a forward securities, (2) non-
commitment or when- governmental asset-backed
issued basis and lend securities, and (3) high
portfolio securities. quality short-term debt
Government Securities securities with remaining
Trust may invest up to maturities of one year or
10% of its assets in less. Government Income
illiquid investments, Fund may also enter into
which include certain repurchase agreements on
restricted securities. debt securities other
Government Securities than U.S. Government
Trust may invest up to Securities and reverse
10% of its assets in repurchase agreements,
restricted securities. purchase securities on a
The 10% limits described forward commitment or
above are fundamental when-issued basis and
policies and therefore lend portfolio
cannot be changed securities. Government
without shareholder Income Fund may invest up
approval. to 10% of its assets in
illiquid investments.
All restricted securities
are deemed to be illiquid
for purposes of this
limitation.
Permitted Asset-backed securities, Asset-backed securities,
Investments in mortgage dollar rolls, mortgage dollar rolls,
Derivative options on debt options on debt
Instruments securities, interest securities, interest rate
rate futures, options on futures, options on such
such futures and futures and mortgage-
mortgage-related related derivatives,
derivatives, including including CMOs and SMBSs.
CMOs and SMBSs. Up to Government Income Fund
10% of Government currently does not intend
Securities Trust's to invest in SMBSs.
assets may be invested
in CMOs and SMBSs.
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<PAGE> 18
GOVERNMENT SECURITIES GOVERNMENT
TRUST INCOME FUND
Diversification Government Securities Government Income Fund is
and Industry Trust is diversified and diversified and does not
Concentration does not concentrate concentrate more than 25%
more than 25% of its of its assets in any one
assets in any one industry.
industry.
Temporary None. In unusual market
Defensive conditions when the
Investments Adviser believes that
temporary defensive
investments are
appropriate, part or all
of Government Income
Fund's assets may be
invested in cash or cash
equivalents consisting
of: (1) obligations of
banks with assets of
$100,000,000 or more;
(2) commercial paper
rated within the two
highest rating categories
of a nationally
recognized rating
organization;
(3) investment grade
short-term notes; and
(4) related repurchase
agreements.
FORM OF ORGANIZATION
Government Income Fund is one of six separate series of the
Company, a Maryland corporation. Government Securities Trust is
one of six separate series of the Trust, a Massachusetts business
trust. Both Funds have authorized and outstanding Class A and
Class B shares.
Each share of a Fund represents an equal proportionate
interest in the assets belonging to that Fund. The liabilities
attributable to Government Securities Trust and Government Income
Fund are not charged against the assets of any other series of the
Trust or the Company, respectively. Shares of Government
Securities Trust and each other series of the Trust are voted
separately with respect to matters pertaining to Government
Securities Trust or any such series, but all shares vote together
for the election of the Trust's Trustees and the ratification of
the Trust's independent accountants. Similarly, shares of
Government Income Fund and each other series of the Company are
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<PAGE> 19
voted separately with respect to matters pertaining to Government
Income Fund or any such series, but all shares vote together for
the election of the Company's Directors and the ratification of
the Company's independent accountants.
The shares of each class of Government Securities Trust and
Government Income Fund represent an interest in the same portfolio
of investments of that Fund. Except as stated below, each class
of each Fund has equal rights as to voting, redemption, dividends
and liquidation. Each class bears different distribution and
transfer agent fees, and may bear other expenses properly
attributable to the particular class. Class A and Class B
shareholders of each Fund have exclusive voting rights with regard
to the Rule 12b-1 distribution plan covering their class of
shares.
Class A shares of each Fund are offered with a front-end
sales charge. They are also subject to a Rule 12b-1 fee of 0.25%
of the average daily net assets attributable to Class A shares.
Class B shares of each Fund are offered with a contingent
deferred sales charge ("CDSC") payable upon redemption of these
shares. The Rule 12b-1 fee for Class B shares is 1.00% of the
average daily net assets attributable to Class B shares, of which
up to 0.25% of these average daily net assets is for service
expenses and the remainder is for distribution services.
As part of the Reorganization, Class A shares of Government
Income Fund will be issued to Government Securities Trust and then
distributed by it to Government Securities Trust's Class A
shareholders. Similarly, Class B shares of Government Income Fund
will be issued to Government Securities Trust and then distributed
by it to Government Securities Trust's Class B shareholders.
SALES CHARGES AND DISTRIBUTION AND SERVICE FEES
CLASS A SHARES. Both Funds impose an initial sales charge on
Class A shares at rates ranging from 4.50% to 0.00% of the amount
invested depending on the size of the purchase, the size of the
purchaser's existing investment, if any, at the time of the
purchase, and the participation of the shareholder in special pur-
chase plans or arrangements to purchase additional shares. A CDSC
of up to 1.00% is imposed on certain Class A shares purchased
without an initial sales charge and redeemed within one year of
purchase. An initial sales charge does not apply to Class A
shares acquired through the reinvestment of dividends from net
investment income or capital gain distributions.
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<PAGE> 20
Class A shares of Government Income Fund acquired by
Government Securities Trust's Class A shareholders pursuant to the
Reorganization will not be subject to any initial sales charge or
CDSC. However, the CDSC imposed upon certain redemptions within
one year of purchase (referred to above) will continue to apply to
the Class A shares of Government Income Fund issued in the
Reorganization. The holding period for determining the
application of this CDSC will be calculated from the date the
Government Securities Trust Class A shares were issued.
<TABLE>
CLASS B SHARES. Government Securities Trust and Government
Income Fund do not impose an initial sales charge on Class B
shares. However, Class B shares redeemed within six years of
purchase will be subject to a CDSC at the rates set forth below.
This CDSC will be assessed on an amount equal to the lesser of the
current market value or the original purchase cost of the Class B
shares being redeemed. Accordingly, Class B shareholders will not
be assessed a CDSC on increases in account value above the initial
purchase price, including shares derived from reinvested
dividends. The amount of the CDSC, if any, will vary depending on
the number of years from the time the Class B shares were
purchased until the time they are redeemed, as follows:
<CAPTION>
THE CONTINGENT
DEFERRED SALES
YEAR IN CHARGE AS A
WHICH CLASS B PERCENTAGE OF
SHARES REDEEMED DOLLAR AMOUNT
FOLLOWING PURCHASE SUBJECT TO CDSC
------------------ ---------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and
thereafter None
</TABLE>
Class B shares of Government Income Fund acquired by
Government Securities Trust's Class B shareholders pursuant to the
Reorganization will not be subject to any CDSC at the time of the
Reorganization, but will remain subject to any CDSC applicable
upon redemption of these shares. For purposes of computing the
CDSC payable upon redemption of Class B shares of Government
Income Fund acquired pursuant to the Reorganization and the
schedule for automatic conversion of Class B shares into Class A
shares, the holding period of the Government Securities Trust
Class B shares will be added to that of the Government Income Fund
Class B shares acquired in the Reorganization.
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<PAGE> 21
DISTRIBUTION AND SERVICE FEES. Both Funds have adopted
distribution plans pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Investment Company Act").
Under these plans, each Fund may pay fees to John Hancock Funds,
Inc. ("John Hancock Funds") to reimburse distribution and service
expenses incurred in connection with Class A shares. These fees
are payable at an annual rate of up to 0.25% of a Fund's average
daily net assets attributable to its Class A shares.
In addition, under the plans, each Fund may pay fees to John
Hancock Funds to reimburse it for distribution and service
expenses incurred in connection with Class B shares. These fees
are payable at an annual rate of up to 1.00% of the Fund's average
daily net assets attributable to its Class B shares. Of this fee,
up to 0.25% of net assets may be for service expenses and the
remainder will be for distribution services. With respect to
Class B shares only, if John Hancock Funds is not fully reimbursed
for payments made or expenses incurred in any fiscal year, it is
entitled to carry forward these expenses to subsequent fiscal
years for submission to the applicable Fund for payment, subject
always to the maximum annual distribution fee for Class B shares
described above.
The Board of Directors of the Company has determined that, if
the Reorganization is consummated, unreimbursed distribution and
shareholder service expenses originally incurred in connection
with Government Securities Trust's Class B shares will be
reimbursable under Government Income Fund's Class B Rule 12b-1
Plan. As of March 31, 1995, the unreimbursed distribution and
shareholder service expenses for Class A shares of Government
Income Fund and Government Securities Trust were $593 and $91,815,
respectively. The unreimbursed distribution and shareholder
service expenses for Class B shares of Government Income Fund and
Government Securities Trust were $9,275,056 and $21,518,
respectively. See "Unreimbursed Distribution and Shareholder
Expenses" below.
PURCHASES AND EXCHANGES
Shares of Government Income Fund may be purchased through
certain broker-dealers and through John Hancock Funds at the
public offering price, which is based on the next determined net
asset value per share, plus any applicable sales charge. The
minimum initial investment in Government Income Fund is $1,000
($250 for group investments and retirement plans). In
anticipation of the Reorganization, as of the Record Date,
Government Securities Trust stopped offering its shares to all
investors other than existing shareholders.
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<PAGE> 22
Shareholders of both Funds may exchange their shares at net
asset value for shares of the same class, if applicable, of
certain other funds managed by the Adviser. Shares of any fund
acquired in this manner that are subject to a CDSC will incur the
CDSC, if still applicable, upon redemption. The exchange
privilege is available only in those states where exchanges can be
made legally.
DISTRIBUTION PROCEDURES
It is the policy of both Funds to pay dividends monthly from
net investment income. Each Fund also distributes annually all of
its other taxable income, including both net realized short-term
and long-term capital gains, if any. Government Securities Trust
will make, immediately prior to the Closing Date (as defined
below), a distribution of all of its net income and net realized
capital gains, if any, not previously distributed.
REINVESTMENT OPTIONS
Unless an election is made to receive cash, the shareholders
of both Funds automatically reinvest all of their respective
dividends and capital gain distributions in additional shares of
the same class of the same Fund. These reinvestments are made at
the net asset value per share and are not subject to any sales
charge.
REDEMPTION PROCEDURES
Shares of both Funds may be redeemed on any business day at a
price equal to the net asset value of the shares next determined
after receipt of a redemption request in good order, less any
applicable CDSC. Alternatively, shareholders of both Funds may
sell their shares through securities dealers, who may charge a
fee. Redemptions and repurchases of Class B shares and certain
Class A shares of Government Securities Trust and Government
Income Fund are subject to the applicable CDSC, if any. Class A
and Class B shares of Government Securities Trust may be redeemed
up to and including the Closing Date (as defined below).
REORGANIZATION
EFFECT OF THE REORGANIZATION. Pursuant to the terms of the
Agreement, the proposed Reorganization will consist of the
acquisition by Government Income Fund of all the assets of
Government Securities Trust in exchange solely for (i) the as-
sumption by Government Income Fund of all the liabilities of
Government Securities Trust and (ii) the issuance of Government
Income Fund shares equal to the value of these assets, less the
amount of these liabilities (the "Government Income Fund Shares"),
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<PAGE> 23
to Government Securities Trust. As part of the liquidation
process, Government Securities Trust will immediately distribute
to its shareholders these Government Income Fund Shares in
exchange for their shares of Government Securities Trust.
Consequently, Class A shareholders of Government Securities Trust
will become Class A shareholders of Government Income Fund and
Class B shareholders of Government Securities Trust will become
Class B shareholders of Government Income Fund. After completion
of the Reorganization, the existence of Government Securities
Trust will be terminated.
The Reorganization will become effective as of 5:00 p.m. on
the closing date, scheduled for September 8, 1995, or another date
on or before December 31, 1995 as authorized representatives of
the Funds may agree (the "Closing Date"). The Government Income
Fund Class A Shares issued to Government Securities Trust for
distribution to Government Securities Trust's Class A shareholders
will have an aggregate net asset value equal to the aggregate net
asset value of Government Securities Trust's Class A shares.
Similarly, the Government Income Fund Class B Shares issued to
Government Securities Trust for distribution to Government
Securities Trust's Class B shareholders will have an aggregate net
asset value equal to the aggregate net asset value of Government
Securities Trust's Class B shares. For purposes of the
Reorganization, the Funds' respective asset values will be
determined as of the close of business (4:00 p.m. Eastern Time) on
the Closing Date.
The Trust's Board of Trustees, including the Trustees not
affiliated with either Fund, unanimously approved the
Reorganization, and determined that it was in the best interests
of Government Securities Trust and that the interests of
Government Securities Trust's shareholders would not be diluted as
a result of the Reorganization. Similarly, the Company's Board of
Directors, including the Directors not affiliated with either
Fund, unanimously approved the Reorganization, and determined that
it was in the best interests of Government Income Fund and that
the interests of Government Income Fund's shareholders would not
be diluted as a result of the Reorganization. For a discussion of
the factors considered by the Trust's Board of Trustees, see
"Proposal to Approve the Agreement and Plan of Reorganization--
Reasons for the Proposed Reorganization."
TAX CONSIDERATIONS. The consummation of the Reorganization
is subject to the receipt of an opinion of Hale and Dorr, counsel
to the Funds, satisfactory to the Trust and the Company and
substantially to the effect that:
(a) the acquisition by Government Income Fund of all of
Government Securities Trust's assets solely in exchange for the
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<PAGE> 24
issuance of Government Income Fund shares to Government Securities
Trust and the assumption of all of Government Securities Trust's
liabilities by Government Income Fund, followed by the
distribution by Government Securities Trust, in liquidation of
Government Securities Trust, of Government Income Fund Shares to
the shareholders of Government Securities Trust in exchange for
their shares of beneficial interest of Government Securities Trust
and the termination of Government Securities Trust, will
constitute a "reorganization" within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and
Government Securities Trust and Government Income 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 Government
Securities Trust upon (i) the transfer of all of its assets to
Government Income Fund (in the exchange described above) and
(ii) the distribution by Government Securities Trust of Government
Income Fund Shares to Government Securities Trust's shareholders;
(c) no gain or loss will be recognized by Government Income
Fund upon the receipt of Government Securities Trust's assets with
exchange described above;
(d) the basis of the assets of Government Securities Trust
acquired by Government Income Fund will be, in each instance, the
same as the basis of those assets in the hands of Government
Securities Trust immediately prior to the transfer;
(e) the tax holding period of the assets of Government
Securities Trust in the hands of Government Income Fund will, in
each instance, include Government Securities Trust's tax holding
period for those assets;
(f) the shareholders of Government Securities Trust will not
recognize gain or loss upon the exchange of all of their
Government Securities Trust shares for Government Income Fund
Shares as part of the Reorganization;
(g) the basis of the Government Income Fund Shares received
by Government Securities Trust shareholders in the Reorganization
will be the same as the basis of the Government Securities Trust
shares surrendered in exchange therefor; and
(h) the tax holding period of the Government Income Fund
Shares received by Government Securities Trust shareholders will
include, for each shareholder, the tax holding period for the
Government Securities Trust shares surrendered in exchange
therefor, provided the Government Securities Trust shares were
held as capital assets on the date of the exchange.
-14-
<PAGE> 25
THE MEETING
TIME, PLACE AND DATE. The Meeting will be held on Friday,
September 8, 1995, at 101 Huntington Avenue, Boston, Massachusetts
02199, at 9:00 a.m. Boston time.
RECORD DATE. The Record Date for determining shareholders
entitled to notice of and to vote at the Meeting is July 14, 1995.
VOTE REQUIRED FOR APPROVAL. Approval of the Agreement by the
shareholders of Government Securities Trust requires the
affirmative vote of not less than a majority of the shares of
Government Securities Trust represented in person or by proxy and
entitled to vote at a meeting of shareholders at which a quorum is
present. The Reorganization does not require the approval of
Government Income Fund's shareholders. See "Proposal to Approve
the Agreement and Plan of Reorganization--Voting Rights and
Required Vote."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Please see the Government Income Fund Prospectus and the
Government Securities Trust Prospectus for a more complete
description of each Fund's investment objectives and policies, as
well as their risk factors.
In deciding whether to approve the Reorganization, you should
consider the similarities and differences between the investment
objectives and policies and risk factors of the Funds.
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<PAGE> 26
The value of the securities held by both Funds, and therefore
both Funds' per share net asset values, will fluctuate with
interest rate changes. Generally, a rise in interest rates will
result in a decrease in the Funds' net asset values, while a
decline will result in an increase in the Funds' net asset values.
Government Income Fund's investments in U.S. dollar
denominated foreign government securities may involve a greater
degree of risk than investments in domestic securities due to
exchange controls, less publicly available information, more
volatile or less liquid securities markets, and the possibility of
expropriation, confiscatory taxation or political, economic or
social instability in foreign countries. In addition, Government
Income Fund's investments in lower rated debt securities involve
greater volatility of price and risk of loss of principal and
income than do higher quality securities. Government Securities
Trust does not invest in foreign government securities and lower
rated debt securities and therefore is not subject to the specific
risks described in this paragraph.
INFORMATION CONCERNING THE MEETING
SOLICITATION, REVOCATION AND USE OF PROXIES
A majority of Government Securities Trust's shares that are
represented and entitled to vote at the Meeting will be a quorum
for the transaction of business. A Government Securities Trust
-16-
<PAGE> 27
shareholder executing and returning a proxy has the power to re-
voke it at any time before it is exercised, by filing a written
notice of revocation with Government Securities Trust's transfer
agent, John Hancock Investor Services Corporation, P.O. Box 9116,
Boston, Massachusetts 02205-9116, or by returning a duly executed
proxy with a later date before the time of the Meeting. Any
shareholder who has executed a proxy but is present at the Meeting
and wishes to vote in person may revoke his or her proxy by
notifying the Secretary of the Trust (without complying with any
formalities) at any time before it is voted. Presence at the
Meeting alone will not serve to revoke a previously executed and
returned proxy.
If a quorum is not present in person or by proxy at the time
any session of the Meeting is called to order, the persons named
as proxies may vote those proxies that have been received to ad-
journ the Meeting to a later date. If a quorum is present but
there are not sufficient votes in favor of the Proposal, the per-
sons named as proxies may propose one or more adjournments of the
Meeting to permit further solicitation of proxies with respect to
the Proposal. Any adjournment will require the affirmative vote
of a majority of the shares of Government Securities Trust rep-
resented in person or by proxy 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 Reorganization,
even though a quorum is present at the Meeting, the persons named
as proxies will vote those proxies in favor of the Reorganization
in favor of adjournment, and will vote those proxies against the
Reorganization against adjournment.
OUTSTANDING SHARES AND RECORD DATE
At the close of business on June 30, 1995, _____ shares of
beneficial interest of Government Securities Trust were
outstanding. Only Government Securities Trust shareholders of
record at the close of business on July 14, 1995 (the "Record
Date") are entitled to notice of and to vote at the Meeting and
any adjournment of the Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF GOVERNMENT SECURITIES TRUST AND GOVERNMENT INCOME
FUND
To the knowledge of the Trust, as of June 30, 1995, no person
owned of record or beneficially 5% or more of the outstanding
Class A or Class B shares of beneficial interest of Government
Securities Trust. To the knowledge of the Company, as of June 30,
1995, no person owned of record or beneficially 5% or more of its
outstanding Class A or Class B shares of common stock.
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<PAGE> 28
As of June 30, 1995, the Trustees and officers of the Trust,
as a group, owned in the aggregate less than 1% of the outstanding
Class A and Class B shares of beneficial interest of Government
Securities Trust. As of June 30, 1995, the Directors and officers
of the Company, as a group, owned in the aggregate less than 1% of
the outstanding Class A and Class B shares of common stock of
Government Income Fund.
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
GENERAL
The shareholders of Government Securities Trust are being
asked to approve the Agreement, a copy which is attached as
EXHIBIT A. The Reorganization will consist of: (a) the transfer
of all of Government Securities Trust's assets to Government
Income Fund, in exchange solely for the issuance of Government
Income Fund Shares to Government Securities Trust and the
assumption of Government Securities Trust's liabilities by
Government Income Fund, (b) the subsequent distribution by
Government Securities Trust, as part of its liquidation, of the
Government Income Fund Shares to Government Securities Trust's
shareholders and (c) the termination of Government Securities
Trust's existence. The Government Income Fund Class A Shares
issued upon consummation of the Reorganization will have an
aggregate net asset value equal to the aggregate value of the
assets attributable to Government Securities Trust's Class A
shares, less liabilities attributable to Government Securities
Trust's Class A shares. Similarly, the Government Income Fund
Class B Shares issued upon consummation of the Reorganization will
have an aggregate net asset value equal to the aggregate value of
the assets attributable to Government Securities Trust's Class B
shares, less the liabilities attributable to Government Securities
Trust's Class B shares. As noted above, the asset values of
Government Securities Trust and Government Income Fund will be
determined at the close of business (4:00 p.m. Eastern Time) on
the Closing Date for purposes of the Reorganization. See
"Description of Agreement" below.
Pursuant to the Agreement, Government Securities Trust will
liquidate and distribute the Government Income Fund Shares
received, as described above, pro rata to the shareholders of
record of each class determined as of the close of regular trading
on the New York Stock Exchange on the Closing Date. The result of
the transfer of assets will be that Government Income Fund will
add to its portfolio the net assets of Government Securities
Trust. Class A shareholders of Government Securities Trust will
become Class A shareholders of Government Income Fund, and Class B
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<PAGE> 29
shareholders of Government Securities Trust will become Class B
shareholders of Government Income Fund.
The Agreement and the Reorganization were unanimously ap-
proved by the Trust's Board of Trustees on behalf of Government
Securities Trust at a meeting held on May 16, 1995. The Agreement
and the Reorganization were unanimously approved by the Company's
Board of Directors on behalf of Government Income Fund at a
meeting held on May 16, 1995.
REASONS FOR THE PROPOSED REORGANIZATION
The Trust's Board of Trustees believes that the proposed
Reorganization will be advantageous to the shareholders of
Government Securities Trust in several respects. The Board of
Trustees considered the following matters, among others, in
approving the Proposal.
First, the Board of Trustees believes that it is not advan-
tageous to operate and market Government Securities Trust sepa-
rately from Government Income Fund because their investment objec-
tives and policies are generally similar. For a complete
description of the Government Income Fund's investment objective
and policies, see the Government Income Fund Prospectus.
Second, the Board of Trustees determined that shareholders
may be better served by a fund offering greater diversification.
To the extent that the Funds' assets are combined into a single
portfolio and a larger asset base is created as a result of the
Reorganization, greater diversification of Government Income
Fund's investment portfolio can be achieved than is currently
possible in either Fund. Greater diversification is expected to
be beneficial to shareholders of both Funds, because it may reduce
the negative effect which the adverse performance of any one
security may have on the performance of the entire portfolio.
Third, the Board of Trustees believes that the Government
Income Fund Shares received in the Reorganization will provide ex-
isting Government Securities Trust shareholders with substantially
the same investment advantages that they currently enjoy at a
comparable level of risk. The Board of Trustees also considered
the performance history of each Fund.
Fourth, a combined fund offers economies of scale that should
have a positive effect on the expenses currently borne indirectly
by the shareholders of Government Securities Trust. Both Funds
incur substantial overhead costs for accounting, legal, transfer
agency services, insurance, and custodial and administrative
services. The Board of Trustees expects that the Reorganization
will result in a decrease in the expenses currently borne by
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<PAGE> 30
Government Securities Trust's shareholders. See "Summary--The
Funds' Expenses."
In determining that the Reorganization is in the best
interests of Government Securities Trust and the interests of its
shareholders, the Board of Trustees considered the fact that the
Adviser will receive certain benefits from the Reorganization.
The Reorganization will result in a consolidated portfolio
management effort, and may result in time savings to the Adviser
by reducing the number of reports and regulatory filings that it
needs to prepare.
CAPITAL LOSS CARRYOVERS
As of March 31, 1995, Government Securities Trust had capital
loss carryovers, as determined for federal income tax purposes, in
the aggregate amount of approximately $374,806,948, of which
$231,879,672 expires on December 31, 1996, $50,265,256 expires on
December 31, 1997, $19,146,203 expires on December 31, 1998,
$6,921,927 expires on December 31, 1999, and $66,593,890 expires
on December 31, 2002. If the Reorganization does not occur,
Government Securities Trust may use these capital loss carryovers
to offset its net capital gain, which would reduce the amount of
net capital gain Government Securities Trust would be required to
distribute to its shareholders in order to avoid fund-level income
and/or excise taxes on undistributed capital gain.
If the Reorganization is consummated, Government Income Fund
will succeed to and take into account Government Securities
Trust's capital loss carryovers and will be able to use such
carryovers, along with any carryovers it may have, to offset its
net capital gain, subject to certain limitations under the Code
that may be applicable because of the Reorganization and certain
other changes in the past or future share ownership of Government
Income Fund. These limitations could result in the expiration of
all or portions of such carryovers before they are fully used.
However, Government Securities Trust did not, as of March 31,
1995, have net unrealized gains that, when realized, its capital
loss carryovers could be used to offset, and accordingly all or
substantial portions of Government Securities Trust's capital loss
carryovers may also expire unused if the Reorganization is not
consummated.
UNREIMBURSED DISTRIBUTION AND SHAREHOLDER SERVICE EXPENSES
The Board of Trustees has determined that, if the Reorgani-
zation is consummated, distribution and shareholder service
expenses incurred in connection with shares of Government
Securities Trust, and not reimbursed under Government Securities
Trust's Rule 12b-1 Plans or through CDSCs, will be reimbursable
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<PAGE> 31
expenses under Government Income Fund's Rule 12b-1 Plans (the
"assumption"). However, the maximum aggregate amounts payable
during any fiscal year under Government Income Fund's Rule 12b-1
Plans (0.25% of average daily net assets attributable to Class A
shares and 1.00% of average daily net assets attributable to Class
B shares) will not be affected by the assumption.
With respect to Government Income Fund's Class A and Class B
shares, the percentage of net assets on a pro forma combined basis
that the unreimbursed expenses represent will decrease as a result
of the Reorganization and the assumption. As of March 31, 1995,
the unreimbursed distribution and shareholder service expenses of
Government Income Fund attributable to Class A and Class B shares
were $593 (0.24% of Government Income Fund's net assets
attributable to Class A shares) and $9,275,056 (4.03% of
Government Income Fund's net assets attributable to Class B
shares), respectively. As of the same date, the unreimbursed
distribution and shareholder service expenses of Government
Securities Trust attributable to Class A and Class B shares were
$91,815 (0.02% of Government Securities Trust's net assets
attributable to Class A shares) and $21,518 (1.52% of Government
Securities Trust's net assets attributable to Class B shares),
respectively.
After the Reorganization, on a pro forma combined basis, the
unreimbursed distribution and shareholder service expenses of
Government Income Fund attributable to Class A and Class B shares
will be $92,408 (0.02% of Government Income Fund's pro forma net
assets attributable to Class A shares) and $9,296,574 (4.02% of
Government Income Fund's pro forma net assets attributable to
Class B shares), respectively.
The assumption will have no immediate effect upon the pay-
ments made under Government Income Fund's Rule 12b-1 Plans. While
John Hancock Funds hopes to recover unreimbursed distribution and
shareholder service expenses over an extended period of time,
Government Income Fund is not obligated to assure that these
amounts are recouped by John Hancock Funds.
Unreimbursed distribution and shareholder service expenses do
not currently appear as an expense or liability in the financial
statements of either Fund, nor will they appear in the financial
statements of Government Income Fund after the Reorganization
until paid or accrued. Unreimbursed expenses do not enter into
the calculation of a Fund's net asset value or the formula for
calculating Rule 12b-1 payments. Even in the event of termination
or noncontinuance of Government Income Fund's Rule 12b-1 Plans,
Government Income Fund is not legally committed, and is not
required to commit, to the payment of any unreimbursed
distribution and shareholder service expenses. The staff of the
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<PAGE> 32
SEC has not approved or disapproved the treatment of the
unreimbursed distribution and shareholder service expenses
described in this Proxy Statement.
BOARD'S EVALUATION AND RECOMMENDATION
On the basis of the factors described above and other fac-
tors, the Trust's Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined in the
Investment Company Act) of the Funds, determined that the
Reorganization is in the best interests of Government Securities
Trust and that the interests of Government Securities Trust's
shareholders will not be diluted as a result of the
Reorganization. On the same basis, the Company's Board of
Directors, including a majority of the Directors who are not
"interested persons" (as defined in the Investment Company Act) of
the Funds, determined that the Reorganization will in the best
interests of Government Income Fund and that the interests of
Government Income Fund's shareholders will not be diluted as a
result of the Reorganization.
THE TRUSTEES OF JOHN HANCOCK GOVERNMENT SECURITIES TRUST
RECOMMEND THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE
AGREEMENT AND PLAN OF REORGANIZATION.
DESCRIPTION OF AGREEMENT
The following description of the Agreement is a summary, does
not purport to be complete, and is subject in all respects to the
provisions of the Agreement, and is qualified in its entirety by
reference to the Agreement. A copy of the Agreement is attached
to this Proxy Statement and Prospectus as EXHIBIT A and should be
read in its entirety. Paragraph references are to appropriate
provisions of the Agreement.
Method of Carrying Out Reorganization. If Government
Securities Trust shareholders approve the Agreement, the
Reorganization will be consummated promptly after the various
conditions to the obligations of each of the parties are satisfied
(see Agreement, paragraphs 6 through 8). The Reorganization will
be completed on the Closing Date (as defined above).
On the Closing Date, Government Securities Trust will
transfer all of its assets to Government Income Fund in exchange
for Government Income Fund Shares with an aggregate net asset
value equal to the value of the assets delivered, less the
liabilities of Government Securities Trust assumed, as of the
close of business on the Closing Date (see Agreement, paragraphs 1
and 2).
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<PAGE> 33
The value of Government Securities Trust's assets and
Government Income Fund's net asset values per Class A share and
per Class B share will be determined according to the valuation
procedures set forth in the Company's Charter and By-laws and in
the Government Income Fund Prospectus (see "Share Price" in the
Government Income Fund Prospectus). No initial sales charge or
CDSC will be imposed upon delivery of the Government Income Fund
Shares in exchange for the assets of Government Securities Trust.
Surrender of Share Certificates. Government Securities Trust
shareholders whose Class A or Class B shares are represented by
one or more share certificates should, prior to the Closing Date,
either surrender their certificates to Government Securities Trust
or deliver to Government Securities Trust an affidavit with
respect to lost certificates, in such form and accompanied by such
surety bonds as Government Securities Trust may require
(collectively, an "Affidavit"). On the Closing Date, all cer-
tificates which have not been surrendered will be deemed to be
cancelled, will no longer evidence ownership of Government
Securities Trust's shares and will evidence ownership of
Government Income Fund Shares. Shareholders may not redeem or
transfer Government Income Fund Shares received in the
Reorganization until they have surrendered their Government
Securities Trust share certificates or delivered an Affidavit
relating to them. Unless a shareholder specifically requests a
share certificate, Government Income Fund will not issue share
certificates in the Reorganization.
Conditions Precedent to Closing. The obligation of
Government Securities Trust to consummate the Reorganization is
subject to the satisfaction of certain conditions precedent,
including the performance by the Company and Government Income
Fund of all acts and undertakings required under the Agreement and
the receipt of all consents, orders and permits necessary to
consummate the Reorganization (see Agreement, paragraphs 6 through
8).
The obligation of Government Income Fund to consummate the
Reorganization is subject to the satisfaction of certain
conditions precedent, including the performance by the Trust and
Government Securities Trust of all acts and undertakings to be
performed under the Agreement, the receipt of certain documents
and financial statements from Government Securities Trust and the
receipt of all consents, orders and permits necessary to
consummate the Reorganization (see Agreement, paragraphs 6 through
8).
The obligations of both parties are subject to the receipt of
approval and authorization of the Agreement by the vote of not
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<PAGE> 34
less than a majority of the shares of beneficial interest of
Government Securities Trust entitled to vote (as described in the
section captioned "Voting Rights and Required Vote"), and the
receipt of a favorable opinion of Hale and Dorr as to the federal
income tax consequences of the Reorganization (see Agreement,
paragraph 8.6).
Termination of Agreement. The Agreement may be terminated,
whether or not approval of Government Securities Trust's share-
holders has been obtained, by mutual agreement of the parties. In
addition, either party may terminate its obligations under the
Agreement at or prior to the Closing Date, because of a material
breach by the other party of any representations, warranties or
agreements contained in the Agreement, or if a condition precedent
in the Agreement has not been met.
Expenses of the Reorganization. Government Income Fund and
Government Securities Trust will each be responsible for its own
expenses incurred in connection with entering into and carrying
out the provisions of the Reorganization Agreement, whether or not
the Reorganization is consummated.
TAX CONSIDERATIONS
The consummation of the Reorganization is subject to the
receipt of a favorable opinion of Hale and Dorr, counsel to the
Funds, satisfactory to the Trust and the Company and substantially
to the effect that:
(i) The acquisition by Government Income Fund of all of
the assets of Government Securities Trust solely in exchange for
the issuance of Government Income Fund Shares to Government
Securities Trust and the assumption of all of Government
Securities Trust's liabilities by Government Income Fund, followed
by the distribution by Government Securities Trust, in liquidation
of Government Securities Trust, of Government Income Fund Shares
to the shareholders of Government Securities Trust in exchange for
their shares of beneficial interest of Government Securities Trust
and the termination of Government Securities Trust, will
constitute a "reorganization" within the meaning of Section 368(a)
of the Code, and Government Securities Trust and Government Income
Fund will each be "a party to a reorganization" within the meaning
of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by Government
Securities Trust upon (a) the transfer of all of its assets to
Government Income Fund solely in exchange for the issuance of
Government Income Fund Shares to Government Securities Trust, and
the assumption of all of Government Securities Trust's liabilities
by Government Income Fund; and (b) the distribution by Government
-24-
<PAGE> 35
Securities Trust of these Government Income Fund Shares to the
shareholders of Government Securities Trust;
(iii) no gain or loss will be recognized by Government
Income Fund upon the receipt of Government Securities Trust's
assets solely in exchange for the issuance of Government Income
Fund Shares to Government Securities Trust and the assumption of
all of Government Securities Trust's liabilities by Government
Income Fund;
(iv) the basis of the assets of Government Securities
Trust acquired by Government Income Fund will be, in each
instance, the same as the basis of those assets in the hands of
Government Securities Trust immediately prior to the transfer;
(v) the tax holding period of the assets of Government
Securities Trust in the hands of Government Income Fund will, in
each instance, include Government Securities Trust's tax holding
period for those assets;
(vi) the shareholders of Government Securities Trust
will not recognize gain or loss upon the exchange of all their
Government Securities Trust shares solely for Government Income
Fund Shares as part of the Reorganization;
(vii) the basis of the Government Income Fund Shares
Government Securities Trust shareholders in the Reorganization
will be the same as the basis of the Government Securities Trust
shares surrendered in exchange therefor; and
(viii) the tax holding period of the Government Income
Fund Shares received by the Government Securities Trust
shareholders will include, for each shareholder, the tax holding
period for the Government Securities Trust shares surrendered in
exchange therefor, provided the Government Securities Trust shares
were held as capital assets on the date of the exchange.
VOTING RIGHTS AND REQUIRED VOTE
Each Government Securities Trust share is entitled to one
vote. Class A and Class B shareholders of Government Securities
Trust vote together with respect to the Proposal. Approval of the
Proposal requires the affirmative vote of a majority of the shares
of Government Securities Trust represented in person or by proxy
and entitled to vote at a meeting of shareholders at which a
quorum is present.
Shares of beneficial interest of Government Securities Trust
represented in person or by proxy (including shares which abstain
or do not vote with respect to the Proposal) will be counted for
-25-
<PAGE> 36
purposes of determining whether a quorum is present 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 as present and
entitled to vote with respect to the Proposal. Accordingly, a
"broker non-vote" has no effect on the voting in determining
whether the Proposal has been adopted, provided that the holders
of that number of shares constituting a quorum (excluding the "broker
non-votes") are present or represented.
If the requisite approval of shareholders is not obtained,
Government Securities Trust will continue to engage in business as
a series of a registered open-end, management investment company
and the Trust's Board of Trustees will consider what further
action may be appropriate.
CAPITALIZATION
The following table sets forth the capitalization of each
Fund as of March 31, 1995, and the pro forma combined capitali-
zation of both Funds as if the Reorganization had occurred on that
date. The table reflects pro forma exchange ratios of
approximately 0.85068 Class A Government Income Fund Shares being
issued for each Class A share of Government Securities Trust and
approximately 0.85060 Class B Government Income Fund Shares being
issued for each Class B share of Government Securities Trust. If
the Reorganization is consummated, the actual exchange ratios on
the Closing Date may vary from the exchange ratios indicated due
to changes in the market value of the portfolio securities of both
Government Income Fund and Government Securities Trust between
March 31, 1995 and the Closing Date, changes in the amount of
undistributed net investment income and net realized capital gains
of Government Income Fund and Government Securities Trust during
that period resulting from income and distributions, and changes
in the accrued liabilities of Government Income Fund and
Government Securities Trust during the same period.
-26-
<PAGE> 37
<TABLE>
<CAPTION>
MARCH 31, 1995
GOVERNMENT GOVERNMENT
SECURITIES INCOME PRO FORMA
TRUST FUND COMBINED
------------ ------------ ------------
<S> <C> <C> <C>
Net Assets ................. $490,509,419 $230,299,751 $720,809,170
Net Asset Value Per Share:
Class A................... $7.55 $8.88 $8.88
Class B................... $7.55 $8.88 $8.88
Shares Outstanding:
Class A................... 64,755,573 27,941 55,114,303(1)
Class B................... 187,890 25,903,642 26,063,462(1)
<FN>
------------------------
(1) If the Reorganization had taken place on March 31, 1995,
Government Securities Trust would have received 55,086,362
Class A shares and 159,819 Class B shares of Government
Income Fund which would have been available for distribution
to shareholders of the applicable class of Government
Securities Trust. No assurance can be given as to the
number of Class A Shares or Class B shares of Government
Income Fund that will be received by Government Securities
Trust on the Closing Date. The foregoing is merely an
example of what Government Securities Trust would have
received and distributed had the Reorganization been
consummated on March 31, 1995 and should not be relied upon
to reflect the amount that will actually be received on the
Closing Date.
</TABLE>
COMPARATIVE PERFORMANCE INFORMATION
TOTAL RETURN
The average annual total return at the public offering price
on Government Securities Trust's Class A shares for the one-year,
five-year and ten-year periods ended March 31, 1995 was (1.39)%,
7.31% and 7.25%, respectively. No Class B shares of Government
Securities Trust were outstanding during any of these periods.
The cumulative total return at the public offering price on
Government Income Fund's Class A shares for the period from
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<PAGE> 38
September 30, 1994 (commencement of operations) through March 31,
1995 was (.49)%. The average annual total return on Government
Income Fund's Class B shares for the one-year and five-year periods
ended March 31, 1995 was (2.59)% and 6.83%, respectively. The av-
erage annual total return on Government Income Fund's Class B share
for the period from February 23, 1988 (commencement of operations)
through March 31, 1995 was 6.54%. Total returns on Class B shares
reflect the applicable CDSC.
The average annual total return of each class of the Funds
is determined by multiplying a hypothetical initial investment of
$1,000 in a class by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and
distributions paid and reinvested) attributable to that class for
the stated period and annualizing the result.
The table below indicates the total return (capital changes
plus reinvestment of all dividends and distributions) on a hypo-
thetical investment of $1,000 in each class of each Fund covering
the indicated periods ending March 31, 1995. The data below
represent historical performance which should not be considered
indicative of future performance of either Fund. Each Fund's
performance and net asset value will fluctuate such that shares,
when redeemed, may be worth more or less than their original cost.
<TABLE>
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK GOVERNMENT SECURITIES TRUST
(UNAUDITED)
<CAPTION>
Value of
Investment on
March 31, 1995 Total Return Total Return
Investment Amount of Including Including Sales Charge Excluding Sales Charge
Investment Period Date Investment Sales Charge Cumulative Annualized Cumulative Annualized
- ----------------- ---------- ---------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
10 years ended
March 31, 1995 ..... 3/31/85 $1,000 $2,012.73 101.27% 7.25% 111.28% 7.77%
5 years ended
March 31, 1995 ..... 3/31/90 $1,000 $1,422.81 42.28% 7.31% 49.34% 8.35%
1 year ended
March 31, 1995 ...... 3/31/94 $1,000 $ 986.14 (1.39)% (1.39)% 3.49% 3.49%
</TABLE>
<TABLE>
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK GOVERNMENT INCOME FUND
(UNAUDITED)
<CAPTION>
Value of
Investment on
March 31, 1995 Total Return Total Return
Investment Amount of Including Including Sales Charge Excluding Sales Charge
Investment Period Date Investment Sales Charge Cumulative Annualized Cumulative Annualized
- ----------------- ---------- ---------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
From Inception
(September 30, 1994)
to March 31, 1995.... 9/30/94 $1,000 $ 995.15 (0.49)% N/A 4.53% N/A
CLASS B SHARES:
From Inception
(February 23, 1988)
to March 31, 1995.... 2/23/88 $1,000 $1,567.62 56.76% 6.54% 56.76% 6.54%
5 years ended
March 31, 1995 ...... 3/31/90 $1,000 $1,391.43 39.14% 6.83% 41.14% 7.14%
1 year ended
March 31, 1995 ...... 3/31/94 $1,000 $ 974.12 (2.59)% (2.59)% 2.41% 2.41%
</TABLE>
-28-
<PAGE> 39
BUSINESS OF GOVERNMENT INCOME FUND
GENERAL
For a discussion of the organization and operation of
Government Income Fund, see "Investment Objectives and Policies" and
"Organization and Management of the Fund" in the Government Income
Fund Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of Government Income Fund's investment
objective and policies, see "Investment Objectives and Policies" in
the Government Income Fund Prospectus.
PORTFOLIO MANAGEMENT
All investment decisions for Government Income Fund are made
by the Adviser's fixed-income portfolio management team. No single
person is primarily responsible for making recommendations to the
team.
DIRECTORS
For a discussion of the responsibilities of the Company's
Board of Directors, see "Organization and Management of the Fund" in
the Government Income Fund Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For a discussion regarding Government Income Fund's
investment adviser and distributor, see "Organization and Management
of the Fund," "How to Buy Shares" and "Share Price" in the
Government Income Fund Prospectus.
EXPENSES
For a discussion of Government Income Fund's expenses, see
"Expense Information" and "The Fund's Expenses" in the Government
Income Fund Prospectus.
CUSTODIAN AND TRANSFER AGENT
Government Income Fund's custodian is Investors Bank & Trust
Company. Government Income Fund's transfer agent is Investor
Services.
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<PAGE> 40
GOVERNMENT INCOME FUND SHARES
For a discussion of the Government Income Fund Shares, see
"Organization and Management of the Fund" in the Government Income
Fund Prospectus.
PURCHASE OF GOVERNMENT INCOME FUND SHARES
For a discussion of how Class A and Class B shares of
Government Income Fund may be purchased or exchanged, see "How to
Buy Shares," "Alternative Purchase Arrangements" and "Additional
Services and Programs" in the Government Income Fund Prospectus.
REDEMPTION OF GOVERNMENT INCOME FUND SHARES
For a discussion of how Class A and Class B shares of
Government Income Fund may be redeemed, see "How to Redeem Shares"
in the Government Income Fund Prospectus. Former shareholders of
Government Securities Trust whose shares are represented by share
certificates will be required to surrender their certificates for
cancellation or deliver an affidavit of loss accompanied by an
adequate surety bond to Investor Services in order to redeem
Government Income Fund Shares received in the Reorganization.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Government Income Fund's policy with re-
spect to dividends, distributions and taxes, see "Dividends and
Taxes" in the Government Income Fund Prospectus.
BUSINESS OF GOVERNMENT SECURITIES TRUST
GENERAL
For a discussion of the organization and operation of
Government Securities Trust, see "Investment Objective and Policies"
and "Organization and Management of the Fund" in the Government
Securities Trust Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of Government Securities Trust's investment
objectives and policies, see "Investment Objective and Policies" in
the Government Securities Trust Prospectus.
PORTFOLIO MANAGEMENT
All investment decisions for Government Securities Trust are
made by the Adviser's fixed-income portfolio management team. No
-30-
<PAGE> 41
single person is primarily responsible for making recommendations to
the team.
TRUSTEES
For a discussion of the responsibilities of the Trust's
Board of Trustees, see "Organization and Management of the Fund" in
the Government Securities Trust Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For a discussion regarding Government Securities Trust's
investment adviser and distributor, see "Organization and Management
of the Fund," "How to Buy Shares" and "Share Price" in the
Government Securities Trust Prospectus.
EXPENSES
For a discussion of the Government Securities Trust's ex-
penses, see "Expense Information" and "The Fund's Expenses" in the
Government Securities Trust Prospectus.
CUSTODIAN AND TRANSFER AGENT
Government Securities Trust's custodian is Investors Bank &
Trust Company. Government Securities Trust's transfer agent is John
Hancock Investor Services Corporation.
GOVERNMENT SECURITIES TRUST SHARES
For a discussion of Government Securities Trust's shares of
beneficial interest, see "Organization and Management of the Fund"
in the Government Securities Trust Prospectus.
PURCHASE OF GOVERNMENT SECURITIES TRUST SHARES
For a discussion of how Class A and Class B shares of
Government Securities Trust may be purchased or exchanged, see "How
to Buy Shares," "Alternative Purchase Arrangements" and "Additional
Services and Programs" in the Government Securities Trust
Prospectus. In anticipation of the Reorganization, Government
Securities Trust has stopped offering its shares to all investors
other than existing shareholders.
REDEMPTION OF GOVERNMENT SECURITIES TRUST SHARES
For a discussion of how Class A and Class B shares of
Government Securities Trust may be redeemed (other than in the Reor-
ganization), see "How to Redeem Shares" in the Government Securities
Trust Prospectus. Government Securities Trust shareholders whose
-31-
<PAGE> 42
shares are represented by share certificates will be required to
surrender their certificates for cancellation or deliver an af-
fidavit of loss accompanied by an adequate surety bond to Investor
Services in order to redeem Government Income Fund Shares received
in the Reorganization.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Government Securities Trust's policy
with respect to dividends, distributions and taxes, see
"Distributions and Taxes" in the Government Securities Trust Pro-
spectus.
EXPERTS
The respective financial statements and the financial
highlights of Government Income Fund as of October 31, 1994 and for
the year then ended, and Government Securities Trust as of March 31,
1995 and for the year then ended, incorporated by reference into the
Proxy Statement and Prospectus, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon
appearing in the Statement of Additional Information, and are
included in reliance upon such reports given upon the authority of
such firm 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,
and in accordance therewith file reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other
information filed by the Company, on behalf of Government Income
Fund, and the Trust, on behalf of Government Securities Trust, can
be inspected and copied (at prescribed rates) at the public
reference facilities of the SEC at 450 Fifth Street, N.W.,
Washington, D.C., and at the following regional offices: Chicago
(500 West Madison Street, Suite 1400, Chicago, Illinois); and
New York (7 World Trade Center, Suite 1300, New York, New York).
Copies of such material can also be obtained by mail from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
-32-
<PAGE> 43
EXHIBIT A
---------
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
is made this __ day of _________, 1995, by and between John
Hancock Government Income Fund (the "Acquiring Fund"), a series of
John Hancock Series, Inc. (the "Company"), a Maryland corporation,
and John Hancock Government Securities Trust (the "Acquired
Fund"), a series of John Hancock Bond Fund (the "Trust"), a
Massachusetts business trust. The principal place of business of
the Company and the Trust is 101 Huntington Avenue, Boston,
Massachusetts 02199. The Acquiring Fund and the Acquired Fund are
sometimes referred to collectively herein as the "Funds" and
individually as a "Fund."
This Agreement is intended to be and is adopted as a plan of
"reorganization," as such term is used in Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization will consist of the transfer of all of the assets
of the Acquired Fund to the Acquiring Fund in exchange solely for
the issuance of Class A and Class B shares of common stock of the
Acquiring Fund (the "Acquiring Fund Shares") to the Acquired Fund
and the assumption by the Acquiring Fund of all of the liabilities
of the Acquired Fund, followed by the distribution by the Acquired
Fund, on or promptly after the Closing Date hereinafter referred
to, of the Acquiring Fund Shares to the shareholders of the
Acquired Fund in liquidation and termination of the Acquired Fund
as provided herein, all upon the terms and conditions set forth in
this Agreement.
In consideration of the premises of the covenants and
agreements hereinafter set forth, the parties hereto covenant and
agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR
ASSUMPTION OF LIABILITIES AND ISSUANCE OF ACQUIRING FUND
SHARES; LIQUIDATION OF THE ACQUIRED FUND
1.1 The Acquired Fund will transfer all of its assets
(consisting, without limitation, of portfolio securities and
instruments, dividends and interest receivables, cash and other
assets), as set forth in the statement of assets and liabilities
referred to in Paragraph 7.2 hereof (the "Statement of Assets and
Liabilities"), to the Acquiring Fund free and clear of all liens
and encumbrances, except as otherwise provided herein, in exchange
for (i) the assumption by the Acquiring Fund of the known and
unknown liabilities of the Acquired Fund, including the
liabilities set forth in the Statement of Assets and Liabilities
(the "Acquired Fund Liabilities"), which shall be assigned and
transferred to the Acquiring Fund by the Acquired Fund and assumed
by the Acquiring Fund, and (ii) delivery by the Acquiring Fund to
<PAGE> 44
the Acquired Fund, for distribution PRO RATA by the Acquired Fund
to its Class A and Class B shareholders in proportion to their
respective ownership of Class A and/or Class B shares of
beneficial interest of the Acquired Fund, as of the close of
business on the closing date (the "Closing Date"), of a number of
the Acquiring Fund Shares having an aggregate net asset value
equal to the value of the assets, less such liabilities (herein
referred to as the "net value of the assets"), of the Acquired
Fund so transferred, assumed, assigned and delivered, all
determined as provided in Paragraph 2.1 hereof and as of a date
and time as specified therein. Such transactions shall take place
at the closing provided for in Paragraph 3.1 hereof (the
"Closing"). All computations shall be provided by Investors Bank
& Trust Company (the "Custodian"), as custodian and pricing agent
for the Acquiring Fund and the Acquired Fund, and shall be
recomputed by Ernst & Young LLP, the independent accountants of
the Acquiring Fund. The determination of the Custodian, as
recomputed by said accountants, shall, absent manifest error, be
conclusive and binding on all parties in interest.
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 of the
applicable class (the "Acquired Fund shareholders"), determined as
of the close of regular trading on the New York Stock Exchange on
the Closing Date, the Acquiring Fund Shares received by the
Acquired Fund pursuant to Paragraph 1.1 hereof. Such liquidation
and distribution will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired
Fund on the books of the Acquiring Fund, to open accounts on the
share records of the Acquiring Fund in the names of the Acquired
Fund shareholders and representing the respective PRO RATA number
and class of Acquiring Fund Shares due such shareholders.
Acquired Fund shareholders who own Class A shares of the Acquired
Fund will receive Class A Acquiring Fund Shares, and Acquired Fund
shareholders who own Class B shares of the Acquired Fund will
receive Class B Acquiring Fund Shares. The Acquiring Fund shall
2
<PAGE> 45
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 Investor Services
Corporation prior to the Closing Date. Any Acquired Fund share
certificate which remains outstanding on the Closing Date shall be
deemed to be cancelled, 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
Acquiring 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 with respect
to the Acquired Fund, including, but not limited to, the
responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the
"Commission"), any state securities commissions, and any federal,
state or local tax authorities or any other relevant regulatory
authority, is and shall remain the responsibility of the Trust.
2. VALUATION
2.1 The net asset values of the Class A and Class B
Acquiring Fund Shares and the net values of the assets of the
Acquired Fund attributable to its Class A and Class B shares to be
transferred shall in each case be determined as of the close of
business (4:00 p.m. Boston time) on the Closing Date. The net
asset values of the Class A and Class B Acquiring Fund Shares
shall be computed by the Custodian in the manner set forth in the
Trust's Declaration of Trust, as amended, or By-laws and the
3
<PAGE> 46
Acquiring Fund's then-current prospectus and statement of
additional information and shall be computed in each case to not
fewer than four decimal places. The net values of the assets of
the Acquired Fund attributable to its Class A and Class B shares
to be transferred shall be computed by the Custodian by
calculating the value of the assets of each class transferred by
the Acquired Fund and by subtracting therefrom the amount of the
liabilities of each respective class assigned and transferred to
and assumed by the Acquiring Fund on the Closing Date, said assets
and liabilities to be valued in the manner set forth in the
Acquired Fund's then-current prospectus and statement of
additional information, and shall be computed in each case to not
fewer than four decimal places.
2.2 The number of shares of each class of Acquiring Fund
Shares to be issued (including fractional shares, if any) in
exchange for the Acquired Fund's assets shall be determined by
dividing the value of the Acquired Fund's assets attributable to a
class, less the liabilities attributable to that class assumed by
the Acquiring Fund, by the Acquiring Fund's net asset value per
share of the same class, all as determined in accordance with
Paragraph 2.1 hereof.
2.3 All computations of value shall be made by the Custodian
in accordance with its regular practice as pricing agent for the
Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be September 8, 1995 or such
other date on or before December 31, 1995, as the parties may
agree in writing. The Closing shall be held as of 5:00 p.m. at
the offices of the Company and the Trust, 101 Huntington Avenue,
Boston, Massachusetts 02199, or at such other time and/or place as
the parties may agree in writing.
3.2 Portfolio securities that are not held in book-entry
form in the name of the Custodian as record holder for the
Acquired Fund shall be presented by the Acquired Fund to the
Custodian for examination no later than 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 Custodian for the account of the Acquiring Fund on the Closing
Date, duly endorsed in proper form for transfer, in such condition
as to constitute good delivery thereof in accordance with the
custom of brokers, and shall be accompanied by all necessary
federal and state stock transfer stamps or a check for the
appropriate purchase price thereof. Portfolio securities held of
record by the Custodian in book-entry form on behalf of the
Acquired Fund shall be delivered to the Acquiring Fund by the
Custodian by recording the transfer of beneficial ownership
4
<PAGE> 47
thereof on its records. The cash delivered shall be in the form
of currency or by the Custodian crediting the Acquiring Fund's
account maintained with the Custodian with immediately available
funds.
3.3 In the event that on the Closing Date (a) the New York
Stock Exchange shall be closed to trading or trading thereon shall
be restricted or (b) trading or the reporting of trading on said
Exchange or elsewhere shall be disrupted so that accurate
appraisal of the value of the net assets of the Acquiring Fund or
the Acquired Fund is impracticable, the Closing Date shall be
postponed until 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 December 31, 1995, 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
beneficial interest of each class of the Acquired Fund owned by
each such shareholder, all as of the close of business on the
Closing Date, certified by its Treasurer, Secretary or other
authorized officer (the "Shareholder List"). The Acquiring Fund
shall issue and deliver to the Acquired Fund a confirmation
evidencing the Acquiring Fund Shares to be credited on the Closing
Date, or provide evidence satisfactory to the Acquired Fund that
such Acquiring Fund Shares have been credited to the Acquired
Fund's account on the books of the Acquiring Fund. At the
Closing, each party shall deliver to the other such bills of sale,
checks, assignments, stock certificates, receipts or other
documents as such other party or its counsel may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Trust on behalf of the Acquired Fund represents,
warrants and covenants to the Acquiring Fund as follows:
(a) The Trust is a business trust duly organized,
validly existing and in good standing under the laws of The
Commonwealth of Massachusetts and has the power to own all of
its properties and assets and, subject to approval by the
shareholders of the Acquired Fund, to carry out the
transactions contemplated by this Agreement. Neither the
Trust nor the Acquired Fund is required to qualify to do
business in any jurisdiction in which it is not so qualified
or where failure to qualify would not subject it to any
material liability or disability. The Trust has all
5
<PAGE> 48
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, 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 statement of assets and liabilities, including
the schedule of investments, of the Acquired Fund as of
March 31, 1995 and the related statement of operations for
the year then ended, and the statement of changes in net
assets for the years ended March 31, 1995 and 1994 (audited
by Ernst & Young LLP) (copies of which have been furnished
to the Acquiring Fund) present fairly in all material
respects the financial condition of the Acquired Fund as of
March 31, 1995, and the results of its operations and changes
in net assets for the respective stated periods in accordance
with generally accepted accounting principles consistently
6
<PAGE> 49
applied, and there were no actual or contingent liabilities
of the Acquired Fund as of the respective dates thereof not
disclosed therein;
(g) Since March 31, 1995, 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) The Acquired Fund has elected to be treated as a
regulated investment company for federal income tax purposes,
has qualified as such for each taxable year of its operation
and will qualify as such as of the Closing Date with respect
to its final taxable year ending on the Closing Date;
(j) The authorized capital of the Trust consists of an
unlimited number of shares of beneficial interest, $0.01 par
value per share. 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
7
<PAGE> 50
deliver such assets hereunder, and upon delivery and payment
for such assets, the Company on behalf of the Acquiring Fund
will acquire good and marketable title thereto subject to no
restrictions on the full transfer thereof, including such
restrictions as might arise under the Securities Act of 1933,
as amended (the "1933 Act");
(l) The execution, delivery and performance of this
Agreement have been duly authorized by all necessary action
on the part of the Trust on behalf of the Acquired Fund, and
this Agreement constitutes a valid and binding obligation of
the Trust and the Acquired Fund enforceable in accordance
with its terms, subject to the approval of the Acquired
Fund's shareholders;
(m) The information to be furnished by the Acquired
Fund to the Acquiring Fund for use in applications for
orders, registration statements, proxy materials and other
documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and
complete and shall comply in all material respects with
federal securities and other laws and regulations thereunder
applicable thereto;
(n) The proxy statement of the Acquired Fund
(the "Proxy Statement") to be included in the Registration
Statement referred to in Paragraph 5.7 hereof (other than
written information furnished by the Acquiring Fund for
inclusion therein, as covered by the Acquiring Fund's
warranty in Paragraph 4.2(m) hereof), on the effective date
of the Registration Statement, on the date of the meeting of
the Acquired Fund shareholders and on the Closing Date, shall
not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which such statements were made, not
misleading;
(o) No consent, approval, authorization or order of any
court or governmental authority is required for the
consummation by the Acquired Fund of the transactions
contemplated by this Agreement;
(p) All of the issued and outstanding shares of
beneficial interest of the Acquired Fund have been offered
for sale and sold in conformity with all applicable federal
and state securities laws;
(q) The prospectus of the Acquired Fund, dated May 15,
1995 (the "Acquired Fund Prospectus"), previously furnished
to the Acquiring Fund, does not contain any untrue statements
8
<PAGE> 51
of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were
made, not misleading.
4.2 The Company on behalf of the Acquiring Fund represents,
warrants and covenants to the Acquired Fund as follows:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Maryland and has the power to own all of its
properties and assets and to carry out the Agreement.
Neither the Company 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 not subject it
to any material liability or disability. The Company 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 Company 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 Company;
(c) The prospectus (the "Acquiring Fund Prospectus")
and statement of additional information for Class A and
Class B shares of the Acquiring Fund, each dated May 15,
1995, 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 Company on behalf of the
Acquiring Fund will have good and marketable title to the
assets of the Acquiring Fund;
9
<PAGE> 52
(e) The Company 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 Company's Articles of Incorporation, as
amended and supplemented, or By-laws or of any agreement,
indenture, instrument, contract, lease or other undertaking
to which the Company or the Acquiring Fund is a party or by
which the Company or the Acquiring Fund is bound;
(f) Except as otherwise disclosed in writing and
accepted by the Acquired Fund, no material litigation or
administrative proceeding or investigation of or before any
court or governmental body is currently pending or threatened
against the Company or the Acquiring Fund or any of the
Acquiring Fund's properties or assets. The Company knows of
no facts which might form the basis for the institution of
such proceedings, and neither the Company 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 statement of assets and liabilities of the
Acquiring Fund, as of April 30, 1995, and the related
statement of operations for the period then ended and the
schedule of investments (unaudited) (copies of which have
been furnished to the Acquired Fund), present fairly in all
material respects the financial position of the Acquiring
Fund as of April 30, 1995 and the results of its operations
for the period then ended in accordance with generally
accepted accounting principles consistently applied and there
are no known actual or contingent liabilities of the
Acquiring Fund as of the respective dates thereof not
disclosed herein;
(h) Since April 30, 1995, 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 Company on behalf of the Acquiring Fund of
indebtedness maturing more than one year from the date such
indebtedness was incurred;
(i) The Acquiring Fund has elected to be treated as a
regulated investment company for federal income tax purposes,
has qualified as such for each taxable year of its operation
and will qualify as such as of the Closing Date;
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<PAGE> 53
(j) The authorized capital of the Company consists of
1,000,000,000 shares of common stock divided into seven
series. The Acquiring Fund consists of 350,000,000 shares,
$0.01 par value, which are divided into two classes, Class A
and Class B, each with 175,000,000 shares. All issued and
outstanding shares of common stock of the Acquiring Fund are,
and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Company.
The Acquiring Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of
its shares of common stock, nor is there outstanding any
security convertible into any of its shares of common stock;
(k) The execution, delivery and performance of this
Agreement have been duly authorized by all necessary action
on the part of the Company on behalf of the Acquiring Fund,
and this Agreement constitutes a valid and binding obligation
of the Acquiring Fund enforceable in accordance with its
terms;
(l) The Acquiring Fund Shares to be issued and
delivered to the Acquired Fund pursuant to the terms of this
Agreement, when so issued and delivered, will be duly and
validly issued shares of common stock of the Acquiring Fund
and will be fully paid and nonassessable by the Company;
(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, the 1940 Act
and under state securities laws.
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 Company, on
behalf of the Acquiring Fund, and 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.
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<PAGE> 54
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 Company on behalf of the Acquiring Fund requests concerning
the beneficial ownership of the Acquired Fund's shares of
beneficial interest.
5.5 Subject to the provisions of this Agreement, the
Acquiring Fund and the Acquired Fund each shall take, or cause to
be taken, all action, and do or cause to be done, all things
reasonably necessary, proper or advisable to consummate the
transactions contemplated by this Agreement.
5.6 The Trust on behalf of the Acquired Fund shall furnish
to the Company 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 Trust'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 Company, 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 Company 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.
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<PAGE> 55
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 Company 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 Company on
behalf of the Acquiring Fund contained in this Agreement shall be
true and correct in all material respects as of the date hereof
and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date;
and
6.2 The Company on behalf of the Acquiring Fund shall have
delivered to the Acquired Fund a certificate executed in its name
by the Company's President or Vice President and its Treasurer or
Assistant Treasurer, in form and substance satisfactory to the
Trust on behalf of the Acquired Fund and dated as of the Closing
Date, to the effect that the representations and warranties of the
Company 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 COMPANY ON BEHALF
OF THE ACQUIRING FUND
The obligations of the Company on behalf of the Acquiring
Fund to complete the transactions provided for herein shall be, at
its election, subject to the performance by the Trust on behalf of
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 Trust on
behalf 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 Company on behalf of the Acquiring Fund the
Statement of Assets and Liabilities of the Acquired Fund, together
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<PAGE> 56
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 Company 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
Compay on behalf of the Acquiring Fund and dated as of the Closing
Date, to the effect that the representations and warranties of the
Trust on behalf 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 Company on behalf of the Acquiring
Fund shall reasonably request; and
7.4 At or prior to the Closing Date, the Acquired Fund's
investment adviser, or an affiliate thereof, shall have made all
payments, or applied all credits, to the Acquired Fund required by
any applicable contractual or state-imposed expense limitation.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND
THE COMPANY
The obligations hereunder of the Trust on behalf of the
Acquired Fund and the Company on behalf of the Acquiring 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 of
Trust, as amended and restated, 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
Company 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 of state Blue
Sky and securities authorities, including "no-action" positions of
such federal or state authorities) deemed necessary by the Trust
14
<PAGE> 57
or the Company 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 all of its investment company taxable income (as
defined in Section 852(b)(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 Section 852(b)(3)(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
Messrs. Hale and Dorr, satisfactory to the Trust on behalf of the
Acquired Fund and the Company 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;
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<PAGE> 58
(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;
(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 his shares of
beneficial interest of the Acquired Fund surrendered in
exchange therefor, provided that such Acquired Fund shares
were held as capital assets on the date of the exchange.
The Company and the Trust agrees to make and provide
representations which are reasonably necessary to enable Hale and
Dorr to deliver an opinion substantially as set forth in this
Paragraph 8.6. Notwithstanding anything herein to the contrary,
neither the Trust nor the Company may waive the conditions set
forth in this Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Company 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
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<PAGE> 59
whether or not the transactions contemplated hereby are
consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Company on behalf of the Acquiring Fund and the
Trust on behalf of the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein
or referred to in Paragraph 4 hereof and that this Agreement
constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained
in this Agreement or in any document delivered pursuant hereto or
in connection herewith shall survive the consummation of the
transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual
agreement of the Trust and the Company. 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 Company's Board of Directors
if circumstances should develop that, in the good faith
opinion of such Board, make proceeding with the Agreement not
in the best interest 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 interest 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 Company, the Acquiring
Fund, the Trust or the Acquired Fund, or the Directors or Trustees
or officers of the Company or the Trust, but each party shall bear
the expenses incurred by it incidental to the preparation and
carrying out of this Agreement.
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<PAGE> 60
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in
such manner as may be mutually agreed upon in writing by the
authorized officers of the Trust and the Company. 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.
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 Trust or to the Company, each at 101 Huntington
Avenue, Boston, Massachusetts 02199, Attention: President, and,
in either case, with copies to Hale and Dorr, 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 must look solely to
the property of the Trust for the enforcement of any claims
against the Trust as neither the Trustees, officers, agents or
shareholders of the Trust assume any personal liability for
18
<PAGE> 61
obligations entered into on behalf of the Trust. None of the
other series of the Trust shall be responsible for any obligations
assumed by or on behalf of the Acquired Fund under this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed by its President or Vice President
and attested by its Secretary or Assistant Secretary and has
caused its corporate seal to be affixed hereto.
JOHN HANCOCK SERIES, INC., on behalf
of JOHN HANCOCK GOVERNMENT INCOME
FUND
By:
--------------------------------
Name:
--------------------------------
Title:
-------------------------------
JOHN HANCOCK BOND FUND, on behalf of
JOHN HANCOCK GOVERNMENT SECURITIES
TRUST
By:
--------------------------------
Name:
--------------------------------
Title:
-------------------------------
19
<PAGE> 62
EXHIBIT B
---------
JOHN HANCOCK
GOVERNMENT
INCOME FUND
CLASS A AND CLASS B SHARES
PROSPECTUS
MAY 15, 1995
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Expense Information...................................................... 2
The Fund's Financial Highlights.......................................... 3
Investment Objective and Policies........................................ 4
Organization and Management of the Fund.................................. 6
Alternative Purchase Arrangements........................................ 7
The Fund's Expenses...................................................... 9
Dividends and Taxes...................................................... 10
Performance.............................................................. 11
How to Buy Shares........................................................ 12
Share Price.............................................................. 13
How to Redeem Shares..................................................... 20
Additional Services and Programs......................................... 22
Investments, Techniques and Risk Factors................................. 25
</TABLE>
This Prospectus sets forth the information about John Hancock Government
Income Fund (the "Fund"), a diversified series of John Hancock Series, Inc. (the
"Company"), that you should know before investing. Please read and retain it for
future reference.
Additional information about the Fund and the Company has been filed with the
Securities and Exchange Commission (the "SEC"). You can obtain a copy of the
Fund's Statement of Additional Information, dated May 15, 1995 and incorporated
by reference into this Prospectus, free of charge by writing or telephoning:
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts
02205-9116, 1-800-225-5291 (1-800-554-6713 TDD).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 63
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various fees and expenses you will bear, directly or indirectly, when you
purchase Fund shares. The operating expenses included in the table and
hypothetical example below are based on fees and expenses for the Fund's fiscal
year ended October 31, 1994 adjusted to reflect current sales charges. Actual
fees and expenses in the future of the Class A and Class B shares may be greater
or less than those indicated.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
------- -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a percentage of offering price)....................... 4.50% None
Maximum sales charge imposed on reinvested dividends................................................ None None
Maximum deferred sales charge....................................................................... None * 5.00%
Redemption fee+..................................................................................... None None
Exchange fee........................................................................................ None None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management fee...................................................................................... 0.65% 0.65%
12b-1 fee**......................................................................................... 0.25% 1.00%
Other expenses***................................................................................... 0.29% 0.29%
Total Fund operating expenses....................................................................... 1.19% 1.94%
<FN>
* No sales charge is payable at the time of purchase on investments of $1
million or more, but for these investments a contingent deferred sales
charge may be imposed, as described below under the caption "Share Price,"
in the event of certain redemption transactions within one year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average net assets, and the remaining portion will be
used to cover distribution expenses.
*** Other Expenses include transfer agent, legal, audit, custody and other
expenses.
+Redemption by wire fee (currently $4.00) not included.
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses for the indicated period of years on a
hypothetical $1,000 investment, assuming 5% annual return:
Class A Shares............................................................... $56 $81 $107 $183
Class B Shares
-- Assuming complete redemption at end of period......................... $70 $91 $125 $207
-- Assuming no redemption................................................ $20 $61 $105 $207
<FN>
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.)
</TABLE>
The Fund's payment of a distribution fee may result in a long-term shareholder
indirectly paying more than the economic equivalent of the maximum front-end
sales charge permitted under the National Association of Securities Dealers,
Inc.'s Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contract."
2
<PAGE> 64
THE FUND'S FINANCIAL HIGHLIGHTS
The information in the following table of financial highlights has been
audited by Ernst & Young LLP, the Fund's independent auditors, whose unqualified
report is included in the Statement of Additional Information. Further
information about the performance of the Fund is contained in the Fund's Annual
Report to shareholders which may be obtained free of charge by writing or
telephoning John Hancock Investor Services Corporation ("Investor Services") at
the address or telephone number listed on the front page of this Prospectus.
Selected data for each class of shares outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
CLASS B SHARES
CLASS A SHARES -----------------------------------------------------------------------
---------------------- PERIOD
PERIOD FROM YEAR ENDED OCTOBER 31, ENDED
SEPTEMBER 30, 1994 TO -------------------------------------------------------- OCTOBER 31,
OCTOBER 31, 1994(1) 1994 1993 1992 1991 1990 1989 1988(2)
---------------------- ------ ------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $8.85 $10.05 $9.83 $9.79 $9.37 $9.98 $10.01 $10.58
INCOME FROM INVESTMENT OPERATIONS
Net investment income............. 0.06 0.65 0.70 0.80 0.89 0.88 0.98 0.69
Net realized and unrealized gain
(loss)
on securities................... (0.10) (1.28) 0.24 0.03 0.40 (0.54) (0.01) (0.45)
------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations...................... (0.04) (0.63) 0.94 0.83 1.29 0.34 0.97 0.24
LESS DISTRIBUTIONS
Dividends from net investment
income.......................... (0.06) (0.65) (0.72) (0.79) (0.87) (0.95) (1.00) (0.64)
Distributions from realized
gains........................... -- (0.02) -- -- -- -- -- (0.17)
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions............... (0.06) (0.67) (0.72) (0.79) (0.87) (0.95) (1.00) (0.81)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period.... $ 8.75 $ 8.75 $10.05 $ 9.83 $ 9.79 $ 9.37 $ 9.98 $10.01
====== ====== ====== ====== ====== ====== ====== ======
Total Return(3)................... (0.45)% (6.42)% 9.86% 8.81% 14.38% 3.71% 10.22% 2.40%
====== ====== ====== ====== ====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA
Ratio of operating expenses to
average net assets.............. 0.12% 1.93% 2.00% 2.00% 2.00% 2.04% 2.82% 2.76%
Ratio of interest expense to
average net assets.............. -- 0.01% 0.01% 0.15% -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Ratio of total expenses to average
net assets...................... 0.12% 1.94% 2.01% 2.15% 2.00% 2.04% 2.82% 2.76%
Ratio of expense reimbursement to
average net assets.............. -- -- -- -- -- (0.04)% (0.82)% (1.38)%
------ ------ ------ ------ ------ ------ ------ ------
Ratio of net expenses to average
net assets...................... 0.12% 1.94% 2.01% 2.15% 2.00% 2.00% 2.00% 1.38%
======= ====== ====== ====== ====== ====== ====== ======
Ratio of net investment income to
average net assets.............. 0.71% 6.98% 7.06% 8.03% 9.09% 9.22% 9.64% 6.34%
Portfolio turnover................ 92% 92% 138% 112% 162% 83% 151% 174%
Net Assets, end of period (in
thousands)...................... $223 $241,061 $293,413 $225,540 $129,014 $64,707 $26,568 $6,966
Debt outstanding at end of period
(in thousands)(4)............... $0 $0 $0 $0 -- -- -- --
Average daily amount of debt
outstanding
during the period (in
thousands)(4)................... $349 $349 $503 $6,484 -- -- -- --
Average monthly number of shares
outstanding during the period
(in thousands).................. 28,696 28,696 26,378 18,572 -- -- -- --
Average daily amount of debt
outstanding per share during the
period(4)....................... $0.01 $0.01 $0.02 $0.35 -- -- -- --
<FN>
- ---------------
(1) Financial highlights, including total return, have not been annualized.
Portfolio turnover and information regarding debt outstanding are for the
year ended October 31, 1994 and are not class specific.
(2) Financial highlights, including total return, are for the period from
February 23, 1988 (date of the Fund's initial offering of shares to the
public) to October 31, 1988 and have not been annualized. Per share
information has been calculated using the average number of shares
outstanding.
(3) Total return does not include the effect of the initial sales charge for
Class A Shares nor the contingent deferred sales charge for Class B Shares.
(4) Debt outstanding consists of reverse repurchase agreements entered into
during the year.
</TABLE>
3
<PAGE> 65
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to earn a high level of current income
consistent with preservation of capital by investing primarily in securities
that are issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities ("U.S. Government securities").
The Fund may seek to enhance its current return and may seek to hedge against
changes in interest rates by engaging in transactions involving options (subject
to certain limits), futures and options on futures. The Fund expects that under
normal market conditions it will invest at least 80% of its total assets in U.S.
Government securities (and related repurchase agreements and forward
commitments) which include:
- -------------------------------------------------------------------------------
THE FUND SEEKS TO EARN A HIGH LEVEL OF
CURRENT INCOME CONSISTENT WITH
PRESERVATION OF CAPITAL BY INVESTING IN
U.S. GOVERNMENT SECURITIES.
- -------------------------------------------------------------------------------
(1) Obligations issued by the U.S. Treasury differing only in their interest
rates, maturities and times of issuance:
(a) U.S. Treasury bills with a maturity of one year or less;
(b) U.S. Treasury notes with maturities of one to ten years; or
(c) U.S. Treasury bonds generally with maturities greater than ten years;
and
(2) Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities which may be supported by:
(a) the full faith and credit of the U.S. Government (e.g., direct pass-
through certificates of the Government National Mortgage Association
("Ginnie Mae"));
(b) the right of the issuer to borrow from the U.S. Government (e.g.,
securities of the Federal Home Loan banks); or
(c) the credit of the instrumentality (e.g., bonds issued by Federal
National Mortgage Association.)
John Hancock Advisers, Inc. (the "Adviser") will attempt to minimize excessive
fluctuations in net asset value per share, so at times the highest yielding
government securities then available may not be selected for investment if, in
the view of the Adviser, future interest rate movements could result in
depreciation of value of such securities. The Fund may take full advantage of
the entire range of maturities of U.S. Government securities and may adjust the
dollar-weighted average maturity of its portfolio from time to time based in
large part on the Adviser's expectation as to future changes in interest rates.
As to the balance of the Fund's assets, where consistent with the investment
objective, the Fund may:
1. invest in U.S. dollar denominated securities issued or guaranteed by foreign
governments which are considered stable by the Adviser, or any of the
political subdivisions, instrumentalities, authorities or agencies of these
governments. Such securities will generally be rated within the four highest
rating categories by a nationally recognized rating organization (e.g.,
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's")) or if not so rated, determined to be of equivalent quality in
the opinion of the Adviser;
4
<PAGE> 66
provided that the Fund may invest up to 10% of its total assets in securities
which may be rated B or better by a nationally recognized rating
organization.
2. invest in other "asset backed securities" which are not included as
"government asset backed" securities and are rated in one of the two highest
rating categories by a nationally recognized credit rating organization or if
not so rated, determined to be of equivalent investment quality in the
opinion of the Adviser;
3. engage in hedging transactions, including options, interest rate futures
contracts and options thereon, subject to certain limitations described below
(see "Investments, Techniques and Risk Factors");
4. enter into repurchase agreements and reverse repurchase agreements and invest
in when issued securities and restricted securities, subject to certain
limitations described below (see "Investments, Techniques and Risk Factors");
and
5. invest in (for liquidity purposes) high quality, short-term debt securities
with remaining maturities of one year or less ("money market instruments")
such as certificates of deposit, bankers' acceptances, corporate debt
securities, commercial paper and related repurchase agreements.
Asset backed securities, like Ginnie Mae certificates, are securities which
represent a participation in or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool of assets similar to
one another. Types of other asset backed securities include automobile
receivable securities, credit card receivable securities and mortgage backed
securities such as collateralized mortgage obligations ("CMOs") and real estate
mortgage investment conduits ("REMICs"). See "Investments, Techniques and Risk
Factors" and the Statement of Additional Information for a discussion of
government and non-government asset backed securities and for a description of
securities lending, short-term obligations, government securities, options,
futures and forward contracts, as well as the ratings of various fixed income
securities by Moody's and S&P. See "Investments, Techniques and Risk Factors."
The U.S. Government guarantees the payment of principal and interest of the
Fund's U.S. Government securities, but does not guarantee the value or yield of
such securities or the Fund's shares of common stock. To the extent the Fund
invests in government asset backed (e.g., Ginnie Mae Certificates) and non-
government asset backed securities, it may experience a high rate of repayment
when interest rates decline and may therefore face the necessity of reinvesting
at a time when rates of return are relatively low which could result in a
reduction in principal if the securities were acquired at a premium. See
"Certain Investment Practices" in the Statement of Additional Information for
further discussion.
The value of the securities held by the Fund, and therefore the net asset value
per share, will fluctuate with interest rate changes. Generally, a rise in
interest rates will result in a decrease in the Fund's net asset value, while a
decline will result in an increase in the Fund's net asset value. Therefore at
the time of redemption, your shares may be worth more or less than the value at
the time of purchase.
5
<PAGE> 67
The Fund will employ certain hedging techniques to seek to reduce risks
associated with changes in interest rates. However, these hedging techniques
will result in transaction costs to the Fund and there can be no assurance the
interest rate risks will be eliminated. Zero coupon bonds are issued at a
significant discount from their principal amount in lieu of paying interest
periodically; therefore, their value is subject to greater fluctuation in
response to changes in market interest rates than bonds which pay interest
currently. See "Investments, Techniques and Risk Factors."
Foreign government obligations which are appropriate for investment by the Fund
may be subject to risks generally applicable to foreign securities. See
"Investments, Techniques and Risk Factors."
The Fund has adopted certain investment restrictions which are enumerated in
detail in the Statement of Additional Information where they are classified as
fundamental or nonfundamental. Those restrictions designated as fundamental may
not be changed without shareholder approval. The Fund's investment objective to
invest (under normal market conditions) 80% of its assets in U.S. Government
securities and its investment policies are nonfundamental and may be changed by
a vote of the Board of Directors without shareholder approval, upon 30 days'
prior written notice to shareholders. Notwithstanding the Fund's fundamental
investment restriction prohibiting investments in other investment companies,
the Fund may, pursuant to an order granted by the SEC, invest in other
investment companies in connection with a deferred compensation plan for the
non-interested Trustees of the John Hancock funds. There can be no assurance
that the Fund will achieve its investment objective.
- -------------------------------------------------------------------------------
THE FUND FOLLOWS CERTAIN POLICIES WHICH
MAY HELP TO REDUCE INVESTMENT RISK.
- -------------------------------------------------------------------------------
The primary consideration in choosing brokerage firms to carry out the Fund's
transactions is execution at the most favorable prices, taking into account the
broker's professional ability and quality of service. Consideration may also be
given to the broker's sales of Fund shares. Pursuant to procedures determined by
the Board of Directors, the Adviser may place securities transactions with
brokers affiliated with the Adviser. The brokers include Tucker Anthony
Incorporated, Sutro and Company, Inc. and John Hancock Distributors, Inc., which
are indirectly owned by the John Hancock Mutual Life Insurance Company (the
"Life Company"), which in turn indirectly owns the Adviser.
- -------------------------------------------------------------------------------
BROKERS ARE CHOSEN ON BEST PRICE AND
EXECUTION.
- -------------------------------------------------------------------------------
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is organized as a separate, diversified portfolio of the Company, an
open-end management investment company organized as a Maryland corporation in
1987. The Company reserves the right to create and issue a number of series of
shares, or funds or classes thereof, which are separately managed and have
different investment objectives. The Board of Directors has authorized the
issuance of two classes of the Fund, designated Class A and Class B. The shares
of each class represent an interest in the same portfolio of investments of the
Fund. Each class has equal rights as to voting, redemption, dividends and
liquidation. However, each class bears different distribution and transfer agent
fees and other expenses. Also, Class A and Class B shareholders have exclusive
voting rights with respect to their distribution plans. The Company does not
intend to hold annual meetings of shareholders, except when required by federal
or state law, although special meetings may be held for such purposes as
electing or removing Directors, changing fundamental policies or approving a
management contract. The Company, under certain circumstances, will assist in
shareholder communications with other shareholders.
- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS ELECTS OFFICERS AND
RETAINS THE INVESTMENT ADVISER WHO IS
RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS
OF THE FUND, SUBJECT TO THE BOARD OF
DIRECTORS' POLICIES AND SUPERVISION.
- -------------------------------------------------------------------------------
6
<PAGE> 68
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Fund,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds, Inc.
("John Hancock Funds") distributes shares for all of the John Hancock mutual
funds through brokers that have agreements with John Hancock Funds ("Selling
Brokers"). Certain Fund officers are also officers of the Adviser and John
Hancock Funds.
- -------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES
INVESTMENT COMPANIES HAVING A TOTAL ASSET
VALUE OF MORE THAN $13 BILLION.
- -------------------------------------------------------------------------------
All investment decisions are made by a committee and no single person is
primarily responsible for making recommendations to the committee.
In order to avoid any conflict with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities trading
by personnel of the Adviser and its affiliates. Some of these restrictions are:
preclearance for all personal trades and a ban on the purchase of initial public
offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
ALTERNATIVE PURCHASE ARRANGEMENTS
You can purchase shares of the Fund at a price equal to their net asset value
per share plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge Alternative,"
Class A shares) or on a contingent deferred basis (the "Contingent Deferred
Sales Charge Alternative," Class B shares). If you do not specify on your
account application the class of shares you are purchasing, it will be assumed
that you are investing in Class A shares.
- -------------------------------------------------------------------------------
AN ALTERNATIVE PURCHASE PLAN ALLOWS YOU TO
CHOOSE THE METHOD OF PAYMENT THAT IS BEST
FOR YOU.
- -------------------------------------------------------------------------------
CLASS A SHARES. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount of your purchase is $1 million or more.
If you purchase $1 million or more of Class A shares, you will not be subject to
an initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Share Price -- Qualifying for a Reduced Sales Charge."
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS A SHARES ARE SUBJECT
TO AN INITIAL SALES CHARGE.
- -------------------------------------------------------------------------------
7
<PAGE> 69
CLASS B SHARES. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
six years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class B shares. Investing in Class B shares permits all of
your dollars to work from the time you make your investment, but the higher
ongoing distribution fee will cause these shares to have higher expenses than
those of Class A shares. To the extent that any dividends are paid by the Fund,
these higher expenses will also result in lower dividends than those paid on
Class A shares.
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS B SHARES ARE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.
- -------------------------------------------------------------------------------
Class B shares are not available for full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares, given the amount of your purchase, the length of time you
expect to hold your shares and other circumstances. You should consider whether,
during the anticipated life of your Fund investment, the CDSC and accumulated
fees on Class B shares would be less than the initial sales charge and
accumulated fees on Class A shares purchased at the same time, and to what
extent this differential would be offset by the Class A shares' lower expenses.
To help you make this determination, the table under the caption "Expense
Information" on the inside cover page of this Prospectus shows examples of the
charges applicable to each class of shares. Class A shares will normally be more
beneficial if you qualify for reduced sales charges. See "Share
Price -- Qualifying for a Reduced Sales Charge."
- -------------------------------------------------------------------------------
YOU SHOULD CONSIDER WHICH CLASS OF SHARES
WOULD BE MORE BENEFICIAL TO YOU.
- -------------------------------------------------------------------------------
Class A shares are subject to lower distribution fees and, accordingly, pay
correspondingly higher dividends per share, to the extent any dividends are
paid. However, because initial sales charges are deducted at the time of
purchase, you would not have all of your funds invested initially and,
therefore, would initially own fewer shares. If you do not qualify for reduced
initial sales charges and expect to maintain your investment for an extended
period of time, you might consider purchasing Class A shares. This is because
the accumulated distribution and service charges on Class B shares may exceed
the initial sales charge and accumulated distribution and service charges on
Class A shares during the life of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you will
be subject to higher distribution and service fees and, for a six-year period, a
CDSC.
In the case of Class A shares, the distribution expenses that John Hancock Funds
incurs in connection with the sale of the shares will be paid from the proceeds
of the initial sales charge and ongoing distribution and service fees. In the
case of Class B shares, the expenses will be paid from the proceeds of the
ongoing
8
<PAGE> 70
distribution and service fees, as well as from the CDSC incurred upon redemption
within six years of purchase. The purpose and function of the Class B shares'
CDSC and ongoing distribution and service fees are the same as those of the
Class A shares' initial sales charge and ongoing distribution and service fees.
Sales personnel distributing the Fund's shares may receive different
compensation for selling each class of shares.
Dividends, if any, on Class A and Class B shares will be calculated in the same
manner, at the same time and on the same day. They also will be in the same
amount, except for differences resulting from each class bearing only its own
distribution and service fees, shareholder meeting expenses and any incremental
transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a monthly fee to
the Adviser which is based on a stated percentage of the Fund's average daily
net assets as follows:
<TABLE>
<CAPTION>
NET ASSET VALUE ANNUAL RATE
--------------- -----------
<S> <C>
First $200,000,000..................................................... 0.65%
Next $300,000,000...................................................... 0.625%
Amount over $500,000,000............................................... 0.60%
</TABLE>
For the fiscal year ended October 31, 1994, the Fund paid an advisory fee of
0.64% of the Fund's average daily net assets to the Fund's former investment
adviser.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). Under these Plans, the Fund will pay distribution and service fees
at an aggregate annual rate of up to 0.25% of the Class A shares' average daily
net assets and an aggregate annual rate of 1.00% of the Class B shares' average
daily net assets. In each case, up to 0.25% for both Class A and Class B shares
is for service expenses and the remaining amount is for distribution expenses.
The distribution fees will be used to reimburse John Hancock Funds for its
distribution expenses, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of John
Hancock Funds) engaged in the sale of Fund shares; (ii) marketing, promotional
and overhead expenses incurred in connection with the distribution of Fund
shares; (iii) unreimbursed distribution expenses under the Fund's prior
distribution plans; (iv) distribution expenses incurred by other investment
companies which sell all or substantially all of their assets to, merge with or
otherwise engage in a reorganization transaction with the Fund; and (v) with
respect to Class B shares only, interest expenses on unreimbursed distribution
expenses. The service fees will be used to compensate Selling Brokers for
providing personal and account maintenance services to shareholders.
- -------------------------------------------------------------------------------
THE FUND PAYS DISTRIBUTION AND SERVICE
FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
- -------------------------------------------------------------------------------
In the event John Hancock Funds is not fully reimbursed for payments it makes or
expenses it incurs under the Class A Plan, these expenses will not be carried
beyond one year from the date they were incurred. Unreimbursed expenses under
9
<PAGE> 71
the Class B Plan will be carried forward together with interest on the balance
of these unreimbursed expenses. For the fiscal year ended October 31, 1994, an
aggregate of $10,485,386 of distribution expenses or 4.35% of the average net
assets of the Fund's Class B shares was not reimbursed or recovered by John
Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees
in prior periods.
Information on the Fund's total expenses is in the Financial Highlights section
of this Prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund generally declares daily and distributes dividends monthly,
representing all or substantially all of its net investment income. The Fund
will distribute net realized capital gains, if any, annually.
- -------------------------------------------------------------------------------
THE FUND GENERALLY DECLARES DAILY AND
DISTRIBUTES DIVIDENDS MONTHLY.
- -------------------------------------------------------------------------------
Dividends are reinvested in additional shares of your class unless you elect the
option to receive them in cash. If you elect the cash option and the U.S. Postal
Service cannot deliver your checks, your election will be converted to the
reinvestment option. Because of the higher expenses associated with Class B
shares, any dividends on these shares will be lower than those on the Class A
shares. See "Share Price."
TAXATION. Dividends from the Fund's net investment income, certain net foreign
exchange gains and net short-term capital gains are taxable to you as ordinary
income and dividends from the Fund's net long-term capital gains are taxable as
long-term capital gains. These dividends are taxable whether you take them in
cash or reinvest in additional shares. Certain dividends may be paid in January
of a given year but may be taxable as if you received them the previous
December.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, the Fund will not be
subject to Federal income tax on any net investment income or net realized
capital gains that are distributed to its shareholders within the time period
prescribed by the Code. When you redeem (sell) or exchange shares, you may
realize a taxable gain or loss.
On the account application you must certify that the social security or other
taxpayer identification number you provide is correct and that you are not
subject to backup withholding of Federal income tax. If you do not provide this
information or are otherwise subject to this withholding, the Fund may be
required to withhold 31% of your dividends and the proceeds of redemptions or
exchanges.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes with respect to your investment in and distributions from the Fund.
Non-U.S. shareholders and tax-exempt shareholders are subject to different tax
treatment not described above. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent the
Fund's distributions are derived from interest on (or, in the case of
intangibles taxes, the value of
10
<PAGE> 72
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. You should consult your tax adviser for
specific advice.
PERFORMANCE
Yield reflects the Fund's rate of income on portfolio investments as a
percentage of its share price. Yield is computed by annualizing the result of
dividing the net investment income per share over a 30 day period by the maximum
offering price per share on the last day of that period. Yield is also
calculated according to accounting methods that are standardized for all stock
and bond funds. Because yield accounting methods differ from the methods used
for other accounting purposes, the Fund's yield may not equal the income paid on
shares or the income reported in the Fund's financial statements.
- -------------------------------------------------------------------------------
THE FUND MAY ADVERTISE ITS YIELD AND TOTAL
RETURN.
- -------------------------------------------------------------------------------
The Fund's total return shows the overall dollar or percentage change in value
of a hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period of
time. Average annual total return shows the cumulative return divided over the
number of years included in the period. Because average annual total return
tends to smooth out variations in the Fund's performance, you should recognize
that it is not the same as actual year-to-year results.
Both total return and yield calculations for Class A shares generally include
the effect of paying the maximum sales charge (except as shown in "The Fund's
Financial Highlights"). Investments at a lower sales charge would result in
higher performance figures. Total return and yield for Class B shares reflect
the deduction of the applicable CDSC imposed on a redemption of shares held for
the applicable period. All calculations assume that all dividends are reinvested
at net asset value on the reinvestment dates during the periods. Total return
and yield of Class A and Class B shares will be calculated separately and,
because each class is subject to different expenses, the total return and yield
may differ with respect to that class for the same period. The relative
performance of the Class A and Class B shares will be affected by a variety of
factors, including the higher operating expenses attributable to the Class B
shares, whether the Fund's investment performance is better in the earlier or
later portions of the period measured and the level of net assets of the classes
during the period. The Fund will include the total return of Class A and Class B
shares in any advertisement or promotional materials including Fund performance
data. The value of Fund shares, when redeemed, may be more or less than their
original cost. Both yield and total return are historical calculations, and are
not an indication of future performance. See "Alternative Purchase
Arrangements -- Factors to Consider in Choosing an Alternative."
11
<PAGE> 73
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
<TABLE>
The minimum initial investment in Class A and Class B shares is $1,000 ($250 for
group investments and retirement plans). Complete the Account Application attached
to this Prospectus. Indicate whether you are purchasing Class A or Class B shares.
If you do not specify which class of shares you are purchasing, Investor Services
will assume that you are investing in Class A shares.
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT
- -------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
<S> <C> <C>
BY CHECK 1. Make your check payable to John Hancock Investor Services
Corporation, P.O. Box 9115, Boston, MA 02205-9115.
2. Deliver the completed application and check to your registered
representative or Selling Broker or mail it directly to
Investor Services.
- ---------------------------------------------------------------------------------
BY WIRE 1. Obtain an account number by contacting your registered
representative or Selling Broker, or by calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Government Income Fund
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative or Selling Broker or mail it directly to
Investor Services.
- ---------------------------------------------------------------------------------
MONTHLY 1. Complete the "Automatic Investing" and "Bank Information"
AUTOMATIC sections on the Account Privileges Application designating a
ACCUMULATION bank account from which funds may be drawn.
PROGRAM 2. The amount you elect to invest will be automatically withdrawn
(MAAP) from your bank or credit union account.
- -------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B
SHARES
- -------------------------------------------------------------------------------
BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information" sections
on the Account Privileges Application designating a bank
account from which your funds may be drawn. Note that in order
to invest by phone, your account must be in a bank or credit
union that is a member of the Automated Clearing House system
(ACH).
2. After your authorization form has been processed, you may
purchase additional Class A or Class B shares by calling
Investor Services toll-free 1-800-225-5291.
3. Give the Investor Services representative the name(s) in which
your account is registered, the Fund name, the class of shares
you own, your account number, and the amount you wish to
invest.
4. Your investment normally will be credited to your account the
business day following your phone request.
- ---------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 74
- -------------------------------------------------------------------------------
BUYING ADDITIONAL
CLASS A AND CLASS B
SHARES (CONTINUED)
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BY CHECK 1. Either complete the detachable stub included on your account
statement or include a note with your investment listing the
name of the Fund, the class of share you own, your account
number and the name(s) in which the account is registered.
2. Make your check payable to John Hancock Investor Services
Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling
Broker.
- ---------------------------------------------------------------------------------
BY WIRE Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Government Income Fund
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
- ---------------------------------------------------------------------------------
Other Requirements: All purchases must be made in U.S. dollars. Checks written on
foreign banks will delay purchases until U.S. funds are received, and a collection
charge may be imposed. Shares of the Fund are priced at the offering price based
on the net asset value computed after Investor Services receives notification of
the dollar equivalent from the Fund's custodian bank. Wire purchases normally take
two or more hours to complete and, to be accepted the same day, must be received
by 4:00 P.M., New York time. Your bank may charge a fee to wire funds. Telephone
transactions are recorded to verify information. Certificates are not issued
unless a request is made in writing to Investor Services.
- ---------------------------------------------------------------------------------
</TABLE>
You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
- -------------------------------------------------------------------------------
YOU WILL RECEIVE ACCOUNT STATEMENTS THAT
YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL
RECORDKEEPING.
- -------------------------------------------------------------------------------
SHARE PRICE
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of outstanding
shares of that class. The NAV of each class can differ. Securities in the Fund's
portfolio are valued on the basis of market quotations, valuations provided by
independent pricing services or at fair value as determined in good faith
according to procedures approved by the Board of Directors. Short-term debt
investments maturing within 60 days are valued at amortized cost which the Board
has determined approximates market value. Foreign securities are valued on the
basis of quotations from the primary market in which they are traded, and are
translated from the local currency into U.S. dollars using current exchange
rates. If quotations are not readily available, or the value has been materially
affected by events occurring after the closing of a foreign market, assets are
valued by a method that the Board of Directors believes accurately reflects fair
value. The NAV is calculated once daily as of the close of regular trading on
the New York Stock Exchange (the "Exchange") (generally at 4:00 P.M., New York
time) on each day that the Exchange is open.
- -------------------------------------------------------------------------------
THE OFFERING PRICE OF YOUR SHARES IS THEIR
NET ASSET VALUE PLUS A SALES CHARGE, IF
APPLICABLE, WHICH WILL VARY WITH THE
PURCHASE ALTERNATIVE YOU CHOOSE.
- -------------------------------------------------------------------------------
13
<PAGE> 75
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock Funds.
If you buy shares of the Fund through a Selling Broker, the Selling Broker must
receive your investment before the close of regular trading on the Exchange and
transmit it to John Hancock Funds before its close of business, to receive that
day's offering price.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The offering price you pay
for Class A shares of the Fund equals the NAV plus a sales charge as follows:
<TABLE>
<CAPTION>
COMBINED
SALES CHARGE AS REALLOWANCE REALLOWANCE TO
SALES CHARGE AS A PERCENTAGE OF AND SERVICE FEE AS SELLING BROKERS AS
AMOUNT INVESTED A PERCENTAGE OF THE AMOUNT A PERCENTAGE OF A PERCENTAGE OF
(INCLUDING SALES OFFERING PRICE INVESTED OFFERING PRICE(+) THE OFFERING PRICE(*)
CHARGE)
---------------- --------------- --------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00% 3.76%
$100,000 to $249,999 3.75% 3.90% 3.25% 3.01%
$250,000 to $499,999 2.75% 2.83% 2.30% 2.06%
$500,000 to $999,999 2.00% 2.04% 1.75% 1.51%
$1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
</TABLE>
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales
charge. In addition to the reallowance allowed to all Selling Brokers,
John Hancock Funds will pay the following: round trip airfare to a resort
will be offered to each registered representative of a Selling Broker (if
the Selling Broker has agreed to participate) who sells certain amounts of
shares of John Hancock funds. John Hancock Funds will make these incentive
payments out of its own resources. A Selling Broker to whom substantially
the entire sales charge is reallowed or who receives these incentives may
be deemed to be an underwriter under the Securities Act of 1933. Other
than distribution and service fees, the Fund does not bear distribution
expenses.
(**) No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions within one year of purchase.
(***) John Hancock Funds may pay a commission and the first year's service fee
(as described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of Class A shares of $1 million or more in
aggregate as follows: 1% on sales to $4,999,999, 0.50% on the next $5
million and 0.25% on amounts of $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance in an amount equal to 0.25% of the net
assets invested in the Fund, and thereafter, it pays the service fee
periodically in arrears in an amount up to 0.25% of the Fund's average
annual net assets. Selling Brokers receive the fee as compensation for
providing personal and account maintenance services to shareholders.
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional
Class A shares of the Fund.
14
<PAGE> 76
In addition, John Hancock Funds will pay certain affiliated Selling Brokers at
an annual rate of up to 0.05% of the daily net assets of accounts attributable
to these brokers.
Under certain circumstances described below, investors in Class A shares may be
entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales
Charge."
CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS A
SHARES. Purchases of $1 million or more of Class A shares will be made at net
asset value with no initial sales charge, but if the shares are redeemed within
12 months after the end of the calendar month in which the purchase was made
(the CDSC period), a CDSC will be imposed. The rate of the CDSC will depend on
the amount invested as follows:
<TABLE>
<CAPTION>
AMOUNT INVESTED CDSC RATE
--------------- ---------
<S> <C>
$1 million to $4,999,999................................................ 1.00%
Next $5 million to $9,999,999........................................... 0.50%
Amounts of $10 million and over......................................... 0.25%
</TABLE>
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994 and participant directed defined
contribution plans with at least 100 eligible employees at the inception of the
Fund account may purchase Class A shares with no initial sales charge. However,
if the shares are redeemed within 12 months after the end of the calendar year
in which the purchase was made, a CDSC will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the redeemed Class A shares. Accordingly,
no CDSC will be imposed on increases in account value above the initial purchase
price, including any distributions which have been reinvested in additional
Class A shares.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
Therefore, it will be assumed that the redemption is first made from any shares
in your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver of Contingent Deferred Sales
Charges" below.
QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $100,000 in
Class A shares of the Fund or a combination of funds within the John Hancock
family of funds (except money market funds), you may qualify for a reduced sales
charge on your investments in Class A shares through a LETTER OF INTENTION. You
may also be able to use the ACCUMULATION PRIVILEGE and the COMBINATION PRIVILEGE
to take advantage of the value of your previous investments in
Class A shares of the John Hancock funds in meeting the breakpoints for a
- -------------------------------------------------------------------------------
YOU MAY QUALIFY FOR A REDUCED SALES CHARGE
ON YOUR INVESTMENT IN
CLASS A SHARES.
- -------------------------------------------------------------------------------
15
<PAGE> 77
reduced sales charge. For the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE,
the applicable sales charge will be based on the total of:
1. Your current purchase of Class A shares of the Fund.
2. The net asset value (at the close of business on the previous day) of (a)
all Class A shares of the Fund you hold, and (b) all Class A shares of any
other John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
EXAMPLE:
If you hold Class A shares of a John Hancock fund with a net asset value of
$20,000 and, subsequently, invest $80,000 in Class A shares of the Fund, the
sales charge on this subsequent investment would be 3.75% and not 4.50% (the
rate that would otherwise be applicable to investments of less than $100,000.
See "Initial Sales Charge Alternative -- Class A Shares").
If you are in one of the following categories, you may purchase Class A shares
of the Fund without paying a sales charge:
- - A Director or officer of the Fund; a Director or officer of the Adviser and
its affiliates or Selling Brokers; employees or sales representatives of any
of the foregoing; retired officers, employees or Directors of any of the
foregoing; a member of the immediate family of any of the foregoing; or any
fund, pension, profit sharing or other benefit plan for the individuals
described above.
- -------------------------------------------------------------------------------
CLASS A SHARES MAY BE AVAILABLE WITHOUT A
SALES CHARGE TO CERTAIN INDIVIDUALS AND
ORGANIZATIONS.
- -------------------------------------------------------------------------------
- - Any state, county, city or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any registered
investment management company.*
- - A bank, trust company, credit union, savings institution or other type of
depository institution, its trust departments or common trust funds if it is
purchasing $1 million or more for non-discretionary customers or accounts.*
- - A broker, dealer or registered investment adviser that has entered into an
agreement with John Hancock Funds providing specifically for the use of Fund
shares in fee-based investment products made available to their clients.
- - A former participant in an employee benefit plan with John Hancock Funds, when
he/she withdraws from his/her plan and transfers any or all of his/her plan
distributions directly to the Fund.
- ------------------
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Fund may be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
16
<PAGE> 78
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares
are offered at net asset value per share without a sales charge so that your
entire initial investment will go to work at the time of purchase. However,
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the rates set forth below. This charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
shares being redeemed. Accordingly, you will not be assessed a CDSC on increases
in account value above the initial purchase price, including shares derived from
dividend reinvestment.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
reinvestment of dividends, and next from the shares you have held the longest
during the six-year period. The CDSC is waived on redemptions in certain
circumstances. See the discussion "Waiver of Contingent Deferred Sales Charges"
below.
EXAMPLE:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time, your CDSC will be calculated as follows:
<TABLE>
<S> <C>
- - Proceeds of 50 shares redeemed at $12 per share $ 600
- - Minus proceeds of 10 shares not subject to CDSC because they were
acquired through dividend reinvestment (10 X $12) -120
- - Minus appreciation on remaining shares, also not subject to CDSC
(40 X $2) - 80
------
- - Amount subject to CDSC $ 400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses
part of them to defray its expenses related to providing the Fund with
distribution services connected to the sale of Class B shares, such as
compensating Selling Brokers for selling these shares. The combination of the
CDSC and the distribution and service fees makes it possible for the Fund to
sell Class B shares without deducting a sales charge at the time of the
purchase.
17
<PAGE> 79
The amount of the CDSC, if any, will vary depending on the number of years from
the time you purchase your Class B shares until the time you redeem them. Solely
for the purposes of determining this holding period, any payments you make
during the month will be aggregated and deemed to have been made on the last day
of the month.
<TABLE>
<CAPTION>
YEAR IN WHICH
CLASS B SHARES CONTINGENT DEFERRED SALES
REDEEMED FOLLOWING CHARGE AS A PERCENTAGE OF
PURCHASE DOLLAR AMOUNT SUBJECT TO CDSC
- ------------------ -----------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision of
personal and account maintenance services to shareholders during the twelve
months following the sale, and thereafter the service fee is paid in arrears.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in these circumstances:
- -------------------------------------------------------------------------------
UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON
CLASS B AND CERTAIN CLASS A SHARE
REDEMPTIONS WILL BE WAIVED.
- -------------------------------------------------------------------------------
- - Redemptions of Class B shares made under Systematic Withdrawal Plan (see "How
to Redeem Shares"), as long as your annual redemptions do not exceed 10% of
your account value, at the time you establish your Systematic Withdrawal Plan
and 10% of the value of your subsequent investments (less redemptions) in that
account at the time you notify Investor Services. This waiver does not apply
to Systematic Withdrawal Plan redemptions of Class A shares that are subject
to a CDSC.
- - Redemptions made to effect distributions from an Individual Retirement Account
either before or after age 59 1/2, as long as the distributions are based on
the life expectancy or the joint-and-last survivor life expectancy of you and
your beneficiary. These distributions must be free from penalty under the
Code.
- - Redemptions made to effect mandatory distributions under the Code after age
70 1/2 from a tax-deferred retirement plan.
- - Redemptions made to effect distributions to participants or beneficiaries from
certain employer-sponsored retirement plans including those qualified under
Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the
Code and deferred compensation plans under Section 457 of the Code. The waiver
also applies to certain returns of excess contributions made to these plans.
In all cases, the distributions must be free from penalty under the Code.
- - Redemptions due to death or disability.
18
<PAGE> 80
- - Redemptions made under the Reinvestment Privilege, as described in "Additional
Services and Programs" of this Prospectus.
- - Redemptions made pursuant to the Fund's right to liquidate your account if you
have less than $500 invested in the Fund.
- - Redemptions made in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
- - Redemptions from certain IRA and retirement plans that purchased shares prior
to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services either directly or through your Selling Broker at the time you
make your redemption. The waiver will be granted once Investor Services has
confirmed that you are entitled to the waiver.
CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of
reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following eight years
after the shares were purchased, and will result in lower annual distribution
fees.
If you exchanged Class B shares into the Fund from another John Hancock fund,
the calculation will be based on the time you purchased the shares in the
original fund. The Fund has been advised that the conversion of Class B shares
to Class A shares should not be taxable for Federal income tax purposes and
should not change a shareholder's tax basis or tax holding period for the
converted shares.
19
<PAGE> 81
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services, less any applicable CDSC. The Fund
may hold payment until it is reasonably satisfied that investments recently made
by check or Invest-by-Phone have been collected (which may take up to 10
calendar days).
- -------------------------------------------------------------------------------
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION
REQUEST, PLEASE FOLLOW THESE PROCEDURES.
- -------------------------------------------------------------------------------
Once your shares are redeemed, the Fund generally sends you payment on the next
business day. When you redeem your shares, you may realize a taxable gain or
loss depending usually on the difference between what you paid for them and what
you receive for them, subject to certain tax rules. Under unusual circumstances,
the Fund may suspend redemptions or postpone payment for up to seven days or
longer, as permitted by Federal securities laws.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BY TELEPHONE All Fund shareholders are automatically eligible for the
telephone redemption privilege. Call 1-800-225-5291, from
8:00 A.M. to 4:00 P.M. (New York time), Monday through
Friday, excluding days on which the Exchange is closed.
Investor Services employs the following procedures to
confirm that instructions received by telephone are
genuine. Your name, the account number, taxpayer
identification number applicable to the account and other
relevant information may be requested. In addition,
telephone instructions are recorded.
You may redeem up to $100,000 by telephone, but the address
on the account must not have changed for the last thirty
days. A check will be mailed to the exact name(s) and
address shown on the account.
If reasonable procedures, such as those described above,
are not followed, the Fund may be liable for any loss due
to unauthorized or fraudulent telephone instructions. In
all other cases, neither the Fund nor Investor Services
will be liable for any loss or expense for acting upon
telephone instructions made in accordance with the
telephone transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or shares of the Fund that
are in certificated form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement
due to a large volume of calls. During these times, you
should consider placing redemption requests in writing or
use EASI-Line. EASI-Line's telephone number is
1-800-338-8080.
- ---------------------------------------------------------------------------------
BY WIRE If you have a telephone redemption form on file with the
Fund, redemption proceeds of $1,000 or more can be wired on
the next business day to your designated bank account, and
a fee (currently $4.00) will be deducted. You may also use
electronic funds transfer to your assigned bank account,
and the funds are usually collectable after two business
days. Your bank may or may not charge a fee for this
service. Redemptions of less than $1,000 will be sent by
check or electronic funds transfer.
This feature may be elected by completing the "Telephone
Redemption" section on the Account Privileges Application
attached to the Prospectus.
- ---------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 82
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
IN WRITING Send a stock power or "letter of instruction" specifying
the name of the Fund, the dollar amount or the number of
shares to be redeemed, your name, class of shares, your
account number and the additional requirements listed below
that apply to your particular account.
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TYPE OF REGISTRATION REQUIREMENTS
-------------------- ------------
<S> <C> <C>
Individual, Joint Tenants, Sole A letter of instruction signed (with titles
Proprietorship, Custodial where applicable) by all persons authorized
(Uniform Gifts or Transfer to to sign for the account, exactly as it is
Minors Act), General Partners registered with the signature(s) guaran-
teed.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s) authorized
to act on the account with the signature(s)
guaranteed.
Trusts A letter of instruction signed by the
trustee(s) with the signature(s) guaranteed.
(If the trustee's name is not registered on
your account, also provide a copy of the
trust document, certified within the last 60
days.)
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
- ---------------------------------------------------------------------------------
A signature guarantee is a widely accepted way to protect you and the Fund by
verifying the signature on your request. It may not be provided by a notary
public. If the net asset value of the shares redeemed is $100,000 or less, John
Hancock Funds may guarantee the signature. The following institutions may
provide you with a signature guarantee, provided that the institution meets
credit standards established by Investor Services: (i) a bank; (ii) a securities
broker or dealer, including a government or municipal securities broker or
dealer, that is a member of a clearing corporation or meets certain net capital
requirements; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association; or (v) a
national securities exchange, a registered securities exchange or a clearing
agency.
- -------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR SIGNATURE.
- -------------------------------------------------------------------------------
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption.
Contact your broker for instructions.
</TABLE>
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
- -------------------------------------------------------------------------------
If you have certificates for your shares, you must submit them with your
stock power or a letter of instructions. Unless you specify to the
contrary, any outstanding Class A shares will be redeemed before Class B
shares. You may not redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining small accounts, the Fund
reserves the right to redeem at net asset value all shares in an account
which holds less than $500 (except accounts under retirement plans) and to
mail the proceeds to the shareholder, or the transfer agent may impose an
annual fee of $10.00. No account will be involuntarily redeemed or
additional fee imposed, if the value of the account is in excess of the
Fund's minimum initial investment or if the value of the account falls
below the required minimum as a result of market action. No CDSC will be
imposed on involuntary redemptions of shares.
Shareholders will be notified before these redemptions are to be made or
this fee is imposed, and will have 60 days to purchase additional shares
to bring their account balance up to the required minimum. Unless the
number of shares acquired by further purchases and dividend reinvestments,
if any, exceeds the number of shares redeemed, repeated redemptions from a
smaller account may eventually trigger this policy.
- --------------------------------------------------------------------------------
21
<PAGE> 83
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of investment
goals. Contact your registered representative or Selling Broker and request a
prospectus for the John Hancock funds that interest you. Read the prospectus
carefully before exchanging your shares. You can exchange shares of each class
of the Fund only for shares of the same class of another John Hancock fund. For
this purpose, John Hancock funds with only one class of shares will be treated
as Class A, whether or not they have been so designated.
- -------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES OF THE FUND ONLY
FOR SHARES OF THE SAME CLASS OF ANOTHER
JOHN HANCOCK FUND.
- -------------------------------------------------------------------------------
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Class B shares of the Fund that are subject to a CDSC may be exchanged
into Class B shares of another John Hancock fund without incurring the CDSC;
however, these shares will be subject to the CDSC schedule of the shares
acquired (except that exchanges into John Hancock Short-Term Strategic Income
Fund, John Hancock Limited-Term Government Fund and John Hancock Adjustable U.S.
Government Trust will be subject to the initial fund's CDSC). For purposes of
computing the CDSC payable upon redemption of shares acquired in an exchange,
the holding period of the original shares is added to the holding period of the
shares acquired in an exchange. However, if you exchange Class B shares
purchased prior to January 1, 1994 for Class B shares of any other John Hancock
Fund, you will be subject to the CDSC schedule in effect on your initial
purchase date.
You may exchange Class B shares of the Fund into shares of a John Hancock money
market fund at net asset value. However, you will continue to be subject to a
CDSC upon redemption. The rate of the CDSC will be the rate in effect for the
original Fund at the time of exchange.
The Fund reserves the right to require you to keep previously exchanged shares
(and reinvested dividends) in the Fund for 90 days before you are permitted to
execute a new exchange. The Fund may also terminate or alter the terms of the
exchange privilege, upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares in another for Federal income tax purposes. An exchange may
result in a taxable gain or loss.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers and
investment advisers may exchange their clients' Fund shares, subject to the
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and other
22
<PAGE> 84
restrictions that do not apply to exchanges requested by shareholders directly,
as described above.
Because Fund performance and shareholders can be hurt by excessive trading, the
Fund reserves the right to terminate the exchange privilege for any person or
group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely. The
Fund may also temporarily or permanently terminate the exchange privilege for
any person who makes seven or more exchanges out of the Fund per calendar year.
Accounts under common control or ownership will be aggregated for this purpose.
Although the Fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time.
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable to
the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
IN WRITING
1. In a letter, request an exchange and list the following:
-- the name and class of the Fund whose shares you currently own
-- your account number
-- the name(s) in which the account is registered
-- the name of the fund in which you wish your exchange to be invested
-- the number of shares, all shares or dollar amount you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
23
<PAGE> 85
REINVESTMENT PRIVILEGE
1. You will not be subject to a sales charge on Class A shares reinvested in
shares of any John Hancock fund that is otherwise subject to a sales charge
as long as you reinvest within 120 days from the redemption date. If you paid
a CDSC upon a redemption, you may reinvest at net asset value in the same
class of shares from which you redeemed within 120 days. Your account will be
credited with the amount of the CDSC previously charged, and the reinvested
shares will continue to be subject to a CDSC. For purposes of computing the
CDSC payable upon a subsequent redemption, the holding period of the shares
acquired through reinvestment will include the holding period of the redeemed
shares.
- -------------------------------------------------------------------------------
IF YOU REDEEM SHARES OF THE FUND, YOU MAY
BE ABLE TO REINVEST ALL OR PART OF THE
PROCEEDS IN THE FUND OR ANOTHER JOHN
HANCOCK FUND WITHOUT PAYING AN ADDITIONAL
SALES CHARGE.
- -------------------------------------------------------------------------------
2. Any portion of your redemption may be reinvested in Fund shares or in shares
of any of the other John Hancock funds, subject to the minimum investment
limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the Fund's
name, the account number and class from which your shares were originally
redeemed.
SYSTEMATIC WITHDRAWAL PLAN
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You can
also obtain this application by calling your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually or
annually or on a selected monthly basis to yourself or any other designated
payee.
- -------------------------------------------------------------------------------
YOU CAN PAY ROUTINE BILLS FROM YOUR
ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF
FUNDS FROM YOUR RETIREMENT ACCOUNT TO
COMPLY WITH IRS REGULATIONS.
- -------------------------------------------------------------------------------
4. There is no limit on the number of payees you may authorize, but all payments
must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently
with purchases of additional Class A or Class B shares, because you may be
subject to initial sales charges on your purchases of Class A shares or to a
CDSC on your redemptions of Class B shares. In addition, your redemptions are
taxable events.
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks or if deposits to a bank account are returned for any reason.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
1. You can authorize an investment to be automatically withdrawn each month from
your bank for investment in Fund shares under the "Automatic Investing" and
"Bank Information" sections of the Account Privileges Application.
- -------------------------------------------------------------------------------
YOU CAN MAKE AUTOMATIC INVESTMENTS AND
SIMPLIFY YOUR INVESTING.
- -------------------------------------------------------------------------------
24
<PAGE> 86
2. You can also authorize automatic investment through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program plan at any
time.
4. There is no charge to you for this program, and there is no cost to the Fund.
5. If you have payments being withdrawn from a bank account and we are notified
that the account has been closed, your withdrawals will be discontinued.
GROUP INVESTMENT PROGRAM
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate dollar
amount of all participants' investments. To determine how to qualify for this
program, contact your registered representative or call 1-800-225-5291.
- -------------------------------------------------------------------------------
ORGANIZED GROUPS OF AT LEAST FOUR PERSONS
MAY ESTABLISH ACCOUNTS.
- -------------------------------------------------------------------------------
2. The initial aggregate investment of all participants in the group must be at
least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at any
time.
RETIREMENT PLANS
1. You may use the Fund as a funding medium for various types of qualified
retirement plans, including Individual Retirement Accounts, Keough Plans
(H.R. 10), Pension and Profit Sharing Plans (including 401(k) Plans), Tax
Sheltered Annuity Retirement Plans (403(b) Plans) and 457 Plans.
2. The initial investment minimum or aggregate minimum for any of the above
plans is $250. However, accounts being established as group IRA, SEP, SARSEP,
TSA, 401(k) and 457 Plans will be accepted without an initial minimum
investment.
INVESTMENTS, TECHNIQUES AND RISK FACTORS
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its total
assets in illiquid investments, which include repurchase agreements maturing in
more than seven days, restricted securities and securities not readily
marketable. Although the Fund may purchase restricted securities which can be
offered and sold to "qualified institutional buyers" under Rule 144A of the
Securities Act, its present investment restriction limits such investment to the
foregoing 10% limitation.
LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing
additional income, the Fund may lend to broker-dealers portfolio securities
amounting to not more than 33% of its total assets taken at current value or may
enter into repurchase agreements. In a repurchase agreement, the Fund buys a
25
<PAGE> 87
security subject to the right and obligation to sell it back to the counterparty
at the same price plus accrued interest. These transactions must be fully
collateralized at all times. The Fund may reinvest any cash collateral in
short-term, liquid debt securities. However, these transactions may involve some
credit risk to the Fund if the other party should default on its obligation and
the Fund is delayed in or prevented from recovering the collateral. Securities
loaned by the Fund will remain subject to fluctuations of market value.
REVERSE REPURCHASE AGREEMENTS. A reverse repurchase agreement involves the sale
of a security by the Fund and its agreement to repurchase the instrument at a
specified time and price. The Fund will maintain a segregated account consisting
of liquid, high grade debt securities to cover its obligations under reverse
repurchase agreements with selected firms approved in advance by the Board of
Directors. The Fund will use the proceeds to purchase other investments. Reverse
repurchase agreements are considered to be borrowings by the Fund and as an
investment practice may be considered speculative. Repurchase agreements magnify
the potential for gain or loss on the portfolio securities of the Fund and
therefore increase the possibility of fluctuation in the Fund's net asset value.
The Fund may borrow money for temporary administrative or emergency purposes. To
avoid the potential leveraging effects of the Fund's borrowings, additional
investments will not be made while borrowings are in excess of 5% of the Fund's
total assets. The Fund will limit its investments in reverse repurchase
agreements and other borrowings to no more than 33 1/3% of it total assets.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES. The Fund may
purchase securities on a forward or "when-issued" or "delayed delivery" basis
and may purchase or sell securities on a forward commitment basis to hedge
against anticipated changes in interest rates and prices. When the Fund engages
in such transactions, it relies on the seller or the buyer, as the case may be,
to consummate the transaction. Failure to consummate the transaction may result
in the Fund's losing the opportunity to obtain an advantageous price and yield.
If the Fund chooses to dispose of the right to acquire a when-issued or delayed
delivery security prior to its acquisition or dispose of its right to deliver or
receive against a forward commitment, it can incur a gain or a loss.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest in securities issued or
guaranteed by foreign governments or any of the political subdivisions,
instrumentalities, authorities or agencies of these governments. Investments in
foreign securities may involve a greater degree of risk than those in domestic
securities due to exchange controls, less publicly available information, more
volatile or less liquid securities markets, and the possibility of
expropriation, confiscatory taxation or political, economic or social
instability. There may be difficulty in enforcing legal rights outside the
United States. Some foreign governments are not generally subject to the same
uniform accounting, auditing and financial reporting requirements as the U.S.
government; also foreign regulation may differ considerably from domestic
regulation of stock exchanges, brokers and securities. Security trading
practices abroad may offer less protection to investors such as the Fund.
Securities transactions undertaken in some foreign markets may not be settled
26
<PAGE> 88
promptly. Therefore, the Fund's investments on foreign exchanges may be less
liquid and subject to the risk of fluctuating currency exchange rates pending
settlement.
The Fund may also invest in so-called "Brady Bonds" and other sovereign debt
securities of countries that have restructured or are in the process of
restructuring sovereign debt pursuant to the Brady Plan. The Brady Plan
contemplates the exchange of commercial bank debt for newly issued bonds (Brady
Bonds). Multilateral institutions such as the World Bank and the International
Monetary Fund the ("IMF") support the restructuring by providing funds pursuant
to loan agreements or other arrangements which enable the debtor nation to
collateralize the new Brady Bonds or to repurchase outstanding bank debt at a
discount. Brady Bonds may involve a high degree of risk or present the risk of
default. As of the date of this Prospectus, the Fund is not aware of the
occurrence of any payment defaults on Brady Bonds. Investors should recognize
however, that Brady Bonds have been issued only recently, and accordingly, they
do not have a long payment history. Although Brady Bonds may be collateralized
by U.S. Government securities, repayment of principal and interest is not
guaranteed by the U.S. Government.
INVESTMENT GRADE AND LOWER RATED SECURITIES. The Fund may invest in securities
that are rated in the lowest category of "investment grade" (BBB by S&P or Baa
by Moody's) or, with respect to 10% of its total assets, in lower rated
securities or unrated securities determined to be of comparable quality.
Securities in the lowest investment grade are considered medium grade
obligations and normally exhibit adequate protection parameters. However, these
securities also have speculative characteristics. Adverse changes in economic
conditions or other circumstances are more likely to lead to weakened capacity
to make principal and interest payments than in the case of higher grade
obligations. Debt obligations rated in the lower ratings categories, or which
are unrated, involve greater volatility of price and risk of loss of principal
and income. In addition, lower ratings reflect a greater possibility of an
adverse change in financial condition affecting the ability of the issuer to
make payments of interest and principal. The market price and liquidity of lower
rated fixed-income securities generally respond to short-term economic and
market developments to a greater extent than do the price and liquidity of
higher rated securities, because these developments are perceived to have a more
direct relationship to the ability of an issuer of lower rated securities to
meet its ongoing debt obligations. See the Statement of Additional Information
for a description of the risks associated with investing in high-yield,
high-risk securities.
SHORT TERM TRADING AND PORTFOLIO TURNOVER. Short-term trading means the
purchase and subsequent sale of a security after it has been held for a
relatively brief period of time. Short-term trading of fixed-income securities
should not increase direct transaction costs since fixed-income securities are
normally traded on a principal basis without brokerage commissions. Short-term
trading may have the effect of increasing portfolio turnover and may increase
net short-term capital gains, distributions from which would be taxable to
shareholders as ordinary income. The Fund does not intend to invest for the
purpose of seeking short-term
27
<PAGE> 89
profits. The Fund's portfolio securities may be changed, however, without regard
to the holding period of these securities (subject to certain tax restrictions),
when the Adviser deems that this action will help achieve the Fund's objective
given a change in an issuer's operations or changes in general market
conditions. The Fund's portfolio turnover rate is set forth in the table under
the caption "The Fund's Financial Highlights."
TEMPORARY DEFENSIVE INVESTMENTS. During periods of unusual market conditions
when the Adviser believes that investing for temporary defensive purposes is
appropriate, part or all of the assets of the Fund may be invested in cash or
cash equivalents consisting of (i) obligations of banks (including certificates
of deposit, bankers' acceptances and repurchase agreements) with assets of
$100,000,000 or more; (ii) commercial paper rated within the two highest rating
categories of a nationally recognized rating organization; (iii) investment
grade short-term notes; and (iv) related repurchase agreements.
OPTIONS AND FUTURES TRANSACTIONS. The Fund may write (sell) covered call and
cash secured put options and purchase call and put options on debt securities
and may enter into interest rate futures contracts and options on such futures
contracts. Options and futures contracts are bought and sold to manage the
Fund's exposure to changing interest rates and security prices. Some options and
futures strategies, including selling futures, buying puts and writing calls,
tend to hedge a Fund's investment against price fluctuations. Other strategies,
including buying futures, writing puts, and buying calls, tend to increase
market exposure. Options and futures may be combined with each other or with
forward contracts in order to adjust the risk and return characteristics of the
overall strategy. The Fund may also write straddles, which are combinations of
put and call options on the same security. The Fund does not currently engage in
the writing of options for the purpose of enhancing its total return and has
undertaken not to commence such investment activity without having first given
60 days' written notice to shareholders in advance thereof.
The Fund will not engage in a transaction in futures or options on futures if,
immediately thereafter, the sum of initial margin deposits and premiums required
to establish positions in futures contracts and options on futures would exceed
5% of the Fund's total assets. The Fund will not purchase a call or put option
if as a result the premium paid for the option together with premiums paid for
all other options, interest rate futures contracts and options thereon then held
by the Fund, exceed 10% of the Fund's total net assets. The loss incurred by the
Fund investing in futures contracts and in writing options on futures is
potentially unlimited and may exceed the amount of any premium received. The
Fund's transactions in options and futures contracts may be limited by the
requirements of the Code for qualification as a regulated investment company.
See the Statement of Additional Information for further discussion of options
and futures transactions, including tax effects and investment risks.
MORTGAGE-BACKED SECURITIES. The Fund may invest in mortgage-backed securities.
A mortgage-backed security may be an obligation of the issuer backed by a
mortgage or pool of mortgages or a direct interest in an underlying pool of
28
<PAGE> 90
mortgages. Some mortgage-backed securities, such as collateralized mortgage
obligations (CMOs), make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate and
pay principal at maturity (like a typical bond). Mortgage-backed securities are
based on different types of mortgages including those on commercial real estate
or residential properties. Mortgage-backed securities often have stated
maturities of up to thirty years when they are issued, depending upon the length
of the mortgages underlying the securities. In practice, however, unscheduled or
early payments of principal and interest on the underlying mortgages may make
the securities effective maturity shorter than this, and the prevailing interest
rates may be higher or lower than the current yield of the Fund's portfolio at
the time the Fund receives the payments for reinvestment. Mortgage-backed
securities may have less potential for capital appreciation than comparable
fixed-income securities, due to the likelihood of increased prepayments of
mortgages as interest rates decline. If the Fund buys mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid.
The value of mortgage-backed securities may also change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues.
"Stripped" mortgage-backed securities are created when a U.S. Government agency
or a financial institution separates the interest and principal components of a
mortgage-backed security and sells them as individual securities. The holder of
the "principal-only" security ("PO") receives the principal payments made by the
underlying mortgage-backed security, while the holder of the "interest-only"
security ("IO") receives interest payments from the same underlying security.
The Fund has no present intention of investing in IO's and PO's.
Other types of mortgage-backed securities will likely be developed in the future
and the Fund may invest in them if the Adviser determines they are consistent
with the Fund's investment objectives and policies.
ZERO COUPON BONDS. Zero coupon Treasury securities are (i) U.S. Treasury bills,
and both notes and bonds which have been stripped of their unmatured interests
coupons and receipts or (ii) certificates representing interest in such stripped
obligations. A zero coupon security pays no interest in cash to its holder
during its life although interest is accrued currently for federal income tax
purposes. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value (sometimes referred
to as a "deep discount" price). Investing in "zero coupon" Treasury securities
may help to preserve capital during periods of declining interest rates. For
example, if interest rates decline, Ginnie Mae certificates owned by the Fund
which were purchased at greater than
29
<PAGE> 91
par are more likely to be prepaid, which would cause a loss of principal. In
anticipation of this, the Fund might purchase zero coupon Treasury securities,
the value of which would be expected to increase when interest rates decline.
Zero coupon Treasury securities do not entitle the holder to any periodic
payments of interest prior to maturity. Accordingly, such securities usually
trade at a deep discount from their face or par value and will be subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities which make periodic distributions of
interest. On the other hand, because there are not periodic interest payments to
be reinvested prior to maturity, zero coupon securities eliminate the
reinvestment risk and lock in a rate of return to maturity. Current federal tax
law requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payment in cash on the security during
the year.
In order to satisfy the income distribution requirements applicable to regulated
investment companies under the Code, the Fund may therefore be required to
obtain cash for distribution corresponding to such accrued income by selling
portfolio securities, possibly under disadvantageous circumstances, or through
borrowing.
RISKS ASSOCIATED WITH OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS. The
risks associated with the Fund's transactions in options, futures and other
derivative instruments including mortgaged and asset back securities may include
some or all of the following:
Market Risk. Options and futures transactions, as well as other derivative
instruments, involve the risk that the applicable market will move against the
Fund's derivative position and that the Fund will incur a loss. For derivative
contracts other than purchased options, this loss may exceed the amount of the
initial investment made or the premium received by the Fund. Investments in
mortgage-backed and indexed securities are subject to the prepayment, extension,
interest rate and other market risks described above.
Leverage and Volatility Risk. Derivative instruments may increase or leverage
the Fund's exposure to a particular market risk, which may increase the
volatility of the Fund's net assets value. The Fund may partially offset the
leverage inherent in derivative instruments by maintaining a segregated account
consisting of cash and liquid, high grade debt securities, by holding offsetting
portfolio securities or currency positions or by covering written options.
Correlation Risk. The Fund's success in using derivative instruments to hedge
portfolio assets depends on the degree of price correlation between the
derivative instrument and the hedged asset. Imperfect correlation may be caused
by several factors, including temporary price disparities among the trading
markets for the derivative instruments, the assets underlying the derivative
instrument and the Fund's portfolio assets.
Credit Risk. Over-the-counter instruments involve a risk that the issuer or
counterparty will fail to perform its contractual obligations.
30
<PAGE> 92
Liquidity and Valuation Risk. Some derivative instruments are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, an exchange may suspend or limit
trading in an exchange-traded derivative instrument, which may make the contract
temporarily illiquid and difficult to price. The staff of the SEC takes the
position that certain over-the-counter options are subject to the Fund's 10%
limit on illiquid investments. The Fund's ability to terminate over-the-counter
derivative instruments may depend on the cooperation of the counterparties to
these instruments. For derivative instruments that are not heavily traded, the
only source of price quotations may be the selling dealer or counterparty.
31
<PAGE> 93
JOHN HANCOCK JOHN HANCOCK
GOVERNMENT INCOME FUND GOVERNMENT
INCOME FUND
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CLASS A AND CLASS B SHARES
PRINCIPAL DISTRIBUTOR PROSPECTUS
John Hancock Funds, Inc. MAY 15, 1995
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN A MUTUAL FUND SEEKING TO
Investors Bank & Trust Company EARN A HIGH LEVEL OF CURRENT
24 Federal Street INCOME CONSISTENT WITH PRESERVATION
Boston, Massachusetts 02110 OF CAPITAL BY INVESTING IN U.S.
GOVERNMENT SECURITIES.
TRANSFER AGENT
John Hancock Investor Services
Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For Service Information
For Telephone Exchange call
1-800-225-5291
For Investment-by-Phone
For Telephone Redemption 101 HUNTINGTON AVENUE
For TDD call 1-800-554-6713 BOSTON, MASSACHUSETTS 02199-7603
TELEPHONE 1-800-225-5291
T430P 5/95 (LOGO) Printed on Recycled Paper
<PAGE> 94
<TABLE>
EXHIBIT C
---------
<S> <C>
In upper left corner, We are pleased to enclose the 1994 annual report for
a 2 1/2" x 2" photo of Transamerica Government Income Fund. This report
Thomas M. Simmons. covers the 12-month period ending October 31, 1994.
Following this President's Letter, you will find a
discussion by our Portfolio Management Team about your
Fund's investment strategy and the outlook for the
bond market plus information about the Fund's long-term
performance. We urge you to read this timely report.
INVESTMENT PERFORMANCE
As a result of volatile bond market conditions, your Fund experienced a
negative investment return during the reporting period. The Fund avoided
much of the negative impact of the 1994 decline by adjusting the portfolio's
average maturity as market conditions changed and by increasing holdings
in conservative mortgage securities.
This investment strategy proved to be successful, protecting your
principal more effectively than many investments, including Treasury
bonds. The Fund's return on net asset value for the 12-month period was
TO OUR -6.42% for Class B Shares.* In comparison, 30-year Treasury bonds, as
represented by the Lehman Brothers Long Treasury Index, declined in
SHAREHOLDERS value -11.61% between October 31, 1993, and October 31, 1994.
During this period of market volatility, the Fund continued to offer
shareholders competitive rates of return compared to many investments
available today. At the end of the reporting period, the Fund's distribution
rate was 7.47%.** For the twelve months ending October 31, 1994, the
- ------------------------- Fund paid you $0.6615 per share in dividends.
TRANSAMERICA FUNDS
ACQUIRED BY JOHN INVESTMENT ENVIRONMENT
HANCOCK MUTUAL FUNDS
Several factors contributed to the bond market's decline during 1994.
On December 16, 1994, With the U.S. economy forging ahead in a cyclical recovery, credit
shareholders approved the demand began to increase. In February, the Federal Reserve Board --
acquisition of Transamerica determined to head off inflation before it created a problem -- made the
Fund Management Company first of several moves to boost short-term interest rates. Bond investors
by The Berkeley Financial reacted to these moves and to their fear of future inflation. Consequently,
Group, holding company for they sold their bonds. At the same time, aggressive bond investors around
John Hancock Mutual Funds. the world -- who for years had been beefing up their returns by using low-
The combined companies form cost financing to purchase short-term bonds paying higher yields -- rushed
a $13 billion money manage- to sell their bonds. All this activity combined to push up yields for 30-year
merit organization. As a result Treasuries during most of the reporting period. Between October 31, 1993,
of this transaction, your Fund and October 31, 1994, the yield on 30-year Treasuries rose nearly two
has changed names to John percentage points, meaning bond prices declined significantly. In fact,
Hancock Government Income long-term Treasuries experienced their worst 12-month period since 1927,
Fund. You will be receiving posting a total return of -17.5%.
more information in the next
few weeks. (See footnotes on page 2.)
</TABLE>
1
<PAGE> 95
Although the market has been highly volatile this year, we continue to
be optimistic concerning the long-term outlook for bonds. We believe the
Federal Reserve's monetary policy will continue to succeed at holding inflation
at bay while allowing the economy to grow at a moderate pace. Once investors
gain confidence in this scenario, bond prices will recover. In this
environment, we feel confident bonds and mutual funds that own bonds will offer
excellent opportunities for long-term investors in the future.
On behalf of the Board of Directors, we would like to thank you for
choosing Transamerica Government Income Fund for your investment program.
/s/ Thomas M. Simmons
Thomas M. Simmons
President
* Based on changes in net asset value and reinvestment of all distributions
10/31/93--10/31/94, excluding maximum contingent deferred sales charge. With
sales charge, return would have been (11.42)%. Effective 9/30/94, the Fund's
shares were reclassified as Class B Shares and a new Class of shares (A Shares)
was offered to the public.
** Based on net asset value at 10/31/94 and annualization of all dividends and
distributions during the past 30 days. The SEC yield for the same period was
5.00%. The SEC yield reflects net investment income earned by the Fund while
the distribution rate reflects distributions actually paid by the Fund, which
may include, among other things, short-term capital gains.
2
<PAGE> 96
TRANSAMERICA GOVERNMENT INCOME FUND: LONG-TERM PERFORMANCE REVIEW.
- --------------------------------------------------------------------------------
If you had invested $10,000 in Transamerica Government Income Fund Class
B Shares at inception (2/23/88) and reinvested all dividends, your investment
would be worth $14,976 today. This represents an average annual return of 6.22%.
The chart below compares the Fund's Class B Shares' performance to the
Lehman Brothers Treasury Composite Index and the Consumer Price Index (CPI). The
Lehman Brothers index is an unmanaged index of fixed-income securities that are
similar, but not identical, to the bonds in the Fund's portfolio. The CPI is a
commonly used gauge of the rate of inflation. These indexes are not available as
investment vehicles.
The Fund's Class B returns -- including the average annual total returns
for the period ending October 31, 1994, as shown in the inset box -- reflect
applicable deferred sales charges, while the Lehman index does not.* If you were
to purchase individual bonds represented by this index, any applicable sales
charges would pay would reduce your return accordingly. Class A Shares'
performance is not shown since these shares were only recently offered.
While the chart below is required by SEC rules, these comparisons do not
communicate the entire story, since the indexes shown are not adjusted for
ongoing professional management, distribution and operating expenses, and sales
charges applicable to the Fund.
Your investment return will fluctuate so that your shares, when
redeemed, may be worth more or less than the original cost. Past performance is
no guarantee of future results.
* Return since inception includes effect of expense reimbursement which, if
excluded, would have caused performance to be lower.
Line chart with the heading Transamerica Government Income Fund B vs. Lehman
Brothers' Treasury Composite Indexes, representing the growth of a hypothetical
$10,000 investment since the Fund's inception. Within the chart are three
lines.
Transamerica Government Income Fund B
The first line represents the value of the hypothetical $10,000 investment in
the Lehman Brothers' Treasury Composite Index on February 23, 1988 and is equal
to $16,784 as of October 31, 1994. The second line represents the Transamerica
Government Income Fund B after sales charge and is equal to $14,976 as of
October 31, 1994. The third line represents the value of the hypothetical
$10,000 investment compared with the Consumer Price Index on February 23, 1988
and is equal to $26,921 as of February 1988.
Within the chart is a separate chart listing average annual total return
numbers for the 1-year, 5-year, and since inception and are -11.42%, $5.50%, and
6.22%, respectively.
3
<PAGE> 97
TRANSAMERICA GOVERNMENT INCOME FUND:
INVESTMENT STRATEGY FOCUSES ON PRINCIPAL PROTECTION.
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM
ANSWERS QUESTIONS ABOUT THE
TRANSAMERICA GOVERNMENT INCOME FUND.
- --------------------------------------------------------------------------------
Q & A
- --------------------------------------------------------------------------------
HOW DID YOU ADJUST THE FUND'S PORTFOLIO IN RESPONSE TO
DECLINING BOND PRICES THIS SUMMER?
As interest rates -- and bond prices -- moved during the summer, we lowered the
portfolio's average maturity so that falling bond prices would have less of an
impact on the Fund's NAV. We also increased the percentage of mortgage
securities in the portfolio, and slightly raised the percentage of foreign
government securities.
WHY MORTGAGE SECURITIES?
They represented excellent value with low risk. During the first half of the
year, mortgage securities were under extreme pressure as their durations
(interest-rate risk) extended due to declining prepayment expectations. We
increased the percentage of mortgage securities in the Fund's portfolio because
of their very attractive prices and higher yields. In other words, we gained
extra income earning power for shareholders at discount prices.
WHY IS THE FEDERAL RESERVE BOARD WORRIED THAT INFLATION WILL BECOME A PROBLEM
AGAIN?
When dealing with inflation (CPI), the Fed considers three primary elements:
1. Economic growth appears to be accelerating, and resources that are in low
supply have become harder to locate. If the prices of these resources rise
in a rapidly expanding economy, inflation may move up again.
2. Capacity utilization -- the percentage of plant capacity being used in
production at any given time -- is increasing. Historically, this has
preceded a period of rising inflation.
3. Commodity prices -- especially steel scrap and rubber prices -- have risen
sharply during the past year. These commodities are used to manufacture many
goods on the market today. An upward swing in price is considered an
indicator of future inflation.
DO YOU THINK INFLATION WILL BECOME A PROBLEM IN THE NEAR FUTURE?
We believe the inflation outlook is favorable. Wage growth and labor costs have
remained static due to the prolonged period of slow economic growth prior to
1994 and the continued pressure on corporations to control costs as they face
growing international competition. In our opinion, the Fed's aggressive moves
to raise short-term rates several times this year -- and especially the
three-quarters percent reduction in mid November -- indicate its determination
to hold the line on future increases in inflation.
WHAT DOES THIS MEAN FOR THE BOND MARKET?
If economic indicators begin to convince investors the Fed stopped inflation
before it got out of control, assets will flow back into the financial markets.
This scenario should be very positive over the long haul for bonds.
4
<PAGE> 98
Transamerica Government Income Fund
(effective December 22, 1994, John Hancock Government Income Fund)
STATEMENT OF NET ASSETS
October 31, 1994
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 84.66%
FEDERAL HOME
LOAN MORTGAGE
CORPORATION -- 23.88%
Pass Through Securities
7.750% due 11/01/08.......... $ 35,948 $ 34,832
8.000% due 04/01/07.......... 70,904 69,363
CMO -- Planned
Amortization Class
4.500% due 05/15/14.......... 2,000,000 1,639,687
5.000% due 04/15/21.......... 6,000,000 4,779,375
5.750% due 05/15/21.......... 17,005,946 14,715,458
6.000% due 06/15/08.......... 8,000,000 6,601,250
6.500% with various
maturities to 03/25/23 (A).. 31,888,400 27,783,969
7.000% due 06/15/21.......... 2,300,000 2,004,594
-----------
57,628,528
FEDERAL JUDICIARY OFFICE
BUILDING -- 0.06%
Zero Coupon due 02/15/01...... 250,000 152,025
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 25.69%
6.000% with various
maturities to 11/01/23...... 16,127,062 13,728,162
6.500% due 05/01/08.......... 13,217,197 12,263,048
7.000% due 04/01/08.......... 3,889,611 3,696,298
8.500% with various
maturities to 09/01/24...... 5,085,856 5,027,051
9.750% due 02/10/99.......... 125,000 125,681
9.950% due 05/10/99.......... 250,000 252,738
CMO -- Interest Only
6.500% due 10/01/23.......... 14,475,477 5,319,738
CMO -- Planned
Amortization Class
6.000% due 04/25/24.......... 6,388,638 4,815,436
6.500% with various
maturities to 08/25/20...... 11,660,000 10,073,969
6.750% due 06/25/21.......... 4,000,000 3,358,750
7.000% due 05/25/20(A)....... 3,700,000 3,132,859
7.500% due 05/25/20.......... 200,000 178,988
-----------
61,972,718
FINANCING CORPORATION -- 2.58%
9.400% due 02/08/18.......... 4,000,000 4,410,000
9.650% due 11/02/18.......... 1,600,000 1,806,000
-----------
6,216,000
TENNESSEE VALLEY
AUTHORITY -- 4.59%
7.250% due 07/15/43.......... 8,000,000 6,644,000
7.850% due 06/15/44.......... 5,000,000 4,432,050
-----------
11,076,050
U.S. TREASURY
SECURITIES -- 27.86%
Bonds
12.625% due 05/15/95(B)....... 40,400,000 41,944,492
15.750% due 11/15/01.......... 16,865,000 24,250,352
Notes
11.250% due 05/15/95(B)....... 1,000,000 1,028,810
-----------
67,223,654
TOTAL U.S. GOVERNMENT
AND U.S. GOVERNMENT
AGENCY OBLIGATIONS
(Cost $217,385,536)........... 204,268,975
FOREIGN BONDS -- 10.10%
U.S. DOLLAR DENOMINATED
FOREIGN GOVERNMENT
BONDS -- 10.10%
Argentina (Republic of)
Notes Series L
6.500% due 03/31/05(C)........ 2,000,000 1,445,000
Brazil (Republic of)
Notes IDU Series A-L
6.063% due 01/01/01(C)........ 2,940,000 2,407,125
</TABLE>
5
<PAGE> 99
Transamerica Government Income Fund
(Effective December 22, 1994, John Hancock Government Income Fund)
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
British Columbia Hydro & Power Authority
15.000% due 04/15/11............................. 3,900,000 4,514,250
15.500% due 11/15/11............................. 1,700,000 2,061,250
Hydro-Quebec Corp.
8.250% with various maturities to 01/15/27...... 2,000,000 1,833,750
8.875% due 03/01/26............................. 2,000,000 1,962,500
9.375% due 04/15/30............................. 2,000,000 2,052,500
11.750% due 02/01/12............................. 270,000 336,825
Province of Ontario, Canada
15.125% due 05/01/11............................. 1,345,000 1,568,606
17.000% due 11/05/11............................. 5,000,000 6,193,750
------------
TOTAL FOREIGN BONDS
(Cost $27,857,579)............................... 24,375,556
MULTI-FAMILY MORTGAGE BACKED BONDS -- 3.78%
DLJ Mortgage Acceptance Corp.
7.200% due 07/14/03............................. 4,856,909 4,521,479
7.400% due 06/18/03............................. 4,909,808 4,589,137
------------
TOTAL MULTI-FAMILY MORTGAGE BACKED BONDS
(Cost $9,998,016)................................ 9,110,616
------------
TOTAL LONG-TERM OBLIGATIONS -- 98.54%
(Cost $255,241,131).............................. 237,755,147
CASH AND OTHER ASSETS, LESS
LIABILITIES -- 1.46%............................ 3,529,283
------------
NET ASSETS, at value, equivalent to $8.75 per
share for 25,478 Class A Shares ($.01 par
value) of capital stock outstanding and $8.75
per share for 27,547,677 Class B Shares ($.01
par value) of capital stock outstanding --
100.00%......................................... $241,284,430
============
</TABLE>
(A) Federal Home Loan Mortgage Corporation and Federal
National Mortgage Association securities with a value of
$7,718,559 owned by the Fund were designated as margin
deposits for futures contracts at October 31, 1994.
(B) Long-term obligations that will mature in less than
one year.
(C) Floating rate security.
See Notes to Financial Statements.
6
<PAGE> 100
Transamerica Government Income Fund
(effective December 22, 1994, John Hancock Government Income Fund)
STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS
STATEMENT OF OPERATIONS
Year Ended October 31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest ........................... $ 23,940,679
EXPENSES
Distribution expenses
(See Note D) ..................... $ 2,685,334
Management fees .................... 1,728,997
Transfer agent fees ................ 337,677
Administrative service fees ........ 132,786
Custodian fees ..................... 64,967
Registration fees .................. 64,878
Shareholder reports ................ 59,668
Audit and legal fees ............... 47,962
Directors' fees and
expenses ......................... 26,069
Interest expense ................... 14,332
Miscellaneous ...................... 38,909 5,201,579
------------ ------------
NET INVESTMENT
INCOME ......................... 18,739,100
REALIZED AND UNREALIZED
GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on:
Investments ....................... (10,308,076)
Futures contracts ................. (2,190,367)
Forward currency
contracts ....................... 426,179 (12,072,264)
------------
Net change in
unrealized appreciation
(depreciation) of:
Investments ....................... (25,329,099)
Futures contracts ................. 404,876
Forward currency
contracts ....................... 19,551 (24,904,672)
------------ ------------
NET REALIZED AND
UNREALIZED LOSS ON
SECURITIES ........................ (36,976,936)
------------
DECREASE IN NET ASSETS
RESULTING FROM
OPERATIONS......................... $(18,237,836)
============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------
1994 1993
------------ -----------
<S> <C> <C>
OPERATIONS
Net investment income ............... $ 18,739,100 $18,614,695
Net realized gain (loss) on
securities ........................ (12,072,264) 774,222
Net change in unrealized
appreciation
(depreciation) of
securities ........................ (24,904,672) 5,274,938
------------ ------------
Increase (decrease) in
net assets resulting
from operations ................... (18,237,836) 24,663,855
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income --
Class A ........................... (1,228) -
Class B ........................... (18,621,004) (18,900,217)
Net realized gain on
securities -- Class B ............. (730,403) -
------------ ------------
Total distributions to
shareholders ...................... (19,352,635) (18,900,217)
CAPITAL SHARE
TRANSACTIONS
Increase (decrease) in
capital shares
outstanding ....................... (14,538,382) 62,109,749
------------ ------------
Increase (decrease) in
net assets ........................ (52,128,853) 67,873,387
NET ASSETS
Beginning of year ................... 293,413,283 225,539,896
------------ ------------
End of year ......................... $241,284,430 $293,413,283
============ ============
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 101
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------- -------------------------------------------------------
PERIOD FROM
SEPTEMBER 30,
1994 TO YEAR ENDED OCTOBER 31,
OCTOBER 31, -------------------------------------------------------
1994(1) 1994 1993 1992 1991 1990
-------------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Per share income and capital changes for a share
outstanding during each period:
Net asset value, beginning of period..................... $ 8.85 $ 10.05 $ 9.83 $ 9.79 $ 9.37 $ 9.98
INCOME FROM INVESTMENT OPERATIONS
Net investment income................................... 0.06 0.65 0.70 0.80 0.89 0.88
Net realized and unrealized gain (loss) on securities... (0.10) (1.28) 0.24 0.03 0.40 (0.54)
------- -------- -------- -------- -------- -------
Total from Investment Operations.................... (0.04) (0.63) 0.94 0.83 1.29 0.34
LESS DISTRIBUTIONS
Dividends from net investment income.................... (0.06) (0.65) (0.72) (0.79) (0.87) (0.95)
Distributions from realized gains........................ - (0.02) - - - -
------- -------- -------- -------- -------- -------
Total Distributions................................. (0.06) (0.67) (0.72) (0.79) (0.87) (0.95)
------- -------- -------- -------- -------- -------
Net asset value, end of period.......................... $ 8.75 $ 8.75 $ 10.05 $ 9.83 $ 9.79 $ 9.37
======= ======== ======== ======== ======== =======
TOTAL RETURN (2)....................................... (0.45)% (6.42)% 9.86% 8.81% 14.38% 3.71%
======= ======== ======== ======== ======== =======
RATIOS AND SUPPLEMENTAL DATA
Ratio of operating expenses to average net assets....... 0.12% 1.93% 2.00% 2.00% 2.00% 2.04%
Ratio of interest expense to average net assets......... - 0.01% 0.01% 0.15% - -
------- -------- -------- -------- -------- -------
Ratio of total expenses to average net assets........... 0.12% 1.94% 2.01% 2.15% 2.00% 2.04%
Ratio of expense reimbursement to average net assets.... - - - - - (0.04)%
------- -------- -------- -------- -------- -------
Ratio of net expenses to average net assets............. 0.12% 1.94% 2.01% 2.15% 2.00% 2.00%
======= ======== ======== ======== ======== =======
Ratio of net investment income to average net assets.... 0.71% 6.98% 7.06% 8.03% 9.09% 9.22%
Portfolio turnover...................................... 92% 92% 138% 112% 162% 83%
Net Assets, end of period (in thousands)................ $ 223 $241,061 $293,413 $225,540 $129,014 $64,707
Debt outstanding at end of period (in thousands)(3)..... $ 0 $ 0 $ 0 $ 0 - -
Average daily amount of debt outstanding during
the period (in thousands)(3).......................... $ 349 $ 349 $ 503 $ 6,484 - -
Average monthly number of shares outstanding during
the period (in thousands)............................. 28,696 28,696 26,378 18,572 - -
Average daily amount of debt outstanding per share
during the period(3).................................. $ 0.01 $ 0.01 $ 0.02 $ 0.35 - -
<FN>
(1) Financial highlights, including total return, have not been annualized.
Portfolio turnover and information regarding debt outstanding are for the
year ended October 31, 1994 and are not class specific.
(2) Total return does not include the effect of the initial sales charge
for Class A Shares nor the contingent deferred sales charge for Class B
Shares.
(3) Debt outstanding consists of reverse repurchase agreements entered
into during the period.
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 102
Transamerica Government Income Fund
(effective December 22, 1994, John Hancock Government Income Fund)
NOTES TO FINANCIAL STATEMENTS
October 31, 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special Series,
Inc., is a diversified, open-end management investment company registered under
the Investment Company Act of 1940, as amended. The Issuer operates as a series
fund, currently issuing six series of shares. On May 20, 1994, the shareholders
of the Issuer approved changes to the name of the Issuer and to the names of
each of the series of the Issuer. These changes became effective on June 15,
1994.
Transamerica Government Income Fund (the "Fund"), formerly Transamerica
Special Government Income Fund, is one of the series of the Issuer. The Fund
made its initial offering of shares to the public on February 23, 1988. On
September 30, 1994, the Fund commenced issuing a second class of shares. The
new Class A Shares are subject to an initial sales charge of up to 4.75% and a
12b-1 distribution plan and the Class B Shares are subject to a contingent
deferred sales charge and a separate 12b-1 distribution plan. The following is
a summary of significant accounting policies consistently followed by the Fund.
(1) The Fund values its debt securities at quotations provided by
pricing services and market makers. Interest rate futures contracts and options
on interest rate futures are valued based on their daily settlement price.
Securities which are not traded on U.S. markets, forward currency contracts and
other assets and liabilities stated in foreign currency are translated into
U.S. dollar equivalents based on quoted exchange rates. Securities for which
market quotations are not readily available are valued at a fair value as
determined in good faith by the Issuer's Board of Directors. Short-term
investments are valued at amortized cost (original cost plus amortized discount
or accrued interest).
(2) The premium paid by the Fund for the purchase of a call or put
option is recorded as an investment and subsequently "marked to market" to
reflect the current market value of the option purchased. If an option which
the Fund has purchased expires on the stipulated expiration date, the Fund
realizes a loss in the amount of the cost of the option. If the Fund enters
into a closing transaction, it realizes a gain (loss) if the proceeds from the
sale are greater (less) than the cost of the option purchased. If the Fund
exercises a put option, it realizes a gain or a loss from the sale of the
underlying security and the proceeds from such sale will be decreased by the
premium originally paid. If the Fund exercises a call option, the cost of the
security purchased upon exercise is increased by the premium originally paid.
(3) The Fund may enter into futures contracts for delayed delivery of
securities on a future date at a specified price. Initial margin deposits made
upon entering into futures contracts are maintained by the Fund's custodian in
segregated asset accounts. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
received or made, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Fund's basis in the contract.
(4) The Fund may enter into reverse repurchase agreements which involve
the sale of securities held by the Fund to a bank or securities firm with an
agreement that the Fund will buy back the securities at a fixed future date at
a fixed price plus an agreed amount of "interest" which may be reflected in
the repurchase price. Reverse repurchase agreements are considered to be
borrowings by the Fund and the Fund will use the proceeds obtained from the
sale of securities to purchase other investments.
(5) Security transactions are accounted for on the trade date. Interest
income is accrued daily. Debt discounts are amortized using the straight-line
method. Realized gains and losses from security transactions are determined on
the basis of identified cost for both financial reporting and federal income
tax purposes.
(6) Income dividends are declared daily by the Fund and paid or
reinvested at net asset value monthly. Other distributions are recorded on the
ex-dividend date and may be reinvested at net asset value. Income distributions
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Distributions payable to shareholders
at October 31, 1994 were $711,439.
(7) No provision for federal income taxes has been made since it is the
Fund's intention to distribute all of its taxable income and profits to its
shareholders and to comply with the requirements applicable to regulated
investment companies and the minimum distribution requirements of the Internal
Revenue Code. The Fund's tax year end is December 31.
(8) On a daily basis, income, unrealized and realized gains and losses,
and expenses which are not class specific are allocated to each class based on
their respective relative net assets. Class specific expenses, such as
distribution expenses, are applied to the class to which they are attributed.
9
<PAGE> 103
Transamerica Government Income Fund
(effective December 22, 1994, John Hancock Government Income Fund)
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE A (Continued)
(9) With respect to U.S. government and U.S. government agency
securities in which the Fund may invest, only U.S. Treasury and Government
National Mortgage Association (GNMA) issues are backed by the full faith and
credit of the U.S. government. All other government issues are backed by the
issuing agencies and their general ability to borrow from the U.S. government.
Options and futures contracts on U.S. government securities are not issues of,
nor guaranteed by the U.S. government or its agencies.
(10) The Fund reports custodian fees net of credits and charges
resulting from cash positions in the custodial accounts greater than or less
than the amounts required to settle portfolio transactions. For the year ended
October 31, 1994, these amounts were $14,301 and $13,948, respectively.
NOTE B - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund's management fee is payable monthly to Transamerica Fund Management
Company (the "Investment Adviser") and is calculated based on the following
schedule:
<TABLE>
<CAPTION>
AVERAGE DAILY
NET ASSETS ANNUAL RATE
------------- -----------
<S> <C>
First $200 million 0.650%
Next $300 million 0.625%
Over $500 million 0.600%
</TABLE>
At October 31, 1994, the management fee payable to the Investment
Adviser was $133,624.
The Investment Adviser provides administrative services to the Fund
pursuant to an administrative service agreement. During the year ended October
31, 1994, the Fund paid or accrued $107,246 for these services, of which $9,471
was payable at October 31, 1994.
Transamerica Fund Distributors Inc. (the "Distributor"), an affiliate
of the Investment Adviser, is the principal underwriter of the Fund. At October
31, 1994, receivables from and payables to the Distributor for Fund share
transactions were $61,205 and $671,881, respectively.
The Fund paid no compensation directly to any officer. Certain officers
and a director of the Issuer are affiliated with the Investment Adviser.
During the year ended October 31, 1994, the Fund paid legal fees of
$9,618 to Baker & Botts. A partner with Baker & Botts is an officer of the
Issuer.
NOTE C - COST, PURCHASES AND SALES OF INVESTMENT SECURITIES
During the year ended October 31, 1994, purchases and sales of
securities, other than short-term obligations, aggregated $244,231,077 and
$259,987,372, respectively. At October 31, 1994, payables to brokers for
securities purchased were $2,500,605.
At October 31, 1994, the identified cost of investments owned is the
same for both financial reporting and federal income tax purposes. At October
31, 1994, the gross unrealized appreciation and gross unrealized depreciation
of investments and futures contracts for federal income tax purposes were
$920,652 and $17,993,511, respectively.
Futures contracts which were open at October 31, 1994, were as follows:
<TABLE>
<CAPTION>
DELIVERY NUMBER OF UNREALIZED
MONTH/YEAR/COMMITMENT CONTRACTS(1) APPRECIATION
- -------------------------- ------------ ------------
<S> <C> <C>
U.S. Treasury Ten Year
Note Futures
Dec/94/short 135 $366,094
U.S. Treasury Bond Futures
Dec/94/short 70 47,031
--- --------
205 $413,125
=== ========
</TABLE>
(1) Each contract represents $100,000 in par value.
NOTE D - PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is
authorized under separate distribution plans to finance activities related
to the distribution of its Class A and Class B Shares (the "Class A Plan" and
the "Class B Plan," respectively). The distribution plans, together with the
initial sales charge on Class A Shares and the contingent deferred sales charge
on Class B Shares, comply with the regulations covering maximum sales charges
assessed by mutual funds distributed through securities dealers that are NASD
members.
The Class A Plan and the Class B Plan permit each class to make
payments to the Distributor up to 0.25% annually of average daily net assets
for certain distribution costs such as service fees paid to dealers,
production and distribution of prospectuses to prospective investors, services
provided to new and existing shareholders and other distribution related
activities. During the period September 30, 1994 to
10
<PAGE> 104
Transamerica Government Income Fund
(effective December 22, 1994, John Hancock Government Income Fund)
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE D (Continued)
October 31, 1994, Class A made payments to the Distributor of $37 or 0.02%
related to the above activities. During the year ended October 31, 1994,
Class B made payments of $671,915 or 0.25% related to these activities.
The Class B Plan also permits Class B to reimburse the Distributor up
to 0.75% annually of average daily net assets for costs related to compensation
paid to securities dealers, in place of an initial sales charge to investors,
on the sale of Class B Shares. These costs are based upon a commission payment
charge of 5% of the value of Class B Shares sold (excluding shares acquired
through reinvestment), reduced by the amount of contingent deferred sales
charges (CDSC) that have been received by the Distributor on redemptions of
Class B Shares. These costs also include a charge of interest (carrying charge)
at an annual rate of 1% over the prevailing prime rate to the extent cumulative
commission payment charges, plus any previous carrying charges, less CDSC
received by the Distributor, have not been paid in full by the Fund. For the
year ended October 31, 1994, Class B reimbursed the Distributor $2,013,382 or
0.75% for such costs. For the year ended October 31, 1994, the Distributor
received $766,358 in CDSC. At October 31, 1994, the balance of unrecovered
costs was $10,485,386.
At October 31, 1994, Class A had $37 and Class B had $265,299 payable
to the Distributor pursuant to the above distribution plans.
_____________________________
NOTE E - CAPITAL AND RELATED TRANSACTIONS
A summary of the capital stock transactions follows:
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------------------------------
1994(1) 1993
--------------------------- ---------------------------
Shares Dollars Shares Dollars
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold--Class A..................................... 25,409 $ 223,359 - -
Shares sold--Class B..................................... 4,611,686 43,702,215 10,924,803 $108,497,899
Shares issued in reinvestment of distributions--Class A.. 69 606 - -
Shares issued in reinvestment of distributions--Class B.. 1,061,434 9,872,309 993,283 9,861,880
Shares redeemed--Class A................................. - - - -
Shares redeemed--Class B................................. (7,326,339) (68,336,871) (5,650,502) (56,250,030)
---------- ------------ ---------- ------------
Net increase (decrease) in capital shares outstanding.... (1,627,741) $(14,538,382) 6,267,584 $ 62,109,749
========== ============ ========== ============
</TABLE>
(1) Class A share transactions are for the period September 30, 1994 to
October 31, 1994.
The components of net assets at October 31, 1994, are as follows:
<TABLE>
<S> <C>
Capital paid-in (350,000,000 shares authorized).......................................................... $271,079,720
Accumulated net realized loss on investments, futures contracts and forward currency contracts........... (12,722,431)
Net unrealized depreciation of investments and futures contracts......................................... (17,072,859)
------------
NET ASSETS............................................................................................... $241,284,430
============
</TABLE>
11
<PAGE> 105
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
John Hancock Government Income Fund,
a series of Transamerica Series, Inc.
We have audited the accompanying statement of net assets of John
Hancock Government Income Fund (formerly Transamerica Government Income Fund),
a series of John Hancock Series, Inc. (formerly Transamerica Special Series,
Inc.), as of October 31, 1994, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of John Hancock Government Income Fund, a series of John Hancock
Series, Inc., at October 31, 1994, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Houston, Texas
December 2, 1994
12
<PAGE> 106
- --------------------------------------------------------------------------------
FUND INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Transamerica Fund Management Company
1000 Louisiana
Houston, Texas 77002-5098
OFFICERS
Thomas M. Simmons, President
Thomas J. Press, Vice President
Warren F. Schmalenberger, Vice President
Douglas C. Kelly, Vice President/Treasurer
Robert L. Stillwell, Secretary
Donald E. Guedry, Assistant Treasurer
Randolph A. Rice, Assistant Treasurer/Controller
Carol S. Bevan, Assistant Secretary
Pamela A. Vlatas, Assistant Secretary
Curtis W. Barnes, Assistant Secretary
DIRECTOR
Thomas R. Powers
Mrs. Lloyd Bentsen, Jr.
R. Trent Campbell
William H. Cunningham
Leo E. Linbeck, Jr.
Thomas B. McDade
Thomas M. Simmons
DISTRIBUTOR
Transamerica Fund Distributors, Inc.
1000 Louisiana
Houston, Texas 77002-5098
SHAREHOLDER INQUIRY
Transamerica Funds Shareholder Services
P.O. Box 9656
Providence, RI 02940-9656
1-800-343-6840
This material is not authorized for distribution unless preceded or accompanied
by a current prospectus.
The performance information referred to in this report is historical and does
not represent a guarantee of similar future results. The investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than the original cost.
13
<PAGE> 107
STRATEGIES TO HELP YOUR INVESTMENT PROGRAM REALIZE ITS POTENTIAL.
- --------------------------------------------------------------------------------
The key to investment success is to develop a sensible long-range investment
plan and sticj with it. An affordable investment program won't make you
wealthy overnight, but it can help you reach your investment goals.
Once you've set your investment objectives, there are some simple,
time-tested strategies that you can use in your plan to help maximize your
investment success.
- --------------------------------------------------------------------------------
PAY YOURSELF FIRST
The first step to achieving financial independence does not involve picking the
right investments. It's more important to develop the habit of paying yourself
first.
Write a check to an investment account before you pay your monthly
bills. Increase the amount each time your salary increases. To make investing
easier, you can arrange to have an amount transferred automatically from your
checking account into your investment account through bank drafts.
DIVERSIFY TO HELP REDUCE RISK
Having a balanced, diversified investment program is smart. It leaves you less
vulnerable to a major decline in any one market or industry. When the markets
are volatile, some investments may lose value while others may register
significant gains.
One mutual fund, however, is not a complete investment program. To be
well diversified, you need investments from more than one fund category.
For example, if you own stocks, bonds and money market instruments, you
won't be as vulnerable to a decline in the stock market as an investor who owns
only stocks. With thorough diversification, you'll have the opportunity for
some holdings to perform relatively well no matter what happens in the markets.
Remember: no single investment can fit all your needs through every
part of your life. That's why it's important to develop a flexible, diversified
program that can be modified as you grow older.
HERE'S A SIMPLE ILLUSTRATION TO HELP EXPLAIN THE BENEFITS OF DIVERSIFICATIOMN.
Grab a pencil and break it using both hands. That task is fairly easy. Now,
take nine smaller pencils, place them together and attempt to break them in the
same manner. It's virtually impossible.
Imagine those pencils are your investments. If all your investments had
been concentrated in that one pencil, you would have been devastated when the
pencil broke.
However, by spreading your assets among many investments, you have a
"strong" position that protects you from the "weak pencil."
[GRAPHIC]
In center, a graphic of a cluster of pencils.
14
<PAGE> 108
- --------------------------------------------------------------------------------
This illustrates the benefits of a mutual fund. Mutual funds are an excellent
way to diversify because they invest your assets in a large number of
securities.
REINVEST YOUR EARNINGS
Do you really need any income generated by your investment?
If not, put the income "back to work" -- immediately and automatically.
Most mutual funds allow you to reinvest dividends or capital gains
distributions automatically. When you reinvest, you buy additional shares.
These shares, in turn, can generate more income or capital gains. You increase
the opportunity for greater return when you reinvest. The chart at right
demonstrates the power of compounding through reinvestment with the added
benefit of a regular investment program.
[CHART]
Chart entitled "Power of Compounding" in right hand column. The chart has an
x-axis, which shows dollars in the thousands and a y-axis, which shows years.
The x-axis is scaled in increments of 100, with 700 at the top and 0 at the
bottom. The y-axis is scaled in increments of 5, with 1 on the left and 30 on
the right. Within the chart, there are three lines; each shows the growth of a
$10,000 investment with subsequent $200 investments each month, assuming a
different rate of return on the investment. The first shows the growth of the
investment at 10% for a total of $650,272. The second shows the growth of the
investment at 8% for a total of $407,229. The third shows the growth of the
investment at 6% for a total of $260,929. A footnote below that chart reads:
"This table show the effects of compounding monthly at different interest rates
over various time periods, assuming an initial investment of $10,000 and
subsequent investments of $200 on the same day each month. This table is for
illustrative purposes only and should not be construed as an indication of the
performance of a specific investment or the availabilty of any rate of return
over any specific time period."
KEEP A LONG-TERM PERSPECTIVE
In investing, patience can be a real virtue.
Remember, over the short term financial markets rise and fall in
response to a number of factors. Attempting to "time" these market moves for
quick gains is extremely difficult. It's also risky. That's why many successful
investors take the long-term approach to reach their financial goals. The
longer you stay with any investment, riding out market fluctuations, the
greater you opportunity to reduce rick and achieve higher returns.
- --------------------------------------------------------------------------------
This material is excerpted from "HOW TO BE A SUCCESSFUL INVESTOR," an investor
educational resource guide prepared and distributed by Transamerica Funds. To
obtain a copy of this guide, please call 1-800-343-6840. This material must be
preceded or accompanied by a current prospectus.
15
<PAGE> 109
TRANSAMERICA GOVERNMENT
INCOME FUND
[PHOTO]
In upper right hand corner, a 2" x 3" photo of
the Transamerica building in San Francisco,
California.
ANNUAL REPORT
October 31, 1994
INSIDE:
Transamerica Funds
are now
JOHN HANCOCK
FUNDS
See page 1
[LOGO]
In bottom left hand corner, a 2" x 2" graphic of
the Transamerica logo. The logo is an
illustration of the Transamerica building in
San Francisco, California.
MUTUAL FUNDS SINCE 1949
- --------------------------------------------------------------------------------
---------------
TRANSAMERICA BULK RATE
GOVERNMENT INCOME FUND US POSTAGE
PAID
Transamerica Funds Shareholder Services PERMIT NO. 6011
P.O. Box 9656 HOUSTON, TEXAS
Providence, RI 02940-9656 ---------------
4304
In bottom left corner, a 1" x 1" graphic of the Transamerica logo. The
Transamerica logo is an illustration of the Transamerica building in San
Francisco, California.
<PAGE> 110
JOHN HANCOCK GOVERNMENT SECURITIES TRUST
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s)
Edward J. Boudreau, Jr., Thomas H. Drohan and James B. Little, with
full power of substitution in each, to vote all the shares of
beneficial interest of John Hancock Government Securities Trust
("Government Securities Trust"), a series of John Hancock Bond Fund
(the "Trust"), which the undersigned is (are) entitled to vote at the
Special Meeting of Shareholders (the "Meeting") of Government Securities
Trust to be held at 101 Huntington Avenue, Boston, Massachusetts, on
September 8, 1995 at 9:00 a.m., Boston time, and at any adjournment of
the Meeting. All powers may be exercised by a majority of said proxy
holders or substitutes voting or acting, or, if only one votes and
acts, then by that one. Receipt of the Proxy Statement dated July 15,
1995 is hereby acknowledged. If not revoked, this proxy shall be voted:
(1) To approve an Agreement and Plan of Reorganization between
the Trust, on behalf of Government Securities Trust, and John Hancock
Series, Inc., on behalf of John Hancock Government Income Fund
("Government Income Fund"), providing for Government Income Fund's
acquisition of all Government Securities Trust's assets in exchange
solely for Government Income Fund's assumption of Government
Securities Trust's liabilities, and the issuance of Government Income
Fund Class A and Class B shares to Government Securities Trust for
distribution to its shareholders.
____ ____ ____
FOR :____: AGAINST :____: ABSTAIN :____:
(2) In the discretion of said proxy or proxies, to act upon
such other matters as may properly come before the Meeting or any
adjournment of the Meeting.
<PAGE> 111
THIS PROXY SHALL BE VOTED IN FAVOR OF (FOR) PROPOSAL (1) IF NO
SPECIFICATION IS MADE ABOVE. AS TO ANY OTHER MATTER, SAID PROXY OR
PROXIES SHALL VOTE IN ACCORDANCE WITH THEIR BEST JUDGMENT.
Date , 1995
------------------ --------------------------------
Signature(s)
--------------------------------
NOTE: Signature(s) should agree with
name(s) printed herein. When signing
as attorney, executor, administrator,
trustee or guardian, please give your
full title as such. If a corporation,
please sign in full corporate name by
president or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE
<PAGE> 112
JOHN HANCOCK GOVERNMENT INCOME FUND
A SERIES OF
JOHN HANCOCK SERIES, INC.
STATEMENT OF ADDITIONAL INFORMATION
July 15, 1995
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the related Prospectus (also dated July 15, 1995)
which covers Class A and Class B shares of common stock of John Hancock
Government Income Fund ("Government Income Fund") to be issued in exchange for
all of the net assets of John Hancock Government Securities Trust ("Government
Securities Trust"). Please retain this Statement of Additional Information for
future reference.
A copy of the Prospectus can be obtained free of charge by calling Shareholder
Services at 1-800-225-5291 or by written request to John Hancock Series, Inc.
at 101 Huntington Avenue, Boston, Massachusetts 02199.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Introduction................................................... 3
Additional Information about Government Income Fund............ 3
General Information and History
Investment Objectives and Policies
Management of Government Income Fund
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Shares of Capital Stock
Purchase, Redemption and Pricing of
Government Income Fund Shares
Underwriters
Calculation of Performance Data
Financial Statements
Additional Information About Government Securities Trust....... 4
General Information and History
Investment Objective and Policies
Management of Government Securities Trust
Control Persons and Principal Holders of Shares
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Shares of Beneficial Interest
Purchase, Redemption and Pricing of Government Securities
Trust Shares
Underwriters
Calculation of Performance Data
Financial Statements
</TABLE>
<PAGE> 113
EXHIBITS
A - Statement of Additional Information, dated May 15, 1995 of Government
Securities Trust.
B - Statement of Additional Information, dated May 15, 1995 of Government
Income Fund.
C - Pro Forma Combined Financial Statements at March 31, 1995 and for the
period then ended of Government Securities Trust and Government Income
Fund.
-2-
<PAGE> 114
INTRODUCTION
------------
This Statement of Additional Information is intended to supplement the
information provided in a Proxy Statement and Prospectus dated July 15, 1995
(the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus has
been sent to the shareholders of Government Securities Trust in connection with
the solicitation by the management of John Hancock Bond Fund (the "Trust") of
proxies to be voted at the Special Meeting of Shareholders of Government
Securities Trust to be held on September 8, 1995. This Statement of Additional
Information includes the statements of additional information of Government
Income Fund, dated May 15, 1995 (the "Government Income Fund SAI"), and
Government Securities Trust, dated May 15, 1995 (the "Government Securities
Trust SAI"). The Government Income Fund SAI and the Government Securities Trust
SAI are included with this Statement of Additional Information and are
incorporated herein by reference.
ADDITIONAL INFORMATION ABOUT GOVERNMENT INCOME FUND
---------------------------------------------------
General Information and History
- -------------------------------
For additional information about Government Income Fund generally and
its history, see "Organization of the Corporation" in the Government Income Fund
SAI.
Investment Objectives and Policies
- ----------------------------------
For additional information about Government Income Fund's investment
objectives and policies, see "Investment Objectives and Policies" and
"Investment Restrictions" in the Government Income Fund SAI.
Management of Government Income Fund
- ------------------------------------
For additional information about Government Income Fund's Board of
Directors, officers and management personnel, see "Those Responsible for
Management" in the Government Income Fund SAI.
Investment Advisory and Other Services
- --------------------------------------
For additional information about Government Income Fund's investment
adviser, custodian and independent accountants, see "Investment Advisory and
Other Services," "Distribution Contract," "Transfer Agent Services," "Custody of
Portfolio" and "Independent Auditors."
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about Government Income Fund's brokerage
allocation practices, see "Brokerage Allocation" in the Government Income Fund
SAI.
-3-
<PAGE> 115
Shares of Capital Stock
- -----------------------
For additional information about the voting rights and other
characteristics of Government Income Fund's capital stock, see "Description of
the Corporation's Shares" in the Government Income Fund SAI.
Purchase, Redemption and Pricing of Government Income Fund Shares
- -----------------------------------------------------------------
For additional information about the determination of net asset value,
see "Net Asset Value" in the Government Income Fund SAI.
Underwriters
- ------------
For additional information about Government Income Fund's principal
underwriter and the distribution contract between the principal underwriter and
Government Income Fund, see "Distribution Contract" in the Government Income
Fund SAI.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of
Government Income Fund, see "Calculation of Performance" in the Government
Income Fund SAI.
Financial Statements
- --------------------
Audited financial statements of Government Income Fund as at December
31, 1994 are set forth in the Government Income Fund SAI included herein as
Exhibit B.
ADDITIONAL INFORMATION ABOUT GOVERNMENT SECURITIES TRUST
--------------------------------------------------------
General Information and History
- -------------------------------
For additional information about Government Securities Trust generally
and its history, see "Organization of the Trust" in the Government Securities
Trust SAI.
Investment Objectives and Policies
- ----------------------------------
For additional information about Government Securities Trust's
investment objective, policies and restrictions see "Investment Objective and
Policies" and "Investment Restrictions" in the Government Securities Trust SAI.
Management of Government Securities Trust
- -----------------------------------------
For additional information about the Trust's Board of Trustees, officers
and management personnel, see "Those Responsible for Management" in the
Government Securities Trust SAI.
-4-
<PAGE> 116
Control Persons and Principal Holders of Shares
- -----------------------------------------------
For additional information about control persons of Government
Securities Trust and principal holders of shares of Government Securities Trust
see "Those Responsible for Management" in the Government Securities Trust SAI.
Investment Advisory and Other Services
- --------------------------------------
For additional information about Government Securities Trust's
investment adviser, custodian and independent accountants, see "Investment
Advisory and Other Services," "Distribution Contract," "Transfer Agent
Services," "Custody of Portfolio" and "Independent Auditors" in the Government
Securities Trust SAI.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about Government Securities Trust's brokerage
allocation practices, see "Brokerage Allocation" in the Government Securities
Trust SAI.
Shares of Beneficial Interest
- -----------------------------
For additional information about the voting rights and other
characteristics of shares of beneficial interest of Government Securities Trust,
see "Description of the Fund's Shares" in the Government Securities Trust SAI.
Purchase, Redemption and Pricing of Government Securities Trust Shares
- ----------------------------------------------------------------------
For additional information about the determination of net asset value,
see "Net Asset Value" in the Government Securities Trust SAI.
Underwriters
- ------------
For additional information about Government Securities Trust's principal
underwriter and the distribution contract between the principal underwriter and
Government Securities Trust, see "Distribution Contract" in the Government
Securities Trust SAI.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of
Government Securities Trust, see "Calculation of Performance" in the Government
Securities Trust SAI.
Financial Statements
- --------------------
Audited financial statements of Government Securities Trust as at March
31, 1995 are set forth in the Government Securities Trust SAI included herein as
Exhibit A. Pro Forma combined financial statements as at March 31, 1995 and for
the period then ended for Government Securities Trust as though the
Reorganization had occurred on December 31, 1994 are attached as Exhibit C.
-5-
<PAGE> 117
EXHIBIT A
---------
JOHN HANCOCK GOVERNMENT
SECURITIES TRUST
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
MAY 15, 1995
This Statement of Additional Information ("SAI") provides information
about John Hancock Government Securities Trust (the "Fund"), a series of John
Hancock Bond Fund (the "Trust"), in addition to the information that is
contained in the Fund's Prospectus, dated May 15, 1995.
This SAI is not a prospectus. It should be read in conjunction with
Fund's Prospectus, a copy of which can be obtained, free of charge, by writing
or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Cross-Referenced
SAI to Prospectus
Page Page
---- ----------------
Organization of the Trust......................... 2 6
Investment Objective and Policies................. 2 4
Certain Investment Practices...................... 3 4
Investment Restrictions........................... 11 6
Those Responsible for Management.................. 13 6
Investment Advisory and Other Services............ 19 6
Distribution Contract............................. 22 7
Net Asset Value................................... 24 12
Initial Sales Charge on Class A Shares............ 24 7
Deferred Sales Charge on Class B Shares........... 25 7
Special Redemptions............................... 26 18
Additional Services and Programs.................. 26 20
Description of the Trust's Shares................. 27 6
Tax Status........................................ 29 9
Calculation of Performance........................ 32 10
Brokerage Allocation.............................. 36 N/A
Transfer Agent Services........................... 37 Back Cover
Custody of Portfolio.............................. 38 Back Cover
Independent Auditors.............................. 38 Back Cover
Financial Statements.............................. F-1 3
<PAGE> 118
ORGANIZATION OF THE TRUST
The Trust is an open-end management investment company organized as a
Massachusetts business trust under a Declaration of Trust dated December 12,
1984. The Trust currently has six series. Prior to December 24, 1994, the
Fund was called Transamerica Government Securities Trust and the Trust was
called Transamerica Bond Fund.
The Fund is managed by John Hancock Advisers, Inc. (the "Adviser"), a
wholly-owned indirect subsidiary of John Hancock Mutual Life Insurance Company
(the "Life Company"), chartered in 1862 with national headquarters at John
Hancock Place, Boston, Massachusetts. John Hancock Funds, Inc. ("John Hancock
Funds") acts as principal distributor of the shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
As discussed under "Investment Objective and Policies" in the
Prospectus, the Fund's investment objective is to seek a high level of current
income, consistent with safety of principal. The Fund anticipates that it will
invest a substantial portion of its assets in GNMA Certificates. The Fund
invests in debt obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, including certificates of the Government
National Mortgage Association and U.S. Treasury obligations and, although it
presently does not intend to do so, may write covered call options and secured
put options against such securities. In order to protect and anticipate
against changes in interest rates, the Fund may also purchase put and call
options and engage in transactions involving rate futures contracts and options
on such contracts. The average life of GNMA Certificates varies with the
maturities of the underlying mortgage instruments with maximum maturities of 30
years. The average life is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
prepayments or refinancing of such mortgages or foreclosure. Such prepayments
are passed through to the registered holder with the regular monthly payments
of principal and interest, which has the effect of reducing future payments of
principal and interest. Due to the GNMA guarantee, foreclosures impose no risk
to principal investments.
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be
shortened by unscheduled or early payments of principal and interest on the
underlying mortgages. The occurrence of mortgage prepayments is affected by
factors including the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions.
As prepayment rates vary widely, it is not possible to predict accurately the
average life of a particular pool. However, statistics indicate that the
average life of the type of mortgages backing the majority of GNMA Certificates
is approximately 12 years. For this reason, it is standard practice to treat
GNMA Certificates as 30-year mortgage-backed securities which prepay fully in
the twelfth year. Pools of mortgages with other maturities or different
characteristics will have varying assumptions for average life. The assumed
average life of pools of mortgages having terms of less than 30 years is less
than 12 years, but typically not less than 5 years.
The coupon rate of interest of GNMA Certificates is lower than the
interest rate paid on the VA-guaranteed or FHA-insured mortgages underlying the
Certificates, but only by the amount of the fees paid to GNMA and the issuer.
Such fees in the aggregate usually amount to approximately .50 of 1%.
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Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates the
rate of prepayments tends to increase, thereby shortening the actual average
life of a pool of mortgage-related securities. Conversely, in periods of
rising rates, the rate of prepayments tends to decrease, thereby lengthening
the actual average life of the pool. Reinvestment by the Fund of prepayments
may occur at higher or lower interest rates than the original investment.
Historically, actual average life has been consistent with the 12-year
assumption referred to above. The actual yield of each GNMA Certificate is
influenced by the prepayment experience of the mortgage pool underlying the
Certificates. Interest on GNMA Certificates is paid monthly rather than
semi-annually as for traditional bonds.
CERTAIN INVESTMENT PRACTICES
LENDING OF PORTFOLIO SECURITIES. In order to generate additional
income, the Fund may, from time to time, lend securities from its portfolio to
brokers, dealers and financial institutions such as banks and trust companies.
Such loans will be secured by collateral consisting of cash or U.S. Government
securities which will be maintained in an amount equal to at least 100% of the
current market value of the loaned securities. During the period of the loan,
the Fund will receive the income on both the loaned securities and the
collateral and thereby increase its return. Cash collateral will be invested
in short-term high quality debt securities, which will increase the current
income of the Fund. The loans will be terminable by the Fund at any time and
by the borrower on one day's notice. The Fund will have the right to regain
record ownership of loaned securities to exercise beneficial rights, such as
rights to interest or other distributions or voting rights on important issues.
The Fund may pay reasonable fees to persons unaffiliated with the Fund for
services in arranging such loans. Lending of portfolio securities involves a
risk of failure by the borrower to return the loaned securities, in which event
the Fund may incur a loss.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Fund may purchase
securities on a when-issued or forward commitment basis. "When-issued" refers
to securities whose terms are available and for which a market exists, but
which have not been issued. The Fund will engage in when-issued transactions
with respect to securities purchased for its portfolio in order to obtain what
is considered to be an advantageous price and yield at the time of the
transaction. For when-issued transactions, no payment is made until delivery
is due, often a month or more after the purchase. In a forward commitment
transaction, the Fund contracts to purchase securities for a fixed price at a
future date beyond customary settlement time.
When the Fund engages in forward commitment and when-issued
transactions, it relies on the seller to consummate the transaction. The
failure of the issuer or seller to consummate the transaction may result in the
Fund losing the opportunity to obtain a price and yield considered to be
advantageous. The purchase of securities on a when-issued and forward
commitment basis also involves a risk of loss if the value of the security to
be purchased declines prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on
a when-issued or forward commitment basis, the Fund will segregate in a
separate account cash or liquid, high grade debt securities equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued
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commitments. Alternatively, the Fund may enter into offsetting contracts for
the forward sale of other securities that it owns.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements.
A repurchase agreement is a contract under which the Fund would acquire a
security for a relatively short period (generally not more than 7 days) subject
to the obligation of the seller to repurchase and the Fund to resell such
security at a fixed time and price (representing the Fund's cost plus
interest). The Fund will enter into repurchase agreements only with member
banks of the Federal Reserve System and with securities dealers. The Adviser
will continuously monitor the creditworthiness of the parties with whom the
Fund enters into repurchase agreements. The Fund has established a procedure
providing that the securities serving as collateral for each repurchase
agreement must be delivered to the Fund's custodian either physically or in
book-entry form and that the collateral must be marked to market daily to
ensure that each repurchase agreement is fully collateralized at all times. In
the event of bankruptcy or other default by a seller of a repurchase agreement,
the Fund could experience delays in liquidating the underlying securities and
could experience losses, including the possible decline in the value of the
underlying securities during the period in which the Fund seeks to enforce its
rights thereto, possible subnormal levels of income and lack of access to
income during this period, and the expense of enforcing its rights.
GOVERNMENT SECURITIES. Certain U.S. Government securities, including
U.S. Treasury bills, notes and bonds, and Government National Mortgage
Association certificates ("Ginnie Maes"), are supported by the full faith and
credit of the United States. Certain other U.S. Government securities, issued
or guaranteed by Federal agencies or government sponsored enterprises, are not
supported by the full faith and credit of the United States, but may be
supported by the right of the issuer to borrow from the U.S. Treasury. These
securities include obligations of the Federal Home Loan Mortgage Corporation
("Freddie Macs"), and obligations supported by the credit of the
instrumentality, such as Federal National Mortgage Association Bonds ("Fannie
Maes"). No assurance can be given that the U.S. Government will provide
financial support to such Federal agencies, authorities, instrumentalities and
government sponsored enterprises in the future.
MORTGAGE-BACKED SECURITIES. The Fund may invest in mortgage
pass-through certificates and multiple-class pass-through securities, such as
real estate mortgage investment conduits ("REMIC") pass-through certificates,
collateralized mortgage obligations ("CMOs") and stripped mortgage-backed
securities ("SMBS"), and other types of "Mortgage-Backed Securities" that may
be available in the future.
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. Guaranteed mortgage
pass-through securities represent participation interests in pools of
residential mortgage loans and are issued by U.S. Governmental or private
lenders and guaranteed by the U.S. Government or one of its agencies or
instrumentalities, including but not limited to the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac").
Ginnie Mae certificates are guaranteed by the full faith and credit of the U.S.
Government for timely payment of principal and interest on the certificates.
Fannie Mae certificates are guaranteed by Fannie Mae, a federally chartered and
privately owned corporation, for full and timely payment of principal and
interest on the certificates. Freddie Mac certificates are guaranteed by
Freddie Mac, a corporate instrumentality of the U.S. Government, for timely
payment of interest and the ultimate collection of all principal of the related
mortgage loans.
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MULTIPLE-CLASS PASS-THROUGH SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. CMOs and REMIC pass-through or participation certificates may be
issued by, among others, U.S. Government agencies and instrumentalities as well
as private lenders. CMOs and REMIC certificates are issued in multiple classes
and the principal of and interest on the mortgage assets may be allocated among
the several classes of CMOs or REMIC certificates in various ways. Each class
of CMOs or REMIC certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Generally, interest is paid or accrues on all
classes of CMOs or REMIC certificates on a monthly basis.
Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie
Mac certificates but also may be collateralized by other mortgage assets such
as whole loans or private mortgage pass-through securities. Debt service on
CMOs is provided from payments of principal and interest on the underlying
assets.
A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code and invests in certain mortgages primarily secured by
interests in real property and other permitted investments. Investors may
purchase "regular" and "residual" interests in REMIC trusts although the Fund
does not intend to invest in residual interests.
STRIPPED MORTGAGE-BACKED SECURITIES. SMBS are derivative
multiple-class mortgage- backed securities. SMBS are usually structured with
two classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. A typical SMBS will have one class
receiving some of the interest and most of the principal, while the other class
will receive most of the interest and the remaining principal. In the most
extreme case, one class will receive all of the interest (the "interest only"
class) while the other class will receive all of the principal (the "principal
only" class). The yields and market risk of interest only and principal only
SMBS, respectively, may be more volatile than those of other fixed income
securities. The staff of the SEC considers privately issued SMBS to be
illiquid.
STRUCTURED OR HYBRID NOTES. The Fund may invest in "structured" or
"hybrid" notes. The distinguishing feature of a structured or hybrid note is
that the amount of interest and/or principal payable on the note is based on
the performance of a benchmark asset or market other than fixed-income
securities or interest rates. Examples of these benchmarks include stock
prices, currency exchange rates and physical commodity prices. Investing in a
structured note allows the Fund to gain exposure to the benchmark market while
fixing the maximum loss that the Fund may experience in the event that market
does not perform as expected. Depending on the terms of the note, the Fund may
forego all or part of the interest and principal that would be payable on a
comparable conventional note; the Fund's loss cannot exceed this foregone
interest and/or principal. An investment in structured or hybrid notes
involves risks similar to those associated with a direct investment in the
benchmark asset.
RISK FACTORS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES. Investing in
Mortgage- Backed Securities involves certain risks, including the failure of a
counter-party to meet its commitments, adverse interest rate changes and the
effects of prepayments on mortgage cash flows. In addition, investing in the
lowest tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities. Further, the yield
characteristics of Mortgage-Backed Securities differ from those of traditional
fixed income securities. The major differences typically include more frequent
interest and principal payments
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(usually monthly), the adjustability of interest rates, and the possibility
that prepayments of principal may be made substantially earlier than their
final distribution dates.
Prepayment rates are influenced by changes in current interest rates
and a variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, the Fund may fail to recoup fully its
investment in Mortgage-Backed Securities notwithstanding any direct or indirect
governmental, agency or other guarantee. When the Fund reinvests amounts
representing payments and unscheduled prepayments of principal, it may receive
a rate of interest that is lower than the rate on existing adjustable rate
mortgage pass- through securities. Thus, Mortgage-Backed Securities, and
adjustable rate mortgage pass-through securities in particular, may be less
effective than other types of U.S. Government securities as a means of "locking
in" interest rates.
Conversely, in a rising interest rate environment, a declining
prepayment rate will extend the average life of many Mortgage-Backed
Securities. This possibility is often referred to as extension risk.
Extending the average life of a Mortgage-Backed Security increases the risk of
depreciation due to future increases in market interest rates.
RISK ASSOCIATED WITH SPECIFIC TYPES OF DERIVATIVE DEBT SECURITIES.
Different types of derivative debt securities are subject to different
combinations of prepayment, extension and/or interest rate risk. Conventional
mortgage pass-through securities and sequential pay CMOs are subject to all of
these risks, but are typically not leveraged. Thus, the magnitude of exposure
may be less than for more leveraged Mortgage-Backed Securities.
The risk of early prepayments is the primary risk associated with
interest only debt securities ("IOs"), super floaters, other leveraged floating
rate instruments and Mortgage-Backed Securities purchased at a premium to their
par value. In some instances, early prepayments may result in a complete loss
of investment in certain of these securities. The primary risks associated
with certain other derivative debt securities are the potential extension of
average life and/or depreciation due to rising interest rates.
These securities include floating rate securities based on the Cost of
Funds Index ("COFI floaters"), other "lagging rate" floating rate securities,
floating rate securities that are subject to a maximum interest rate ("capped
floaters"), Mortgage-Backed Securities purchased at a discount, leveraged
inverse floating rate securities ("inverse floaters"), principal only debt
securities ("POs"), certain residual or support tranches of CMOs and index
amortizing notes. Index amortizing notes are not Mortgage-Backed Securities,
but are subject to extension risk resulting from the issuer's failure to
exercise its option to call or redeem the notes before their stated maturity
date. Leveraged inverse IOs combine several elements of the Mortgage-Backed
Securities described above and thus present an especially intense combination
of prepayment, extension and interest rate risks.
Planned amortization class ("PAC") and target amortization class
("TAC") CMO bonds involve less exposure to prepayment, extension and interest
rate risk than other Mortgage-Backed Securities, provided that prepayment rates
remain within expected prepayment ranges or "collars." To the extent that
prepayment rates remain within these prepayment ranges, the residual or
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support tranches of PAC and TAC CMOs assume the extra prepayment, extension and
interest rate risk associated with the underlying mortgage assets.
Other types of floating rate derivative debt securities present more
complex types of interest rate risks. For example, range floaters are subject
to the risk that the coupon will be reduced to below market rates if a
designated interest rate floats outside of a specified interest rate band or
collar. Dual index or yield curve floaters are subject to depreciation in the
event of an unfavorable change in the spread between two designated interest
rates. X-reset floaters have a coupon that remains fixed for more than one
accrual period. Thus, the type of risk involved in these securities depends on
the terms of each individual X-reset floater.
The Fund is permitted to engage in certain hedging techniques involving
options and futures transactions in order to reduce the effect of interest rate
movements affecting the market values of the investments held, or intended to
be purchased, by the Fund.
WRITING COVERED CALL AND SECURED PUT OPTIONS. The Fund is authorized
but does not presently intend to sell (write) covered call options in order to
earn additional income on its portfolio securities or to protect partially
against declines in the value of such securities. A call option gives the
purchaser of such option, in return for a premium paid, the right to buy, and
the seller ("writer") the obligation to sell (if the option is exercised) the
underlying security at the exercise price during the option period. The writer
of the call option who receives the premium has the obligation to sell the
underlying security to the purchaser at the exercise price during the option
period if assigned an exercise notice. The Fund will write call options only
on a covered basis, which means that the Fund will own the underlying security
subject to a call option at all times during the option period. The exercise
price of a call option may be below, equal to or above the current market value
of the underlying security at the time the option is written.
During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the
option period or at such earlier time at which the writer effects a closing
purchase transaction.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, in conjunction with the sale of the underlying security or to
enable the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both.
In order to earn additional income or to facilitate its ability to
purchase a security at a price lower than the current market price of such
security, the Fund may write cash secured put options. A put option gives the
purchaser of the option the right to sell, and the writer the obligation to buy
(if the option is exercised) the underlying security at the exercise price
during the option period. During the option period, the writer of a put option
may be assigned an exercise notice by the broker/dealer through whom the option
was sold, requiring the writer to purchase the underlying security at the
exercise price. The Fund will write put options only on a secured basis, which
means that the Fund will maintain, in a segregated account with the Fund's
Custodian, cash or U.S. Government securities held in the segregated account
which will be adjusted on a daily basis to reflect changes in the market value
of the securities covered by the put option written by the Fund. Subject to
the limitation that all call and put option writing transactions be covered or
cash secured, the Fund may, to the extent determined appropriate by the
Adviser, engage without
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limitation in the writing of options on U.S. Government Securities. The Fund's
Adviser has advised the Board of Trustees that it is not presently in the best
interests of the Fund or its shareholders to enter into transactions
involving writing covered call and secured put options for the purpose of
generating additional income. Accordingly, the Fund will not engage in such
transactions at the present time nor will it change such determination without
first having given shareholders written notice at least 60 (sixty) days in
advance thereof.
OPTIONS AND FUTURES TRANSACTIONS. In order to achieve the Fund's
investment objective, the Adviser will actively manage the Fund's assets using
different investment strategies under different market conditions and interest
rate outlooks.
The matrix set forth below relates to the use of the certain major
strategies involving options to different interest rate outlooks by the Fund.
INTEREST RATE OUTLOOK
------------------------------------
DECLINING STABLE RISING
INTEREST INTEREST INTEREST
FUND STRATEGIES RATES RATES RATES
--------------- --------- -------- --------
Covered Call Writing
Out-of-the Money X
At-the-Money X
In-the-Money X
Purchase of Puts X
Secured Put Writing
Out-of-the-Money X
At the-Money X
In-the-Money X
Purchase of Calls X
COVERED CALL WRITING. An investor is engaged in covered call writing
when he sells the right to buy a security that he already owns for a fee or
premium. Because he already owns the security, the call is collateralized or
"covered". The exercise price of the call options may be below
("in-the-money"), equal to ("at-the-money"), or above ("out-of-the-money") the
current market value of the underlying securities at the times the options are
written.
PURCHASE OF PUT. A right to sell a security at a specified price for a
specific period of time.
SECURED PUT WRITING. An investor is engaged in secured put writing
when he accepts the obligation to purchase a security (if the option is
exercised) at the exercise price for a fee or premium and holds cash
equivalents in reserve to purchase the securities. Because the cash is
reserved if the option is exercised, the put is "secured". As in covered call
writing, the option can be "in," "at" or "out of the money."
PURCHASE OF CALL. A right to buy a security at a specified price for a
specific period of time.
SECURITIES OPTIONS. An option position may be closed out only on a
securities exchange which provides a secondary market for an option of the same
series. Although the Fund will write
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call and put options only when the Adviser believes that a liquid secondary
market will exist on a securities exchange for options of the same series so
that the Fund can effect a closing purchase transaction if it desires to close
out its positions, there can be no assurance that a liquid secondary market
will exist for a particular option at any specific time. If a covered call
option writer is unable to effect a closing purchase transaction, it cannot
sell the underlying security until the option expires or the option is
exercised. Accordingly, a covered call option writer may not be able to sell
an underlying security at a time when it might otherwise be advantageous to do
so. A secured put option writer who is unable to effect a closing purchase
transaction would continue to bear the risk of decline in the market price of
the underlying security until the option expires or is exercised. In addition,
a secured put writer would be unable to utilize the amount held in cash or U.S.
Government securities as security for the put option for other investment
purposes until the exercise or expiration of the option. In connection
with the qualification of the Fund as a regulated investment company under the
Internal Revenue Code, other restrictions on the Fund's ability to enter into
certain option transactions may apply from time to time (see "Dividends,
Distributions and Tax Status").
Possible reasons for the absence of a liquid secondary market on an
Exchange include the following: (a) insufficient trading interest in certain
options; (b) restrictions on transactions imposed by an exchange; (c) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities; (d) inadequacy of the
facilities of an exchange or a national clearing corporation to handle trading
volume; or (e) a decision by one or more Exchanges to discontinue the trading
of options or impose restrictions on types of orders. Although the Options
Clearing Corporation has stated that it believes, based on forecasts provided
by the exchanges, that its facilities are adequate to handle the volume of
reasonably anticipated options transactions, and although each exchange has
advised such clearing corporation that it believes that its facilities will
also be adequate to handle reasonably anticipated volume, there can be no
assurance that higher than anticipated trading activity or order flow or other
unforeseen events might not at times render certain of these facilities
inadequate and thereby result in the institution of special trading procedures
or restrictions which could interfere with the Fund's ability to effect closing
purchase transactions with respect to options written by it.
The Fund will engage in over-the-counter ("OTC") option transactions
only with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. In the event that any OTC option transaction is not
subject to a forward price at which the Fund has the absolute right to
repurchase the OTC option which it has sold, the value of the OTC option
purchased and of the Fund's assets used to "cover" the OTC option will be
considered "illiquid securities". The "formula" on which the forward price
will be based may vary among contracts with different primary dealers, but it
will be based on a multiple of the premium received by the Fund for writing the
option plus the amount, if any, of the option's intrinsic value, i.e., current
market value of the underlying securities minus the option's stock price.
The Fund's securities options transactions may be subject to
limitations established by each of the Exchanges governing the maximum number
of options in each class which may be held by a single investor or group of
investors acting in concert. Thus, the ability of the Fund to enter into
transactions involving options on debt securities may be limited by
transactions engaged in by the Adviser on behalf of its other investment
advisory clients. An Exchange may order the liquidation of positions found to
be in excess of these limits, and it may impose certain other sanctions.
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INTEREST RATE FUTURES CONTRACTS CHARACTERISTICS. Currently, futures
contracts can be purchased and sold with respect to U.S. Treasury bonds, U.S.
Treasury notes, and GNMAs on the Chicago Board of Trade and with respect to
U.S. Treasury bills on the International Monetary Market at the Chicago
Mercantile Exchange.
In contrast to the purchase or sale of a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Rather,
the Fund will initially be required to deposit with the Trust's broker an
amount of cash or U.S. Treasury bills equal to approximately 5% of the contract
amount. This is called "initial margin". Such initial margin is in the nature
of a performance bond or good faith deposit on the contract, which is returned
to the Trust upon termination of the futures contract, assuming all contractual
obligations have been satisfied. In addition, because under current futures
industry practice daily variations in gains and losses on open contracts are
required to be reflected in cash in the form of variation margin payments, the
Fund may be required to make additional payments during the term of the
contract to their broker. Such payments would be required in the event that the
price of an underlying debt security declined during the term of a debt
security futures contract purchased by the Fund or in the event that the price
of an underlying debt security has risen during the term of a debt security
futures contract sold by the Fund. In all instances involving the purchase of
futures contracts or call options on futures contracts by the Fund, an amount
of cash together with such other securities as may be permitted by applicable
regulatory authorities to be used for such purpose, at least equal to the
market value of the futures contracts, will be deposited in a segregated
account with the Fund's Custodian to collateralize the position. At any time
prior to the expiration of a futures contract, the Fund may elect to close its
position by taking an opposite position which will operate to terminate the
Fund's positions in the futures contract. See "Risks Relating to Transactions
in Futures Contracts" below.
RISKS RELATING TO TRANSACTIONS IN FUTURES CONTRACTS. As discussed in
the Fund's Prospectus, there are several risks in connection with the use of
interest rate futures contracts by the Fund. One risk arises because, as a
result of the possible imperfect correlation between movements in the prices of
futures contracts and movements in the prices of the underlying U.S. Government
securities, the price of a futures contract may move more than or less than the
price of the securities being hedged. If the price of the futures moves less
than the price of the securities which are the subject of the hedge, the hedge
will not be fully effective. On the other hand, if the price of the securities
being hedged has moved in an unfavorable direction to the Fund, the Fund would
be in a better position than if it had not hedged at all. If the price of the
future moves more than the price of the security, the Fund will experience
either a gain or loss on the future which will not be completely offset by
movements in the price of the securities which are the subject of the hedge.
In addition, there may be an imperfect correlation between movements in prices
of futures contracts and portfolio securities being hedged, the market prices
of futures contracts may be affected by certain factors. If participants in
the futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the debt securities and futures markets could
result. Price distortions could also result if investors in futures contracts
opt to make or take delivery of underlying securities rather than engage in
closing transactions due to the resultant reduction in the liquidity of the
futures market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions. Due
to the possibility of price distortions in the futures market and because of
the imperfect correlation between movements in the prices of the
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U.S. Government securities and movements in the prices of futures contracts, a
correct forecast of interest rate trends by the Adviser may still not
result in a successful hedging transaction.
SECURITIES TRANSACTIONS SUBJECT TO DELAYED SETTLEMENT. As described in
the Prospectus, securities purchased for which the normal settlement date
occurs later than the settlement date which is normal for U.S. Treasury
obligations and the securities held in the Fund are subject to changes in value
(both experiencing appreciation when interest rates decline and depreciation
when interest rates rise) based upon the public's perception of the
creditworthiness of the issuer and changes, real or anticipated, in the level
of interest rates. Purchasing securities subject to delayed settlement can
involve a risk that the yields available in the market when the delivery takes
place may actually be higher than those obtained in the transaction itself. A
separate account of the Fund consisting of cash or liquid debt securities equal
to the amount of the delayed settlement commitments will be established at the
Trust's custodian bank. For the purpose of determining the adequacy of the
securities in the account, the deposited securities will be valued at market
value using the valuation procedures for all other investments. If the market
or fair value of such securities declines, additional cash or highly liquid
securities will be placed in the account daily so that the value of the account
will equal the amount of such commitments by the Fund. On the settlement date
of these delayed settlement securities, the Fund will meet its obligations from
then available cash flow, sale of securities held in the separate account, sale
of other securities or, although it would not normally expect to do so, from
sale of the delayed settlement securities themselves (which may have a value
greater or lesser than the Fund's payment obligations). Sale of securities to
meet such obligations will generally result in the realization of capital gains
or losses.
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions. The
fundamental investment restrictions set forth below, as well as the investment
objective and fundamental policies and restrictions set forth in the
Prospectus, may not be changed without prior approval by the holders of a
"majority of the outstanding shares" of the Fund, as defined in the Investment
Company Act of 1940, as amended, (the "1940 Act"). A majority for this purpose
means the holders of: (a) more than 50% of the outstanding shares of the Fund,
or (b) 67% or more of the shares of the Fund represented at a meeting where
more than 50% of the outstanding shares of the Fund are represented, whichever
is less. Under these additional restrictions, the Fund may not:
1. Invest more than 25% of total assets in the securities of issuers in any
one industry. For purposes of this restriction, gas, electric, water and
telephone utilities will each be treated as separate industries. This
restriction does not apply to obligations issued or guaranteed by the
United States government, its agencies or instrumentalities.
2. Make short sales of securities or purchase securities on margin, except
for such short-term loans as are necessary for the clearance of
purchases of portfolio securities.
3. Engage in the underwriting of securities except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security.
4. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities which
are secured by real estate or interests therein.
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5. Purchase oil, gas or other mineral leases, rights or royalty contracts or
exploration or development programs, except that the Fund may invest
in securities of companies which invest in or sponsor such programs.
6. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
7. Invest for the purpose of exercising control or management of another
company.
8. Invest in securities of any company if, to the knowledge of the Fund, any
officer or trustee of the Fund or its Adviser owns more than 1/2 of 1% of
the outstanding securities of such company, and all such officers and
directors own in the aggregate more than 5% of the outstanding securities
of such company.
9. Issue senior securities, as defined in the Act, except that the Fund may
enter into repurchase and reverse repurchase agreements, lend portfolio
securities, and leverage and borrow as described under "Investment
Practices and Restrictions" in the Prospectus for the Fund.
10. Make loans of money or securities, except by (a) the purchase of fixed
income obligations; (b) investing in repurchase agreements; or (c) lending
its portfolio securities. See "Investment Practices and Restrictions"
in the Prospectus for the Fund.
11. Purchase or sell commodities or commodity futures contracts except
financial futures and options on such futures for hedging purposes
under policies developed by the Trust's Board of Trustees.
12. Invest in warrants or rights except where acquired in units or attached
to other securities.
13. Purchase the securities of any issuer if as a result more than 10% of the
value of the Fund's total assets would be invested in securities
that are subject to legal or contractual restrictions on resale
("restricted securities") and in securities for which there are no readily
available market quotations; or enter into a repurchase agreement maturing
in more than seven days, if as a result such repurchase agreements
together with restricted securities and securities for which there are no
readily available market quotations would constitute more than 10% of the
Fund's total assets.
14. Invest more than 5% of the market or other fair value of its assets in
the securities of any one issuer and shall not purchase more than 10% of
the voting securities or more than 10% of any class of securities of
any one issuer. This restriction does not apply to U.S. Government
securities as defined in the prospectus.
15. Borrow in excess of 15% of the market or other fair value of its total
assets or pledge its assets to an extent greater than 10% of the market or
other fair value of its total assets. Any such borrowings shall be from
banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Collateral arrangements maintained
in connection with the writing of covered call or secured put options, or
margin deposits in connection with the purchase or sale of futures
contracts and related options, are not deemed to be a pledge or other
encumbrance. The borrowing restriction set forth above
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<PAGE> 129
does not prohibit the use of reverse repurchase agreements, in an amount
(including any borrowings) not to exceed 33-1/3% of net assets.
As a matter of nonfundamental policy, the Fund will not purchase
securities when borrowings from banks exceed 5% of its total assets.
Notwithstanding any investment restriction to the contrary, the Fund
may, in connection with the John Hancock Group of Funds Deferred Compensation
Plan for Independent Trustees/ Directors, purchase securities of other
investment companies within the John Hancock Group of Funds provided that, as a
result, (i) no more than 10% of the Fund's assets would be invested in
securities of all other investment companies, (ii) such purchase would not
result in more than 3% of the total outstanding voting securities of any one
such investment company being held by the Fund and (iii) no more than 5% of the
Fund's assets would be invested in any one such investment company.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trust's Trustees who elect
officers who are responsible for the day-to-day operations of the Fund and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers and directors of the Adviser or
officers and directors of John Hancock Funds.
<TABLE>
Set forth below is information with respect to each of the Trust's
officers and Trustees. The officers and Trustees may be contacted at 101
Huntington Avenue, Boston, MA 02199-7603. Their affiliations represent their
principal occupations during the past five years.
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- ----------------------
<S> <C> <C>
Edward J. Boudreau, Jr,* Trustee, Chairman and Chief Executive
101 Huntington Avenue Chairman and Officer, the Investment
Boston, MA 02199 Chief Executive Adviser and The Berkeley
Officer(1)(2) Financial Group ("The
Berkeley Group"); Chairman,
NM Capital Management, Inc.
("NM Capital"); John Hancock
Advisers International Limited
("Advisers International");
John Hancock Funds, Inc.;
John Hancock Investor
Services Corporation
("Investor Services"); and
Sovereign Asset Management
Corporation ("SAMCorp");
(hereinafter the Adviser, the
Berkeley Group, NM Capital,
Advisers International, John
Hancock Funds, Inc., Investor
Services and SAMCorp are
collectively referred to as the
</TABLE>
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<PAGE> 130
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- ----------------------
<S> <C> <C>
"Affiliated Companies");
Chairman, First Signature
Bank & Trust; Director, John
Hancock Freedom Securities
Corporation, John Hancock
Capital Corporation, New
England/Canada Business
Council; Member, Investment
Company Institute Board of
Governors; Trustee, Museum
of Science; President, the
Adviser (until July 1992);
Trustee or Director of other
investment companies
managed by the Adviser; and
Chairman, John Hancock
Distributors, Inc. (until April,
1994).
James F. Carlin Trustee Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc. (insurance);
Natick, MA 01760 Director, Arbella Mutual
Insurance Company
(insurance), Consolidated
Group Trust (group health
plan), Carlin Insurance
Agency, Inc. and West
Insurance Agency, Inc.;
Receiver, the City of Chelsea
(until August 1992); and
Trustee or Director of other
investment companies
managed by the Adviser.
William H. Cunningham Trustee Chancellor, University of
601 Colorado Street Texas System and former
O'Henry Hall President of the University of
Austin, TX 78701 Texas, Austin, Texas; Regents
Chair in Higher Education
Leadership; James L. Bayless
Chair for Free Enterprise;
Professor of Marketing and
Dean College of Business
Administration/Graduate
School of Business
(1983-1985); Centennial Chair
in Business Education
Leadership, 1983-1985;
Director, LaQuinta Motor Inns,
Inc. (hotel management
</TABLE>
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<PAGE> 131
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- ----------------------
<S> <C> <C>
company); Director,
Jefferson-Pilot Corporation
(diversified life insurance
company); Director,
Freeport-McMoran Inc. (oil
and gas company); Director,
Barton Creek Properties, Inc.
(1988-1990) (real estate
development) and LBJ
Foundation Board (education
foundation); and Advisory
Director, Texas Commerce
Bank - Austin.
Charles L. Ladner Trustee(3) Director, Energy North, Inc.
UGI Corporation (public utility holding
460 North Gulph Road company); Senior Vice
King of Prussia, PA 19406 President, Finance UGI Corp.
(public utility holding
company) (until 1992); and
Trustee or Director of other
investment companies
managed by the Adviser.
Leo E. Linbeck, Jr. Trustee Chairman, President, Chief
3810 W. Alabama Executive Officer and
Houston, TX 77027 Director, Linbeck Corporation
(a holding company engaged
in various phases of the
construction industry and
warehousing interests);
Director and Chairman,
Federal Reserve Bank of
Dallas; Chairman of the Board
and Chief Executive Officer,
Linbeck Construction
Corporation; Director,
Panhandle Eastern Corporation
(a diversified energy
company); Director, Daniel
Industries, Inc. (manufacturer
of gas measuring products and
energy related equipment);
Director, GeoQuest
International, Inc. (a
geophysical consulting firm);
and Director, Greater Houston
Partnership.
</TABLE>
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<PAGE> 132
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- ----------------------
<S> <C> <C>
Patricia P. McCarter Trustee(3) Director and Secretary, the
Swedesford Road McCarter Corp. (machine
RD #3, Box 121 manufacturer); and Trustee or
Malvern, PA 19355 Director of other investment
companies managed by the
Adviser.
Steven R. Pruchansky Trustee(1)(3) Director and Treasurer, Mast
360 Horse Creek Drive, #208 Holdings, Inc.; Director,
Naples, FL 33942 First Signature Bank & Trust
Company (until August 1991);
General Partner, Mast Realty
Trust; President, Maxwell
Building Corp. (until 1991);
and Trustee or Director of
other investment companies
managed by the Adviser.
Norman H. Smith Trustee(3) Lieutenant General, USMC,
Rt. 1, Box 249 E Deputy Chief of Staff for
Linden, VA 22642 Manpower and Reserve
Affairs, Headquarters Marine
Corps; Commanding General
III Marine Expeditionary
Force/3rd Marine Division
(retired 1991); and Trustee or
Director of other investment
companies managed by the
Adviser.
John P. Toolan Trustee(3) Director, The Smith Barney
13 Chadwell Place Muni Bond Funds, The Smith
Morristown, NJ 07960 Barney Tax-Free Money Fund,
Inc., Vantage Money Market
Funds (mutual funds), The
Inefficient-Market Fund, Inc.
(closed-end investment
company) and Smith Barney
Trust Company of Florida;
Chairman, Smith Barney Trust
Company (retired December,
1991); Director, Smith Barney,
Inc., Mutual Management
Company and Smith, Barney
Advisers, Inc. (investment
advisers) (retired 1991); and
Senior Executive Vice
President, Director and
member of the Executive
</TABLE>
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<PAGE> 133
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- ----------------------
<S> <C> <C>
Committee, Smith Barney,
Harris Upham & Co.,
Incorporated (investment
bankers) (until 1991); and
Trustee or Director of other
investment companies
managed by the Adviser.
Robert G. Freedman* Vice Chairman President and Chief
101 Huntington Avenue and Chief Investment Officer, the
Boston, MA 02199 Investment Adviser.
Officer(2)
Anne C. Hodsdon* President(2) Executive Vice President, the
101 Huntington Avenue Adviser.
Boston, MA 02199
James B. Little* Senior Vice Senior Vice President,
101 Huntington Avenue President and the Adviser.
Boston, MA 02199 Chief Financial
Officer
Thomas H. Drohan* Senior Vice Senior Vice President and
101 Huntington Avenue President and Secretary, the Adviser.
Boston, MA 02199 Secretary
Michael P. DiCarlo* Senior Vice Senior Vice President, the
101 Huntington Avenue President(2) Adviser.
Boston, MA 02199
Edgar Larsen* Senior Vice Senior Vice President, the
101 Huntington Avenue President Adviser.
Boston, MA 02199
B.J. Willingham* Senior Vice Senior Vice President, the
101 Huntington Avenue President Adviser. Formerly, Director
Boston, MA 02199 and Chief Investment Officer
of Transamerica Fund
Management Company.
James J. Stokowski* Vice President Vice President, the Investment
101 Huntington Avenue and Treasurer Adviser.
Boston, MA 02199
Susan S. Newton* Vice President Vice President and Assistant
101 Huntington Avenue and Compliance Secretary, the Investment
Boston, MA 02199 Officer Adviser.
</TABLE>
-17-
<PAGE> 134
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- ----------------------
<S> <C> <C>
John A. Morin* Vice President Vice President, the Investment
101 Huntington Avenue Adviser.
Boston, MA 02199
___________________
* An "interested person" of the Fund, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of
Trust, the Executive Committee may generally exercise most of the
powers of the Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) A Member of the Audit, Administration and Compensation Committees.
</TABLE>
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of April 28, 1995, there were 64,412,919 shares of the Fund
outstanding and officers and Trustees of the Trust as a group beneficially owned
less than 1% of these outstanding shares. At such date, no person owned of
record or was known by the Fund to own beneficially as much as 5% of the
outstanding shares of the Fund.
As of December 22, 1994, the Trustees have established an Advisory Board
which acts to facilitate a smooth transition of management over a two-year
period (between Transamerica Fund Management Company ("TFMC"), the prior
investment adviser, and the Adviser). The members of the Advisory Board are
distinct from the Board of Trustees, do not serve the Fund in any other capacity
and are persons who have no power to determine what securities are purchased or
sold and behalf of the Fund. Each member of the Advisory Board may be contacted
at 101 Huntington Avenue, Boston, Massachusetts 02199.
Members of the Advisory Board and their respective principal occupations
during the past five years are as follows:
R. Trent Campbell, President, FMS, Inc. (financial and management services);
former Chairman of the Board, Mosher Steel Company.
Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman from Texas;
co-founder, Houston Parents' League; former board member of various civic
and cultural organizations in Houston, including the Houston Symphony,
Museum of Fine Arts and YWCA. Mrs. Bentsen is presently active in
various civic and cultural activities in the Washington, D.C. area,
including membership on the Area Board for The March of Dimes and is a
National Trustee for the Botanic Gardens of Washington, D. C.
-18-
<PAGE> 135
Thomas R. Powers, Formerly Chairman of the Board, President and Chief
Executive Officer, TFMC; Director, West Central Advisory Board, Texas
Commerce Bank; Trustee, Memorial Hospital System; Chairman of the Board of
Regents of Baylor University; Member, Board of Governors, National
Association of Securities Dealers, Inc.; Formerly, Chairman, Investment
Company Institute; formerly, President, Houston Chapter of Financial
Executive Institute.
Thomas B. McDade, Chairman and Director, TransTexas Gas Company; Director,
Houston Industries and Houston Lighting and Power Company; Director,
TransAmerican Companies (natural gas producer and transportation); Member,
Board of Managers, Harris County Hospital District; Advisory Director,
Commercial State Bank, El Campo; Advisory Director, First National Bank of
Bryan; Advisory Director, Sterling Bancshares; Former Director and Vice
Chairman, Texas Commerce Bancshares; and Vice Chairman, Texas Commerce
Bank.
COMPENSATION OF THE BOARD OF TRUSTEES AND ADVISORY BOARD. Each
Independent Trustee receives an annual retainer of $44,000, a meeting fee of
$4,000 for each of the four regularly scheduled meetings held during the year
and a fee of $25 per day or actual travel expenses, whichever is greater. This
compensation is apportioned among the John Hancock funds, including the Fund, on
which such Trustees serve based on the net asset values of such funds. Advisory
Board Members receive from the John Hancock funds an annual retainer of $40,000
and a meeting fee of $7,000 for each of the two regularly scheduled meetings to
be held in 1995 and the one in 1996. For the fiscal year ended March 31, 1994,
the Trust paid Trustees' fees in the aggregate of $26,337 to all the Trustees
then serving as such.
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Prospectus, the Fund receives its investment advice
from the Adviser. Investors should refer to the Prospectus for a description of
certain information concerning the investment management contract. Each of the
Trustees and principal officers affiliated with the Trust who is also an
affiliated person of the Adviser is named above, together with the capacity in
which such person is affiliated with the Fund and the Adviser.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and currently has over $13 billion in assets
under management in its capacity as investment adviser to the Fund and the other
mutual funds and publicly traded investment companies in the John Hancock Fund
Complex having a combined total of over 800,000 shareholders. The Adviser is a
wholly-owned subsidiary of The Berkeley Financial Group, which is in turn a
wholly-owned subsidiary of John Hancock Subsidiaries, Inc., which is in turn a
wholly-owned subsidiary of the Life Company, one of the most recognized and
respected financial institutions in the nation. With total assets under
management of $80 billion, the Life Company is one of the ten largest life
insurance companies in the United States, and carries Standard & Poor's and A.M.
Best's highest ratings. Founded in 1862, the Life Company has been serving
clients for over 130 years.
As described in the Prospectus under the caption "Organization and
Management of the Fund," the Trust, on behalf of the Fund, has entered into an
investment management contract with the Adviser. Under the investment
management contract, the Adviser provides the Fund with (i) a continuous
investment program, consistent with the Fund's stated investment objective and
-19-
<PAGE> 136
policies, (ii) supervision of all aspects of the Fund's operations except those
that are delegated to a custodian, transfer agent or other agent and (iii) such
executive, administrative and clerical personnel, officers and equipment as are
necessary for the conduct of its business. The Adviser is responsible for the
day-to-day management of the Fund's portfolio assets.
No person other than the Adviser and its directors and employees
regularly furnishes advice to the Fund with respect to the desirability of the
Fund investing in, purchasing or selling securities. The Adviser may from time
to time receive statistical or other similar factual information, and
information regarding general economic factors and trends, from the Life Company
and its affiliates.
Under the terms of the investment management contract with the Fund, the
Adviser provides the Fund with office space, equipment and supplies and other
facilities and personnel required for the business of the Fund. The Adviser
pays the compensation of all officers and employees of the Trust and pays the
expenses of clerical services relating to the administration of the Fund. All
expenses which are not specifically paid by the Adviser and which are incurred
in the operation of the Fund including, but not limited to, (i) the fees of the
Trustees of the Trust who are not "interested persons," as such term is defined
in the 1940 Act (the "Independent Trustees"), (ii) the fees of the members of
the Trust's Advisory Board (described above) and (iii) the continuous public
offering of the shares of the Fund are borne by the Fund. Subject to the
conditions set forth in a private letter ruling that the Fund has received from
the Internal Revenue Service relating to its multiple-class structure, class
expenses properly allocable to any Class A or Class B shares will be borne
exclusively by such class of shares.
As provided by the investment management contract, the Fund pays the
Adviser an investment management fee, which is accrued daily and paid monthly in
arrears, at a stated percentage of the Fund's average daily net asset value as
described in the Prospectus. See "Organization and Management of the Fund" in
the Prospectus.
The Adviser may voluntarily and temporarily reduce its advisory fee or
make other arrangements to limit the Fund's expenses to a specified percentage
of average daily net assets. The Adviser retains the right to re-impose the
advisory fee and recover any other payments to the extent that, at the end of
any fiscal year, the Fund's annual expenses fall below this limit.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of any state limit where the
Fund is registered to sell shares of beneficial interest, the fee payable to the
Adviser will be reduced to the extent of such excess and the Adviser will make
any additional arrangements necessary to eliminate any remaining excess
expenses. Currently, the most restrictive limit applicable to the Fund is 2.5%
of the first $30,000,000 of the Fund's average daily net asset value, 2% of the
next $70,000,000 and 1.5% of the remaining average daily net asset value.
Pursuant to the investment management contract, the Adviser is not
liable to the Fund or its shareholders for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the matters to which
such contracts relate, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Adviser in the performance of its
duties or from its reckless disregard of the obligations and duties under the
contract.
The initial term of the investment management contract expires on
December 22, 1996 and will continue in effect from year to year thereafter if
approved annually by a vote of a majority of
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<PAGE> 137
the Independent Trustees of the Trust, cast in person at a meeting called for
the purpose of voting on such approval, and by either a majority of the
Trustees or the holders of a majority of the Fund's outstanding voting
securities. The management contract may, on 60 days' written notice, be
terminated at any time without the payment of any penalty by the Fund by vote
of a majority of the outstanding voting securities of the Fund, by the Trustees
or by the Adviser. The management contract terminates automatically in the
event of its assignment.
Securities held by the Fund may also be held by other funds or
investment advisory clients for which the Adviser or its affiliates provide
investment advice. Because of different investment objectives or other factors,
a particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for the purchase or sale
of securities by the Adviser or for other funds or clients for which the Adviser
renders investment advice arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds or clients in a manner deemed equitable to all of them. To the
extent that transactions on behalf of more than one client of the Adviser, or
its affiliates may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
Under the investment management contract, the Fund may use the name
"John Hancock" or any name derived from or similar to it only for so long as the
investment management contract or any extension, renewal or amendment thereof
remains in effect. If the Fund's investment management contract is no longer in
effect, the Fund (to the extent that it lawfully can) will cease to use such
name or any other name indicating that it is advised by or otherwise connected
with the Adviser. In addition, the Adviser or the Life Company may grant the
non-exclusive right to use the name "John Hancock" or any similar name to any
other corporation or entity, including but not limited to any investment company
of which the Life Company or any subsidiary or affiliate thereof or any
successor to the business of any subsidiary or affiliate thereof shall be the
investment adviser.
For the fiscal years ended March 31, 1992, 1993 and 1994 advisory fees
payable by the Fund to TFMC, the Fund's former investment adviser, amounted to
$4,658,890, $4,592,951 and $4,328,830, respectively.
ADMINISTRATIVE SERVICES AGREEMENT. The Trust, on behalf of the Fund was
a party to an administrative services agreement with TFMC (the "Services
Agreement"), pursuant to which TFMC performed bookkeeping and accounting
services and functions, including preparing and maintaining various accounting
books, records and other documents and keeping such general ledgers and
portfolio accounts as are reasonably necessary for the operation of the Fund.
Other administrative services included communications in response to shareholder
inquiries and certain printing expenses of various financial reports. In
addition, such staff and office space, facilities and equipment was provided as
necessary to provide administrative services to the Fund. The Services
Agreement was amended in connection with the appointment of the Adviser as
adviser to the Fund to permit services under the Agreement to be provided to the
Fund by the Adviser and its affiliates. The Services Agreement was terminated
during the current fiscal year.
For the fiscal years ended December 31, 1992, 1993 and 1994, the Fund
paid to TFMC (pursuant to the Services Agreement) $463,949, $413,900 and
$329,407 of which $393,167, $351,165 and $278,168, respectively, was paid to
TFMC and $70,782, $62,735 and $51,239, respectively, was paid for certain data
processing and pricing information services.
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<PAGE> 138
DISTRIBUTION CONTRACT
DISTRIBUTION CONTRACT. As discussed in the Prospectus, the Fund's
shares are sold on a continuous basis at the public offering price. John
Hancock Funds, a wholly-owned subsidiary of the Adviser, has the exclusive
right, pursuant to the Distribution Contract dated December 22, 1994 (the
"Distribution Contract"), to purchase shares from the Fund at net asset value
for resale to the public or to broker-dealers at the public offering price.
Upon notice to all broker-dealers ("Selling Brokers") with whom it has sales
agreements, John Hancock Funds may allow such Selling Brokers up to the full
applicable sales charge during periods specified in such notice. During these
periods, such Selling Brokers may be deemed to be underwriters as that term is
defined in the Securities Act of 1933.
The Distribution Contract was initially adopted by the affirmative vote
of the Fund's Board of Trustees including the vote of a majority of the
Independent Trustees, cast in person at a meeting called for such purpose. The
Distribution Contract shall continue in effect until December 22, 1995 and from
year to year thereafter if approved by either the vote of the Fund's
shareholders or the Board of Trustees including the vote of a majority of the
Independent Trustees, cast in person at a meeting called for such purpose. The
Distribution Contract may be terminated at any time, without penalty, by either
party upon sixty (60) days' written notice or by a vote of a majority of the
outstanding voting securities of the Fund and terminates automatically in the
case of an assignment by John Hancock Funds.
Total underwriting commissions for sales of the Fund's Class A shares
for the fiscal years ended December 31, 1992, 1993 and 1994, respectively, were
$2,116,575, $3,075,865 and $1,521,866, respectively. Of such amounts $257,755,
$234,687 and $173,929, respectively, was retained by the Fund's former
distributor, Transamerica Fund Distributors, Inc. and the remainder was
reallowed to dealers.
DISTRIBUTION PLAN. The Board of Trustees, including the Independent
Trustees of the Trust, approved new distribution plans pursuant to Rule 12b-1
under the 1940 Act for Class A shares ("Class A Plan") and Class B shares
("Class B Plan"). Such Plans were approved by a majority of the outstanding
shares of each respective class on December 16, 1994 and became effective on
December 22, 1994.
Under the Class A Plan, the distribution or service fee will not exceed
an annual rate of 0.25% of the average daily net asset value of the Class A
shares of the Fund (determined in accordance with the Fund's Prospectus as from
time to time in effect). Any expenses under the Class A Plan not reimbursed
within 12 months of being presented to the Fund for repayment are forfeited and
are not carried over to future years. Under the Class B Plan, the distribution
or service fee to be paid by the Fund will not exceed an annual rate of 1.00% of
the average daily net assets of the Class B shares of the Fund (determined in
accordance with the Fund's Prospectus as from time to time in effect); provided
that the portion of such fee used to cover Service Expenses (described below)
shall not exceed an annual rate of 0.25% of the average daily net asset value of
the Class B shares of the Fund. Under the Class B Plan, the fee covers the
Distribution and Service Expenses (described below) and interest expenses on
unreimbursed distribution expenses. In accordance with generally accepted
accounting principles, the Fund does not treat unreimbursed distribution
expenses attributable to Class B shares as a liability of the Fund and does not
reduce the current net assets of Class B by such amount, although the amount may
be payable under the Class B Plan in the future.
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<PAGE> 139
Under the Plans, expenditures shall be calculated and accrued daily and
paid monthly or at such other intervals as the Trustees shall determine. The
fee may be spent by John Hancock Funds on Distribution Expenses or Service
Expenses. "Distribution Expenses" include any activities or expenses primarily
intended to result in the sale of shares of the relevant class of the Fund,
including, but not limited to: (i) initial and ongoing sales compensation
payable out of such fee as such compensation is received by John Hancock Funds
or by Selling Brokers, (ii) direct out-of-pocket expenses incurred in connection
with the distribution of shares, including expenses related to printing of
prospectuses and reports; (iii) preparation, printing and distribution of sales
literature and advertising material; (iv) an allocation of overhead and other
branch office expenses of John Hancock Funds related to the distribution of Fund
shares (v) distribution expenses that were incurred by the Fund's former
distributor and not recovered through payments under the Class A or Class B
former plans or through receipt of contingent deferred sales charges; and (vi)
in the event that any other investment company (the "Acquired Fund") sells all
or substantially all of its assets to, merges with or otherwise engages in a
combination with the Fund, distribution expenses originally incurred in
connection with the distribution of the Acquired Fund's shares. Service
Expenses under the Plans include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of John Hancock
Funds) and others who furnish personal and shareholder account maintenance
services to shareholders of the relevant class of the Fund.
During the fiscal year ended March 31, 1994, total payments made by the
Fund under the former Class A Rule 12b-1 plan to the former distributor amounted
to $1,649,416, and of such amount $1,248,411, $216,786, $21,866, $43,127 and
$119,226 represented payments for (1) the cost of printing and distribution
prospectuses and financial reports to investors, (2) various sales literature,
(3) advertising expenses, (4) distribution and/or administrative services and
(5) service fees, respectively.
No Class B shares were outstanding during the fiscal year ended March
31, 1994 and, accordingly, no payments were made under the former Class B Rule
12b-1 plan during such period.
Each of the Plans provides that it will continue in effect only as long
as its continuance is approved at least annually by a majority of both the
Trustees and the Independent Trustees. Each of the Plans provides that it may
be terminated (a) at any time by vote of a majority of the Trustees, a majority
of the Independent Trustees, or a majority of the respective Class' outstanding
voting securities or (b) by John Hancock Funds on 60 days' notice in writing to
the Fund. Each of the Plans further provides that it may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to the Plan. Each of the Plans
provides that no material amendment to the Plan will, in any event, be effective
unless it is approved by a majority vote of the Trustees and the Independent
Trustees of the Trust. The holders of Class A shares and Class B shares have
exclusive voting rights with respect to the Plan applicable to their respective
class of shares. In adopting the Plans, the Board of Trustees has determined
that, in its judgment, there is a reasonable likelihood that each Plan will
benefit the holders of the applicable class of shares of the Fund.
Information regarding the services rendered under the Plans and the
Distribution Contract and the amounts paid therefore by the respective Class of
the Fund are provided to, and reviewed by, the Board of Trustees on a quarterly
basis. In its quarterly review, the Board of Trustees
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considers the continued appropriateness of the Plans and the Distribution
Contract and the level of compensation provided therein.
When the Fund seeks an Independent Trustee to fill a vacancy or as a
nominee for election by shareholders, the selection or nomination of the
Independent Trustee is, under resolutions adopted by the Trustees
contemporaneously with their adoption of the Plans, committed to the discretion
of the Committee on Administration of the Trustees. The members of the
Committee on Administration are all Independent Trustees and identified in this
Statement of Additional Information under the heading "Those Responsible for
Management."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's
shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations
furnished by a principal market maker or a pricing service, both of which
generally utilize electronic data processing techniques to determine valuations
for normal institutional size trading units of debt securities without exclusive
reliance upon quoted prices.
Short-term debt investments which have a remaining maturity of 60 days
or less are generally valued at amortized cost, which the Trustees have
determined approximates market value. If market quotations are not readily
available or if in the opinion of the Adviser any quotation or price is not
representative of true market value, the fair value of the security may be
determined in good faith in accordance with procedures approved by the Trustees.
The Fund will not price its securities on the following national
holidays: New Year's Day; Presidents' Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund
are described in the Fund's Class A and Class B Prospectus. Methods of
obtaining reduced sales charges referred to generally in the Prospectus are
described in detail below. In calculating the sales charge applicable to
current purchases of Class A shares, the investor is entitled to cumulate
current purchases with the greater of the current value (at offering price) of
the Class A shares of the Fund, or if Investor Services is notified by the
investor's dealer or the investor at the time of the purchase, the cost of the
Class A shares owned.
COMBINED PURCHASES. In calculating the sales charge applicable to
purchases of Class A shares made at one time, the purchases will be combined if
made by (a) an individual, his or her spouse and their children under the age of
21 purchasing securities for his or her own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
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WITHOUT SALES CHARGE. As described in the Prospectus, Class A shares of
the Fund may be sold without a sales charge to certain persons described in the
Prospectus.
ACCUMULATION PRIVILEGE. Investors (including investors combining
purchases) who are already Class A shareholders may also obtain the benefit of
the reduced sales charge by taking into account not only the amount then being
invested but also the purchase price or value of the Class A shares already held
by such person.
COMBINATION PRIVILEGE. Reduced sales charges (according to the schedule
set forth in the Class A and Class B Prospectus) also are available to an
investor based on the aggregate amount of his concurrent and prior investments
in Class A shares of the Fund and shares of all other John Hancock funds which
carry a sales charge.
LETTER OF INTENTION. The reduced sales loads are also applicable to
investments made over a specified period pursuant to a Letter of Intention
(LOI), which should be read carefully prior to its execution by an investor.
The Fund offers two options regarding the specified period for making
investments under the LOI. All investors have the option of making their
investments over a period of thirteen (13) months. Investors who are using the
Fund as a funding medium for a qualified retirement plan, however, may opt to
make the necessary investments called for by the LOI over a forty-eight (48)
month period. These qualified retirement plans include IRAs, SEP, SARSEP, TSA,
401(k) plans, TSA plans and 457 plans. Such an investment (including
accumulations and combinations) must aggregate $50,000 or more invested during
the specified period from the date of the LOI or from a date within ninety (90)
days prior thereto, upon written request to Investor Services. The sales charge
applicable to all amounts invested under the LOI is computed as if the aggregate
amount intended to be invested had been invested immediately. If such aggregate
amount is not actually invested, the difference in the sales charge actually
paid and the sales charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made with the specified period
(either 13 or 48 months), the sales charge applicable will not be higher than
that which would have been applied (including accumulations and combinations)
had the LOI been for the amount actually invested.
The LOI authorizes Investor Services to hold in escrow sufficient Class
A shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrow shares will be released. If the total investment specified in the
LOI is not completed, the Class A shares held in escrow may be redeemed and the
proceeds used as required to pay such sales charge as may be due. By signing
the LOI, the investor authorizes Investor Services to act as his
attorney-in-fact to redeem any escrow shares and adjust the sales charge, if
necessary. A LOI does not constitute a binding commitment by an investor to
purchase, or by the Fund to sell, any additional shares and may be terminated at
any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of a sales charge so that the Fund will receive the full
amount of the purchase payment.
CONTINGENT DEFERRED SALES CHARGE. Class B shares which are redeemed
within six years of purchase will be subject to a contingent deferred sales
charge ("CDSC") at the rates set forth in
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the Class A and Class B Prospectus as a percentage of the dollar amount subject
to the CDSC. The charge will be assessed on an amount equal to the lesser of the
current market value or the original purchase cost of the Class B shares
being redeemed. Accordingly, no CDSC will be imposed on increases in account
value above the initial purchase prices, including Class B shares derived from
reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
Proceeds from the CDSC are paid to John Hancock Funds and are used in
whole or in part by John Hancock Funds to defray its expenses related to
providing distribution-related services to the Fund in connection with the sale
of the Class B shares, such as the payment of compensation to select Selling
Brokers for selling Class B shares. The combination of the CDSC and the
distribution and service fees facilitates the ability of the Fund to sell the
Class B shares without a sales charge being deducted at the time of the
purchase. See the Class A and Class B Prospectus for additional information
regarding the CDSC.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed the Trustees. When the shareholder sells portfolio
securities received in this fashion, he would incur a brokerage charge. Any
such securities would be valued for the purposes of making such payment at the
same value as used in determining net asset value. The Fund has elected to be
governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund during any 90 day period for any one account.
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE. As described more fully in the Prospectus, the Fund
permits exchanges of shares of any class of the Fund for shares of the same
class in any other John Hancock fund offering that class.
SYSTEMATIC WITHDRAWAL PLAN. As described briefly in the Class A and
Class B Prospectus, the Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares. Since the redemption price of Fund shares may be
more or less than the shareholder's cost, depending upon the market value of the
securities owned by the Fund at the time of redemption, the distribution of cash
pursuant to this plan may result in realization of gain or loss for purposes of
Federal, state and local income taxes. The maintenance of a Systematic
Withdrawal Plan concurrently with purchases of additional Class A or Class B
shares of the Fund could be disadvantageous to a shareholder because of the
initial sales charge payable on such purchases of Class A shares and the CDSC
imposed on redemptions of Class B shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase Fund shares at the same
time as a Systematic
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Withdrawal Plan is in effect. The Fund reserves the right to modify or
discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability of
such plan in the future. The shareholder may terminate the plan at any time by
giving proper notice to Investor Services.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM ("MAAP"). This program is
explained fully in the Fund's Class A and Class B Prospectus and the Account
Privileges Application. The program, as it relates to automatic investment
checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month
indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice if
any investment is not honored by the shareholder's bank. The bank shall be
under no obligation to notify the shareholder as to the non-payment of any
check.
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the due date of any investment.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Fund shares may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in shares of the same class of
the Fund or another John Hancock mutual fund, subject to the minimum investment
limit in that fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A shares of
the Fund or in Class A shares of another John Hancock mutual fund. If a CDSC
was paid upon a redemption, a shareholder may reinvest the proceeds from that
redemption at net asset value in additional shares of the class from which the
redemption was made. The shareholder's account will be credited with the amount
of any CDSC charged upon the prior redemption and the new shares will continue
to be subject to the CDSC. The holding period of the shares acquired through
reinvestment will, for purposes of computing the CDSC payable upon a subsequent
redemption, include the holding period of the redeemed shares. The Fund may
modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for
Federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated for tax purposes as described under
the caption "Tax Status."
DESCRIPTION OF THE TRUST'S SHARES
Ownership in the Fund is represented by transferable shares of
beneficial interest. The Declaration of Trust permits the Trustees to create an
unlimited number of series and classes of shares of the Trust and, with respect
to each series and class, to issue an unlimited number of full or fractional
shares and to divide or combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial interests of the
series.
Each share of each series or class of the Trust represents an equal
proportionate interest with each other in that series or class, none having
priority or preference over other shares of the
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same series or class. The interest of investors in the various series or
classes of the Trust is separate and distinct. All consideration received for
the sales of shares of a particular series or class of the Trust, all assets in
which such consideration is invested and all income, earnings and profits
derived from such investments will be allocated to and belong to that series or
class. As such, each such share is entitled to dividends and distributions
out of the net income belonging to that series or class as declared by the Board
of Trustees. Shares of the Trust have a par value of $0.01 per share. The
assets of each series are segregated on the Trust's books and are charged with
the liabilities of that series and with a share of the Trust's general
liabilities. The Board of Trustees determines those assets and liabilities
deemed to be general assets or liabilities of the Trust, and these items are
allocated among each series in proportion to the relative total net assets of
each series. In the unlikely event that the liabilities allocable to a series
exceed the assets of that series, all or a portion of such liabilities may have
to be borne by the other series.
Pursuant to the Declaration of Trust, the Trustees have established six
series of shares, including the Fund, and may authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes within any
series (which would be used to distinguish among the rights of different
categories of shareholders, as might be required by future regulations or other
unforeseen circumstances). The five other series of Trust are John Hancock
Intermediate Government Trust, John Hancock Adjustable U.S. Government Trust,
John Hancock Investment Quality Bond Fund, John Hancock U.S. Government Trust
and John Hancock Adjustable U.S. Government Fund. As of the date of this
Statement of Additional Information, the Trustees have authorized the issuance
of two classes of shares of the Fund, designated as Class A and Class B. Class
A and Class B shares of the Fund represent an equal proportionate interest in
the aggregate net asset values attributable to that class of the Fund. Holders
of Class A shares and Class B shares each have certain exclusive voting rights
on matters relating to the Class A Plan and the Class B Plan, respectively. The
different classes of the Fund may bear different expenses relating to the cost
of holding shareholder meetings necessitated by the exclusive voting rights of
any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares
will be calculated in the same manner, at the same time and on the same day and
will be in the same amount, except for differences caused by the fact that (i)
the distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that Class, (ii) Class B shares will pay higher
distribution and service fees than Class A shares and (iii) each of Class A
shares and Class B shares will bear any class expenses properly allocable to
such class of shares, subject to the conditions set forth in a private letter
ruling that the Fund has received from the Internal Revenue Service relating to
its multiple-class structure. Accordingly, the net asset value per share may
vary depending whether Class A shares or Class B shares are purchased.
VOTING RIGHTS. Shareholders are entitled to a full vote for each full
share held. The Trustees themselves have the power to alter the number and the
terms of office of Trustees, and they may at any time lengthen their own terms
or make their terms of unlimited duration (subject to certain removal
procedures) and appoint their own successors, provided that at all times at
least a majority of the Trustees have been elected by shareholders. The voting
rights of shareholders are not cumulative, so that holders of more than 50% of
the shares voting can, if they choose, elect all Trustees being voted upon,
while the holders of the remaining shares would be unable to elect any
Trustees. Although the Trust need not hold annual meetings of shareholders,
the Trustees may call special meetings of shareholders for action by
shareholder vote as may be required by the 1940 Act or the Declaration of
Trust. Also, a shareholders' meeting must be called if so requested in writing
by the holders of record of 10% or more of the outstanding shares of the Trust.
In
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addition, the Trustees may be removed by the action of the holders of record of
two-thirds or more of the outstanding shares.
SHAREHOLDER LIABILITY. The Declaration of Trust provides that no
Trustee, officer, employee or agent of the Trust is liable to the Trust or any
series or to a shareholder, nor is any Trustee, officer, employee or agent
liable to any third persons in connection with the affairs of the Trust, except
as such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his duties. It also provides that all
third persons shall look solely to the particular series' property for
satisfaction of claims arising in connection with the affairs of that series.
With the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Trust.
As a Massachusetts business trust, the Trust is not required to issue
share certificates. The Trust shall continue without limitation of time subject
to the provisions in the Declaration of Trust concerning termination by action
of the shareholders.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the trust. However, the Trust's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations and affairs of
the Trust. The Declaration of Trust also provides for indemnification out of
the Trust's assets for all losses and expenses of any shareholder held
personally liable by reason of being or having been a shareholder. Liability is
therefore limited to circumstances in which the Trust itself would be unable to
meet its obligations, and the possibility of this occurrence is remote.
TAX STATUS
The Fund is treated as a separated entity for accounting and tax
purposes. The Fund has qualified and elected to be treated as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and intends to continue to so qualify in the future. As
such and by complying with the applicable provisions of the Code regarding the
sources of its income, the timing of its distributions, and the diversification
of its assets, the Fund will not be subject to Federal income tax on its net
income (including net short-term and long-term capital gains) which is
distributed to shareholders at least annually in accordance with the timing
requirements of the Code.
The Fund will be subject to a 4% non-deductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and
profits ("E&P"), as computed for Federal income tax purposes, will be taxable
as described in the Fund's Prospectus whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to capital
gains. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for Federal income tax
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purposes in each share so received equal to the amount of cash they would have
received had they elected to receive the distributions in cash, divided by
the number of shares received.
The amount of the Fund's net short-term and long-term capital gains, if
any, in any given year will vary depending upon the Adviser's current investment
strategy and whether the Adviser believes it to be in the best interest of the
Fund to dispose of portfolio securities or enter into options or futures
transactions that will generate capital gains. At the time of an investor's
purchase of Fund shares, a portion of the purchase price is often attributable
to realized or unrealized appreciation in the Fund's portfolio. Consequently,
subsequent distributions from such appreciation may be taxable to such investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption of shares of the Fund (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon his basis in his shares. Such gain or loss will be treated as capital gain
or loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, depending upon the shareholder's tax holding period for
the shares. A sales charge paid in purchasing Class A shares of the Fund cannot
be taken into account for purposes of determining gain or loss on the redemption
or exchange of such shares within 90 days after their purchase to the extent
shares of the Fund or another John Hancock Fund are subsequently acquired
without payment of a sales charge pursuant to the reinvestment or exchange
privilege. Such disregarded load will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Also, any loss
realized on a redemption or exchange may be disallowed to the extent the shares
disposed of are replaced with other shares of the Fund within a period of 61
days beginning 30 days before and ending 30 days after the shares are disposed
of, such as pursuant to the Dividend Reinvestment Plan. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized upon the redemption of shares with a tax holding period of six
months or less will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain with respect to such
shares.
Although its present intention is to distribute all net short-term and
long-term capital gains, if any, the Fund reserves the right to retain and
reinvest all or any portion of its "net capital gain," which is the excess, as
computed for Federal income tax purposes, of net long-term capital gain over net
short-term capital loss in any year. The Fund will not in any event distribute
net long- term capital gain realized in any year to the extent that a capital
loss is carried forward from prior years against such gain. To the extent such
excess was retained and not exhausted by the carryforward of prior years'
capital losses, it would be subject to Federal income tax in the hands of the
Fund. Each shareholder would be treated for Federal income tax purposes as if
the Fund had distributed to him on the last day of its taxable year his pro rata
share of such excess, and he had paid his pro rata share of the taxes paid by
the Fund and reinvested the remainder in the Fund. Accordingly, each shareholder
would (a) include his pro rata share of such excess as long-term capital gain
income in his return for his taxable year in which the last day of the Fund's
taxable year falls, (b) be entitled either to a tax credit on his return for, or
to a refund of, his pro rata share of the taxes paid by the Fund, and (c) be
entitled to increase the adjusted tax basis for his shares in the Fund by the
difference between his pro rata share of such excess and his pro rata share of
such taxes.
For Federal income tax purposes, the Fund is generally permitted to
carry forward a net capital loss in any year to offset its net capital gains, if
any, during the eight years following the
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year of the loss. To the extent subsequent net capital gains are offset by such
losses, they would not result in Federal income tax liability to the Fund and,
as noted above, would not be distributed as such to shareholders. The
Fund has approximately $374,806,948 of capital loss carry forwards available to
offset future net capital gains, which carryforwards expire as follows:
$231,879,672 in 1996, $50,265,256 in 1997, $19,146,203 in 1998, $6,921,927 in
1999 and $66,593,890 in 2002.
Dividends, including capital gain distributions, paid by the Fund to its
corporate shareholders will not qualify for the corporate dividends received
deduction in their hands.
If the Fund invests in certain PIKs zero coupon securities or certain
increasing rate securities (and, in general any other securities with original
issue discount or with market discount if the Fund elects to include accrued
market discount in income currently), the Fund must accrue income on such
investments prior to the receipt of the corresponding cash payments. However,
the Fund must distribute, at least annually, all or substantially all of its
net income, including such accrued income, to shareholders to qualify as a
regulated investment company under the Code and avoid Federal income and excise
taxes. Therefore, the Fund may have to dispose of its portfolio securities
under disadvantageous circumstances to generate cash, or may have to leverage
itself by borrowing the cash, to satisfy distribution requirements.
Different tax treatment, including penalties on certain excess
contributions and deferrals, ceratin pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirements plans. Shareholders should consult their
tax advisers for more information. The Fund may be required to account for its
transactions in dollar rolls in a manner that, under certain circumstances, may
limit the extent of its participation in such transactions.
Limitations imposed by the Code on regulated investment companies like
the Fund may restrict the Fund's ability to enter into futures and options
transactions.
Certain options and futures transactions undertaken by the Fund may
cause the Fund to recognize gains or losses from marking to market even though
its positions have not been sold or terminated and affect the character as
long-term or short-term and timing of some capital gains and losses realized by
the Fund. Also, certain of the Fund's losses on its transactions involving
options or futures contracts and/or offsetting portfolio positions may be
deferred rather than being taken into account currently in calculating the
Fund's taxable income or gains. These transactions may therefore affect the
amount, timing and character of the Fund's distributions to shareholders.
Certain of the applicable tax rules may be modified if the Fund is eligible and
chooses to make one or more of certain tax elections that may be available.
The Fund will take into account the special tax rules (including consideration
of available elections) applicable to options and futures contracts in order to
minimize any potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions. Dividends, capital gain distributions, and
ownership of or gains realized on the redemption (including an exchange) of
Fund shares may also be subject to state and local taxes. Shareholders should
consult their own tax advisers as to the Federal, state or local tax
consequences of ownership of shares of, and receipt of distributions from, the
Fund in their particular circumstances.
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Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in the Fund is effectively connected will be subject to U.S.
Federal income tax treatment that is different from that described above.
These investors may be subject to nonresident alien withholding tax at the rate
of 30% (or a lower rate under an applicable tax treaty) on amounts treated as
ordinary dividends from the Fund and, unless an effective IRS Form W-8 or
authorized substitute is on file, to 31% backup withholding on certain other
payments from the Fund. Non- U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company
under the Code, it will also not be required to pay any Massachusetts income
tax.
CALCULATION OF PERFORMANCE
For the 30-day period ended September 30, 1994, the annualized yield of
the Fund's Class A shares was 5.39%. The average annual total returns of the
Class A shares of the Fund for the one, five and life of the Fund (the Fund
commenced operations on December 31, 1984) periods ended September 30, 1994
were (9.54%), 6.60% and 7.38%, respectively. No Class B shares of the Fund
were outstanding as of September 30, 1994.
The Fund's yield is computed by dividing net investment income per
share determined for a 30-day period by the maximum offering price per share
(which includes the full sales charge) on the last day of the period, according
to the following standard formula:
Yield = 2 [(a-b + 1)6 -1]
---
cd
Where:
a= dividends and interest earned during the period.
b= net expenses accrued during the period.
c= the average daily number of fund shares outstanding during the
period that would be entitled to receive dividends.
d= the maximum offering price per share on the last day of the period
(NAV where applicable).
The Fund's total return is computed by finding the average annual
compounded rate of return over the 1-year, 5-year, and 10-year periods that
would equate the initial amount invested to the ending redeemable value
according to the following formula:
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ERV = P (1 + T)n
P= a hypothetical initial investment of $1,000.
T= average annual total return
n= number of years
ERV= ending redeemable value of a hypothetical $1,000 investment made
at the beginning of the designated period or fraction thereof.
In the case of Class A shares or Class B shares, this calculation
assumes the maximum sales charge is included in the initial investment or the
CDSC is applied at the end of the period. This calculation also assumes that
all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period. The "distribution rate" is determined by
annualizing the result of dividing the declared dividends of the Fund during
the period stated by the maximum offering price or net asset value at the end
of the period.
In addition to average annual total returns, the Fund may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, and/or a series of redemptions, over any
time period. Total returns may be quoted with or without taking the Fund's
maximum sales charge on Class A shares or the CDSC on Class B shares into
account. Excluding the Fund's sales charge on Class A shares and the CDSC on
Class B shares from a total return calculation produces a higher total return
figure.
From time to time, in reports and promotional literature, the Fund's
yield and total return will be compared to indices of mutual funds and bank
deposit vehicles such as Lipper Analytical Services, Inc.'s "Lipper -- Fixed
Income Fund Performance Analysis," a monthly publication which tracks net
assets, total return, and yield on approximately 1,700 fixed income mutual
funds in the United States. Ibbotson and Associates, CDA Weisenberger and F.C.
Towers are also used for comparison purposes, as well a the Russell and
Wilshire Indices.
Performance rankings and ratings reported periodically in national
financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL
STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S, etc. will
also be utilized. The Fund's promotional and sales literature may make
reference to the Fund's "beta." Beta is a reflection of the market-related
risk of the Fund by showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
Fund for any period in the future. The performance of the Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
-33-
<PAGE> 150
ADDITIONAL PERFORMANCE INFORMATION. The Fund may use comparative
performance information from certain industry research materials and/or
published in various periodicals. The characteristics of the investments in
such comparisons may be different from those investments of the Fund's
portfolio. In addition, the formula used to calculate the performance
statistics of such investments may not be identical to the formula used by the
Fund to calculate its performance figures. From time to time, advertisements
or information for the Fund may include a discussion of certain attributes or
benefits to be derived by an investment in the Fund. Such advertisements or
information may include symbols, headlines or other material which highlight or
summarize the information discussed in more detail in the communication.
The following publications, indices, averages and investments which may
be used in advertisements or information concerning the Fund for dissemination
to investors or shareholders, include but are not limited to:
a) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Analysis,
and Lipper Mutual Fund indexes - measure total return and average current
yield for the mutual fund industry. Ranks individual mutual fund
performance over specified time periods assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
b) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
c) Mutual Fund Source Book, and "Morningstar Mutual Funds" published by
Morningstar, Inc. - analyzes price, yield, risk, and total return for
selected mutual funds. Its ratings of 1 (low) and 5 (high) stars are
based on a fund's historical risk/reward ratio compared with similar
funds for 3-, 5- and 10-year periods, including all sales charges and
fees. Morningstar, Inc., considered to be an expert in independent fund
performance monitoring, has consented to the use of its ratings in Fund
advertisements.
d) Financial publications: Barrons, Business Week, Personal Finance,
Financial World, Forbes, Fortune, "The Wall Street Journal", Muni Week,
Weisenberger Investment Companies Service, Institutional Investor, and
Money - rate fund performance over specified time periods and provide
other relative performance or industry information.
e) Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics - a statistical measure of change, over
time, in the price of goods and services in major expenditure groups.
f) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
g) Savings and Loan Historical Interest Rates - as published in the U.S.
Savings & Loan League Fact Book.
h) Salomon Brothers Broad Bond Index or its component indices - The Broad
Index measures yield, price and total return for Treasury, Agency,
Corporate, and Mortgage bonds.
-34-
<PAGE> 151
i) Salomon Brothers Composite High Yield Index or its component indices -
The High Yield Index measures yield, price and total return for
Long-Term High-Yield Index, Intermediate-Term High-Yield index and
Long-Term Utility High-Yield Index.
j) Lehman Brothers Aggregate Bond index or its component indices (including
Municipal Bond Index) - The Aggregate Bond Index measures yield, price and
total return for Treasury, Agency, Corporate, Mortgage
Government/Corporate, Government, Treasury, Intermediate, High Yield and
Yankee bonds.
k) Standard & Poor's Bond Indices - measure yield and price of Corporate,
Municipal, and government bonds.
l) Other taxable investments, including certificates of deposit (CDs), money
market deposit accounts (MMDAs), checking accounts, savings accounts,
money market mutual funds, and repurchase agreements.
m) Historical data supplied by the research departments of Lehman Hutton,
First Boston Corporation, Morgan Stanley, Salomon Brothers, Merrill
Lynch, and Donaldson Lufkin and Jenrette.
n) Donoghue's Money Fund Reports - industry averages for 7-day annualized and
compounded yields of taxable, tax-free and government money funds.
In addition, advertisements and sales materials may contain
hypothetical performance examples for purposes of illustrating reinvestment (or
"compounding") of dividends at fixed rates of return or tax advantages to be
derived from deferring payment of federal (and state) income taxes (at maximum
rates) as compared to taxable investments assuming fixed rates of return.
Illustrations may also include (1) hypothetical investments in various
retirement plans, such as IRAs, made by investors of various ages or (2)
comparisons to retirement plans funded by annuity or bank products.
In assessing such comparisons, an investor should consider the following
factors:
a) It is generally either not possible or not practicable to invest in an
average or index of certain investments.
b) Certificates of deposit issued by banks and other depository institutions
represent an alternative income producing product. Certificates of
deposit may offer fixed or variable interest rates and principal is
guaranteed and may be insured. Withdrawal of deposits prior to maturity
will normally be subject to a penalty. Rates offered by banks and other
depository institutions are subject to change at any time specified by the
issuing institution.
c) United States Treasury Bills, Notes or Bonds represent alternative income
producing products. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of
issuance and payment of principal and interest is backed by the full faith
and credit of the United States Government. The market value of such
instruments will generally fluctuate inversely with interest rates prior
to maturity and will equal par value at maturity.
-35-
<PAGE> 152
Past performance is no guarantee of future results. In addition,
investors are advised to consult their brokers or financial advisers when
considering an investment in the Fund based upon performance comparisons.
The composition of the investments in such indexes and the
characteristics of such benchmark investments are not identical to, and in some
cases are very different from, those of the Fund's portfolio. These indexes
and averages are generally unmanaged and the items included in the calculations
of such indexes and averages may not be identical to the formulas used by the
Fund to calculate its performance figures.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and
the allocation of brokerage commissions are made by the Adviser and officers of
the Trust pursuant to recommendations made by an investment committee of the
Adviser, which consists of officers and directors of the Adviser and its
affiliates and officers and Trustees who are interested persons of the Trust.
Orders for purchases and sales of securities are placed in a manner which, in
the opinion of the officers of the Trust, will offer the best price and market
for the execution of each such transaction. Purchases from underwriters of
portfolio securities may include a commission or commissions paid by the issuer
and transactions with dealers serving as market makers reflect a "spread."
Investments in debt securities are generally traded on a net basis through
dealers acting for their own account as principals and not as brokers; no
brokerage commissions are payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing
primary policy, the Rules of Fair Practice of the NASD and other policies that
the Trustees may determine, the Adviser may consider sales of shares of the
Fund as a factor in the selection of broker-dealers to execute the Fund's
portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed
in the selection of brokers and dealers, and the negotiation of brokerage
commission rates and dealer spreads, by the reliability and quality of the
services, including primarily the availability and value of research
information and to a lesser extent statistical assistance furnished to the
Adviser of the Fund, and their value and expected contribution to the
performance of the Fund. It is not possible to place a dollar value on
information and services to be received from brokers and dealers, since it is
only supplementary to the research efforts of the Adviser. The receipt of
research information is not expected to reduce significantly the expenses of
the Adviser. The research information and statistical assistance furnished by
brokers and dealers may benefit the Life Company or other advisory clients of
the Adviser, and conversely, brokerage commissions and spreads paid by other
advisory clients of the Adviser may result in research information and
statistical assistance beneficial to the Fund. The Fund will make no
commitments to allocate portfolio transactions upon any prescribed basis.
While the Trust's officers will be primarily responsible for the allocation of
the Fund's brokerage business, their policies and practices in this regard must
be consistent with the foregoing and will at all times be subject to review by
the Trustees. For the fiscal years ended March 31, 1994, 1993 and 1992,
brokerage commissions paid by the Fund on portfolio transactions were $269,642,
$414,512 and $184,503, respectively.
-36-
<PAGE> 153
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
the Fund may pay to a broker which provides brokerage and research services to
the Fund an amount of disclosed commission in excess of the commission which
another broker would have charged for effecting that transaction. This
practice is subject to a good faith determination by the Trustees that the
price is reasonable in light of the services provided and to policies that the
Trustees may adopt from time to time. During the fiscal year ended March 31,
1994, the Fund did not pay commissions as compensation to any brokers for
research services such as industry, economic and company reviews and
evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its
subsidiaries, three of which, Tucker Anthony Incorporated ("Tucker Anthony")
John Hancock Distributors, Inc. ("John Hancock Distributors") and Sutro &
Company, Inc. ("Sutro"), are broker-dealers ("Affiliated Brokers"). Pursuant
to procedures determined by the Trustees and consistent with the above policy
of obtaining best net results, the Fund may execute portfolio transactions with
or through Tucker Anthony or Sutro. During the year ended March 31, 1994, the
Fund did not execute any portfolio transactions with then affiliated brokers.
Any of the Affiliated Brokers may act as broker for the Fund on
exchange transactions, subject, however, to the general policy of the Fund set
forth above and the procedures adopted by the Trustees pursuant to the 1940
Act. Commissions paid to an Affiliated Broker must be at least as favorable as
those which the Trustees believe to be contemporaneously charged by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold. A transaction would not be placed with an Affiliated
Broker if the Fund would have to pay a commission rate less favorable than the
Affiliated Broker's contemporaneous charges for comparable transactions for its
other most favored, but unaffiliated, customers, except for accounts for which
the Affiliated Broker acts as a clearing broker for another brokerage firm, and
any customers of the Affiliated Broker not comparable to the Fund as determined
by a majority of the Trustees who are not interested persons (as defined in the
1940 Act) of the Trust, the Adviser or the Affiliated Brokers. Because the
Adviser, which is affiliated with the Affiliated Brokers, has, as an investment
adviser to the Fund, the obligation to provide investment management services,
which includes elements of research and related investment skills, such
research and related skills will not be used by the Affiliated Brokers as a
basis for negotiating commissions at a rate higher than that determined in
accordance with the above criteria. The Fund will not effect principal
transactions with Affiliated Brokers. The Fund may, however, purchase
securities from other members of underwriting syndicates of which Tucker
Anthony, Sutro and John Hancock Distributors are members, but only in
accordance with the policy set forth above and procedures adopted and reviewed
periodically by the Trustees.
The Fund's portfolio turnover rates for the fiscal years ended March
31, 1993 and 1994 were 322% and 453%, respectively.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Investor
Services a monthly transfer agent fee equal to $20.00 per account for the Class
A shares and $22.50 per account for the Class B shares on an annual basis, plus
out-of-pocket expenses.
-37-
<PAGE> 154
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian
agreement between the Trust, on behalf of the Fund, and Investors Bank and
Trust ("IBT") 24 Federal Street, Boston, Massachusetts. Under the custodian
agreement, IBT performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116,
has been selected as the independent auditors of the Fund. The financial
statements of the Fund included in the Prospectus and this Statement of
Additional Information have been audited by Ernst & Young LLP for the periods
indicated in their report thereon appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
-38-
<PAGE> 155
FINANCIAL STATEMENTS
John Hancock Funds - Government Securities Trust
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON MARCH 31, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF THAT
DATE.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
U.S. government and agencies securities
(cost - $478,153,782).............................. $ 471,521,959
Joint repurchase agreement (cost - $5,819,000)....... 5,819,000
-------------
477,340,959
Cash................................................... 15,932
Receivable for shares sold............................. 48,900
Receivable for investments sold........................ 20,375,176
Interest receivable.................................... 10,626,102
Other assets........................................... 161,157
-------------
Total Assets........................ 508,568,226
---------------------------------------------------
LIABILITIES:
Dividend payable....................................... 1,699,023
Payable for shares repurchased......................... 697,349
Payable for investments purchased...................... 15,218,646
Payable to John Hancock Advisers, Inc. and
affiliates - Note B.................................. 294,367
Accounts payable and accrued expenses.................. 149,422
-------------
Total Liabilities................... 18,058,807
---------------------------------------------------
NET ASSETS:
Capital paid-in........................................ 880,735,120
Accumulated net realized loss on investments and
financial futures contracts.......................... (383,830,716)
Net unrealized depreciation of investments (6,631,823)
Undistributed net investment income.................... 236,838
-------------
Net Assets.......................... $ 490,509,419
===================================================
NET ASSET VALUE PER SHARE:
(Based on net assets and shares of beneficial interest
outstanding - unlimited number of shares authorized
with $0.01 per share par value, respectively)
Class A - $489,090,058/64,755,573...................... $ 7.55
======================================================================
Class B - $1,419,361/187,890........................... $ 7.55
======================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($7.55 x 104.99%)............................ $ 7.93
======================================================================
<FN>
* On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
** Class B shares commenced operations on September 30, 1994.
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED
AND EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES)
FOR THE PERIOD STATED.
STATEMENT OF OPERATIONS
Year ended March 31, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest.............................................. $ 50,531,323
------------
Expenses:
Investment management fee - Note B.................. 3,434,718
Distribution/service fee - Note B
Class A............................................ 1,356,913
Class B**.......................................... 2,612
Transfer agent fee.................................. 1,096,899
Interest expense.................................... 504,216
Custodian fee....................................... 266,437
Auditing fee........................................ 102,922
Miscellaneous....................................... 79,055
Legal fees.......................................... 58,579
Printing............................................ 48,978
Trustees' fees...................................... 38,127
Registration and filing fees........................ 37,353
Advisory board fee.................................. 10,008
------------
Total Expenses..................... 7,036,817
---------------------------------------------------
Net Investment Income.............. 43,494,506
---------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments sold................. (52,517,105)
Net realized gain on financial futures contracts...... 1,594,199
Change in net unrealized appreciation/depreciation
of investments...................................... 24,927,172
Change in net unrealized appreciation/depreciation of
financial futures contracts......................... (1,530,187)
------------
Net Realized and Unrealized
Loss on Investments................ (27,525,921)
---------------------------------------------------
Net Increase in Net Assets
Resulting from Operations.......... $ 15,968,585
===================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 156
FINANCIAL STATEMENTS
John Hancock Funds - Government Securities Trust
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income........................................................................... $ 43,494,506 $ 52,613,498
Net realized loss on investments sold........................................................... (50,922,906) (6,277,923)
Change in net unrealized appreciation/depreciation of investments............................... 23,396,985 (34,101,408)
------------ ------------
Net Increase in Net Assets Resulting from Operations........................................... 15,968,585 12,234,167
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.5940 and $0.6361 per share, respectively)........................................ (42,628,320) (52,613,498)
Class B** - ($0.2688 and none per share, respectively)......................................... (25,389) ...
Distributions in excess of net investment income (none and $0.0029 per share, respectively)..... ... (246,503)
------------ ------------
Total Distributions to Shareholders............................................................ (42,653,709) (52,860,001)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET*............................................................. (94,670,248) (65,935,486)
NET ASSETS:
Beginning of period............................................................................. 611,864,791 718,426,111
------------ ------------
End of period - including undistributed net investment income of $236,838 and distributions
in excess of net investment income of ($603,959).............................................. $490,509,419 $611,864,791
============ ============
<FN>
* Analysis of Fund Share Transactions:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------
1995 1994
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS A ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold.................................................. 3,304,464 $ 25,387,423 9,078,963 $ 76,399,947
Shares issued to shareholders in reinvestment of
distributions............................................... 2,609,288 19,732,195 2,837,038 23,691,543
----------- ------------ ----------- ------------
5,913,752 45,119,618 11,916,001 100,091,490
Less shares repurchased..................................... (18,668,887) (141,186,832) (19,874,838) (166,026,976)
----------- ------------ ----------- -----------
Net decrease............................................... (12,755,135) ($96,067,214) (7,958,837) ($65,935,486)
=========== ============ =========== ============
CLASS B**
Shares sold.................................................. 201,709 $ 1,499,539
Shares issued to shareholders in reinvestment of
distributions............................................... 618 4,651
----------- -----------
202,327 1,504,190
Less shares repurchased..................................... ( 14,437) ( 107,224)
----------- -----------
Net increase................................................ 187,890 $ 1,396,966
=========== ===========
<FN>
** Class B commenced operations on September 30, 1994.
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, DISTRIBUTIONS PAID TO
SHAREHOLDERS, AND ANY INCREASE OR DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE
FUND. THE FOOTNOTE ILLUSTRATES THE NUMBER OF FUND SHARES SOLD, REINVESTED AND
REDEEMED DURING THE LAST TWO PERIODS, ALONG WITH THE CORRESPONDING DOLLAR
VALUES.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 157
FINANCIAL STATEMENTS
John Hancock Funds - Government Securities Trust
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
periods indicated, investment returns, key ratios and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------
1995(e) 1994 1993 1992 1991
CLASS A -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year............................ $ 7.89 $ 8.41 $ 8.04 $ 8.03 $ 7.87
-------- -------- -------- -------- --------
Net Investment Income......................................... 0.61 0.64 0.66 0.87 0.89
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts................................. (0.36) (0.52) 0.40 (0.09) 0.14
-------- -------- -------- -------- --------
Total from Investment Operations........................... 0.25 0.12 1.06 0.78 1.03
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income........................ (0.59) (0.64) (0.69) (0.77) (0.87)
-------- -------- -------- -------- --------
Net Asset Value, End of Year.................................. $ 7.55 $ 7.89 $ 8.41 $ 8.04 $ 8.03
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value.................... 3.49% 1.26% 13.68% 10.09% 13.87%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (000's Omitted)....................... $489,090 $611,865 $718,426 $725,645 $771,826
Ratio of Expenses to Average Net Assets(c).................... 1.20% 1.14% 1.17% 1.21% 1.11%
Ratio of Net Investment Income to Average Net Assets.......... 8.10% 7.60% 7.93% 10.63% 11.13%
Portfolio Turnover Rate....................................... 337% 453% 322% 199% 117%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIODS INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DIVIDENDS AND TOTAL INVESTMENT RETURNS OF THE FUND. IT SHOWS HOW THE
FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 158
FINANCIAL STATEMENTS
John Hancock Funds - Government Securities Trust
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1994
(COMMENCEMENT OF
OPERATIONS) TO
MARCH 31, 1995 (e)
CLASS B ------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.................................................................... $ 7.51(a)
------
Net Investment Income................................................................................... 0.28
Net Realized and Unrealized Gain on Investments and Financial Futures Contracts......................... 0.03(d)
------
Total from Investment Operations...................................................................... 0.31
------
Less Distributions:
Dividends from Net Investment Income.................................................................... (0.27)
------
Net Asset Value, End of Period.......................................................................... $ 7.55
======
Total Investment Return at Net Asset Value.............................................................. 4.20%(b)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's Omitted)............................................................... $1,419
Ratio of Expenses to Average Net Assets(c).............................................................. 1.95%*
Ratio of Net Investment Income to Average Net Assets.................................................... 7.35%*
Portfolio Turnover Rate................................................................................. 337%
<FN>
* On an annualized basis.
(a) Initial price to commence operations.
(b) Not annualized.
(c) Excluding interest expense, which equalled 0.10% for the year ended March 31, 1995, 0.02% for the year ended March 31, 1994,
0.27% for the year ended March 31, 1993 and 0.32% for the year ended March 31, 1992.
(d) May not accord to amounts shown elsewhere in the financial statements.
(e) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 159
FINANCIAL STATEMENTS
John Hancock Funds - Government Securities Trust
SCHEDULE OF INVESTMENTS
March 31, 1995
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
GOVERNMENT SECURITIES TRUST ON MARCH 31, 1995. IT'S DIVIDED INTO TWO MAIN
CATEGORIES: U.S. GOVERNMENT AND AGENCIES SECURITIES AND SHORT-TERM INVESTMENTS.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
GOVERNMENTAL - U.S. (54.83%)
United States Treasury, Bond........................ 15.750% 11-15-01 $27,475 $ 39,770,063
United States Treasury, Bond........................ 11.625 11-15-02 27,000* 33,897,690
United States Treasury, Bond........................ 11.875 11-15-03 6,000* 7,749,366
United States Treasury, Bond........................ 11.625 11-15-04 14,000* 18,132,240
United States Treasury, Bond........................ 12.750 11-15-10 7,250* 10,052,567
United States Treasury, Bond........................ 12.000 08-15-13 27,000* 37,150,272
United States Treasury, Bond........................ 8.875 08-15-17 17,000* 19,324,240
United States Treasury, Note........................ 11.250 05-15-95 68,745* 69,142,346
United States Treasury, Note........................ 9.375 04-15-96 32,800* 33,712,168
------------
268,930,952
------------
GOVERNMENTAL - U.S. AGENCIES (41.30%)
Federal Home Loan Mortgage Corp,
CMO REMIC 1575-PG.................................. 6.000 08-15-07 5,444 4,960,845
CMO REMIC 1630-PK.................................. 6.000 11-15-23 11,920 9,476,400
CMO REMIC 1634-PN.................................. 4.500 12-15-23 10,575* 6,896,804
CMO REMIC 1643-PK.................................. 6.500 12-15-23 5,439 4,594,215
CMO REMIC 1667-PE.................................. 6.000 03-15-08 11,750 10,648,438
CMO REMIC 1994-48-E................................ 6.000 11-25-08 3,685 3,222,053
CMO REMIC 1576-PH.................................. 6.000 01-15-08 25,975 23,076,969
CMO REMIC Gold..................................... 9.000 03-01-25 5,100* 5,243,665
Federal National Mortgage Association,
30 Yr Pass Thru Ctf................................ 8.000 11-01-24 4,905* 4,857,324
30 Yr Pass Thru Ctf................................ 8.500 01-01-25 10,000* 10,106,199
GTD REMIC Pass Thru Ctf 1993-71-PH................. 6.500 05-25-08 5,000 4,559,350
GTD REMIC Pass Thru Ctf 1994-51-PV................. 6.000 03-25-24 20,926 16,557,698
GTD REMIC Pass Thru Ctf 1994-62-PK................. 7.000 04-25-24 5,986* 5,329,396
GTD REMIC Pass Thru Ctf X225C-TK................... 6.500 12-25-23 5,032* 4,241,020
STRIP MBS Ser 249 Class 2.......................... 6.500 10-25-23 2,945* 1,048,184
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 160
FINANCIAL STATEMENTS
John Hancock Funds - Government Securities Trust
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
GOVERNMENTAL - U.S. AGENCIES (CONTINUED)
Government National Mortgage Association,
30 Yr Pass Thru Ctf................................................... 7.500% 06-15-23 to $20,989* $ 20,265,851
05-15-24
30 Yr Pass Thru Ctf................................................... 8.000 01-15-04 to 10,201* 10,124,061
09-15-23
30 Yr Pass Thru Ctf................................................... 8.500 07-15-24 to 19,549* 19,828,978
02-15-25
30 Yr Pass Thru Ctf................................................... 9.000 02-15-25 4,900* 5,057,677
30 Yr Pass Thru Ctf................................................... 9.500 10-15-19 0 376
30 Yr Pass Thru Ctf................................................... 10.000 08-15-19 128 137,145
30 Yr Pass Thru Ctf................................................... 11.000 01-15-14 to 13,245* 14,582,334
12-15-15
30 Yr Pass Thru Ctf................................................... 11.500 08-14-10 101 110,903
30 Yr Pass Thru Ctf................................................... 12.000 01-15-13 to 15 17,378
05-15-15
30 Yr Pass Thru Ctf................................................... 13.000 01-15-11 to 191 214,347
08-15-15
30 Yr Pass Thru Ctf................................................... 14.000 05-15-11 to 56 62,790
07-15-12
30 Yr Pass Thru Ctf................................................... 14.500 06-15-11 to 194 216,502
10-15-12
30 Yr Pass Thru Ctf................................................... 15.000 08-15-11 to 346* 394,183
10-15-12
30 Yr Pass Thru Ctf................................................... 15.500 07-15-11 to 269 304,497
10-15-11
Tennessee Valley Authority,
Pwr Bonds 1994 Ser A.................................................. 7.850 06-15-44 17,500* 16,455,425
------------
202,591,007
------------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $478,153,782) 96.13% 471,521,959
------- ------------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (1.19%)
Investment in a joint repurchase agreement
transaction with U.B.S. Securities Inc.
Dated 03-31-95, Due 04-03-95 (secured by
U.S. Treasury Bond 6.250% due 08-15-23,
and U.S.Treasury Notes, 5.250% thru 9.125%
due 07-31-98 thru 05-15-01) - Note A.................................. 6.125% 5,819 5,819,000
------------
TOTAL SHORT-TERM INVESTMENTS (1.19%) 5,819,000
------- ------------
TOTAL INVESTMENTS (97.32%) $477,340,959
======= ============
<FN>
* Securities, other than short-terms investments, newly added to the portfolio during the period ended March 31, 1995. The
percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 161
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Securities Trust
NOTE A --
ACCOUNTING POLICIES
John Hancock Bond Fund, (the "Trust") is a diversified, open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of five series portfolios: John Hancock Government Securities
Trust (the "Fund"), John Hancock Investment Quality Bond Trust, John Hancock
U.S. Government Trust, John Hancock Intermediate Government Trust and John
Hancock Adjustable Government Trust. The Trustees may authorize the creation of
additional Funds from time to time to satisfy various investment objectives.
Effective December 22, 1994, the Trust and Funds changed names by replacing the
word Transamerica with John Hancock (See Note B).
The Trustees have authorized the issuance of two classes of the Fund,
designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemptions, dividends, and liquidation, except that certain
expenses, subject to the approval of the Trustees, may be applied differently
to each class of shares in accordance with current regulations of the
Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution/service expenses under the
terms of a distribution plan have exclusive voting rights regarding such
distribution plan. Class A Shares are subject to an initial sales charge of up
to 4.75% and a 12b-1 distribution plan. Class B Shares are subject to a
contingent deferred sales charge and a separate 12b-1 distribution plan. On
September 30, 1994, Class B shares were sold to commence class activity.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc., a wholly-owned subsidiary of The Berkeley Financial Group, may participate
in a joint repurchase agreement transaction. Aggregate cash balances are
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
REVERSE REPURCHASE AGREEMENT Prior to December 22, 1994 the Fund entered into
reverse repurchase agreements which involve the sale of securities held by the
Fund to a bank or securities firm with an agreement that the Fund will buy back
the securities at a fixed future date at a fixed price plus an agreed amount of
"interest" which may be reflected in the repurchase price. Reverse repurchase
agreements are considered to be borrowings by the Fund and the Fund used the
proceeds obtained from the sale of securities to purchase other investments.
Effective December 22, 1994, the Fund discontinued investing in reverse
repurchase agreements.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked' prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked-to-market to reflect the current market
value of the written option.
The Fund may use option contracts to manage its exposure to the stock
market. Writing puts and buying calls will tend to increase the Fund's exposure
to the underlying instrument and buying puts and
13
<PAGE> 162
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Securities Trust
writing calls will tend to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited
to the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the
contracts' terms, or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To
minimize credit and liquidity risks in over-the-counter option contracts, the
Fund will continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's Statement
of Assets and Liabilities.
There were no written option transactions for the period ended March
31, 1995.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it
will be required to deposit with its custodian a specified amount of cash or
U.S. government securities, known as "initial margin", equal to a certain
percentage of the value of the financial futures contract being traded. Each
day, the futures contract will be valued at the official settlement price of the
board of trade or U.S. commodities exchange. Subsequent payments, known as
"variation margin", to and from the broker will be made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund will recognize a gain or loss.
Risks of entering into futures contracts include the possibility that there may
be an illiquid market and/or that a change in the value of the contracts may
not correlate with changes in the value of the underlying securities. In
addition, the Fund could be prevented from opening or realizing the benefits of
closing out futures positions because of position limits or limits on daily
price fluctuations imposed by an exchange.
For Federal income tax purposes, the amount, character and timing of
the Fund's gains and/or losses can be affected as a result of futures
contracts.
At March 31, 1995, there were no open positions in financial futures
contracts.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis for both financial
reporting and federal income tax purposes.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes at December 31, 1994, the Fund had
approximately $374,800,000 of capital loss carryforwards available, to the
extent provided by regulations, to offset future net realized capital gains. If
such carryforwards are used by the Fund, no capital gain distributions will be
made. The carryforwards expire as follows: 1996 -- $231,900,000, 1997 --
$50,300,000, 1998 -- $19,100,000, 1999 -- $6,900,000 and 2002 -- $66,600,000.
The Fund's tax year end is December 31.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis.
14
<PAGE> 163
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Securities Trust
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund, if any,
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for the effect of expenses
that may be applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not identifiable to a specific Fund are
allocated in such a manner as deemed equitable, taking into consideration, among
other things, the nature and type of expense and the relative sizes of the
Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level based
on the appropriated net assets of each class and the specific expense rate(s)
applicable to each class.
RECLASSIFICATION Certain reclassifications have been made to 1994 amounts to
permit comparisons to the 1995 presentations.
NOTE B --
MANAGEMENT FEE, ADMINISTRATIVE SERVICES AND TRANSACTIONS WITH AFFILIATES AND
OTHERS
On December 22, 1994, John Hancock Advisers, Inc. (the "Adviser"), a wholly
owned subsidiary of The Berkeley Financial Group, became the investment adviser
for the Fund with approval of the Trustees and shareholders of the Fund. The
Fund's former investment manager was Transamerica Fund Management Company
("TFMC").
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment program
equivalent, to 0.650% of the first $200,000,000 of the Fund's average daily net
asset value, 0.625% of the next $300,000,000, and 0.600% of the Fund's average
daily net asset value in excess of $500,000,000. This fee structure is
consistent with the former agreement with TFMC. For the period ended March 31,
1995, the advisory fee earned by the Adviser and TFMC amounted to $2,576,039
and $858,679, respectively, resulting in a total fee of $3,434,718.
The Adviser and TFMC, for their respective periods, provided
administrative services to the Fund pursuant to an administrative service
agreement through January 16, 1995 on which day the agreement was terminated.
In the event normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of the most restrictive
state limit where the Fund is registered to sell shares of beneficial interest,
the fee payable to the Adviser will be reduced to the extent of such excess and
the Adviser will make additional arrangements necessary to eliminate any
remaining excess expenses. The current limits are 2.5% of the first $30,000,000
of the Fund's average daily net asset value, 2.0% of the next $70,000,000 and
1.5% of the remaining average daily net asset value.
On December 22, 1994 John Hancock Funds, Inc. ("JH Funds"), a
wholly-owned subsidiary of the Adviser, became the principal underwriter of the
Fund. Prior to this date, Transamerica Fund Distributors, Inc. ("TFD") served
as the principal underwriter and distributor of the Fund. For the period ended
March 31, 1995, JH Funds and TFD received net sales charges of $422,993 with
regard to sales of Class A shares. Out of this amount, $47,571 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, and $375,422 was paid as sales commissions to unrelated
broker-dealers.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds, formerly TFD, and are used in whole or in
part to defray its expenses related to providing distribution related services
to the
15
<PAGE> 164
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Securities Trust
Fund in connection with the sale of Class B shares. For the period ended March
31, 1995, contingent deferred sales charges amounted to $188.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan
with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments for distribution
and service expenses which in total will not exceed on an annual basis 0.25% of
the Fund's average daily net assets attributable to Class A shares and 1.00% of
the Fund's average daily net assets attributable to Class B shares, to
reimburse for its distribution/service costs. Up to a maximum of 0.25% of such
payments may be service fees as defined by the amended Rules of Fair Practice
of the National Association of Securities Dealers which became effective July
7, 1993. Under the amended Rules of Fair Practice, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances. This fee
structure and plan is similar to the former arrangement with TFD.
The Board of Trustees approved a shareholder servicing agreement
between the Fund and John Hancock Investor Services Corporation ("Investor
Services"), a wholly owned subsidiary of The Berkeley Financial Group, for the
period between December 22, 1994 and May 12, 1995, inclusive under which
Investor Services processed telephone transactions on behalf of the Fund. As of
May 15, 1995, the Fund entered into a full service transfer agent agreement
with Investor Services. Prior to this date The Shareholder Services Group was
the transfer agent. The Fund will pay Investor Services a fee based on
transaction volume and number of shareholder accounts.
A partner with Baker & Botts was an officer of the Trust until December
22, 1994. During the period ended March 31, 1995, legal fees paid to Baker &
Botts amounted to $38,695.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser
and its affiliates as well as Trustee of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Trustees may elect to defer their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund will make investments into other John Hancock Funds, as applicable, to
cover its liability with regard to the deferred compensation. Investments to
cover the Fund's deferred compensation liability will be recorded on the Fund's
books as other assets. The deferred compensation liability will be marked to
market on a periodic basis and income earned by the investment will be recorded
on the Fund's books.
The Fund has an independent advisory board composed of certain members
of the former Transamerica Board of Trustees who provide advice to the current
Trustees in order to facilitate a smooth management transition for which the
Fund pays the advisory board and its counsel a fee.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended March 31, 1995 aggregated $1,911,894,001
and $2,004,789,657, respectively.
The cost of investments owned at March 31, 1995 for Federal income tax
purposes was $483,972,782. Gross unrealized appreciation and depreciation of
investments aggregated $2,803,716, and $9,435,539, respectively, resulting in
net unrealized depreciation of $6,631,823.
16
<PAGE> 165
John Hancock Funds - Government Securities Trust
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Bond Fund --
John Hancock Government Securities Trust
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the John Hancock Government Securities Trust
(formerly the Transamerica Government Securities Trust) (the "Fund"), one of the
portfolios constituting John Hancock Bond Fund (formerly the Transamerica Bond
Fund) (the "Trust"), as of March 31, 1995, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1995, by correspondence with the custodian and brokers, or other
appropriate auditing procedures where replies from brokers were not received.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the John Hancock Government Securities Trust portfolio of John
Hancock Bond Fund at March 31, 1995, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of five years in the
period then ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
----------------------
Boston, Massachusetts
May 15, 1995
17
<PAGE> 166
ADDITIONAL INFORMATION
John Hancock Funds - Government Securities Trust
On December 16, 1994 , a special meeting of John Hancock (formerly
Transamerica) Bond Fund (the "Trust") in respect of John Hancock (formerly
Transamerica) Government Securities Trust (the "Fund") was held involving the
election of trustees and certain other matters concerning the Fund.
Specifically, shareholder's first approved a new investment management
agreement between the Trust on behalf of the Fund and John Hancock Advisers,
Inc. on substantially similar terms of the prior investment management
agreement, to take effect on December 22, 1994, the date of the consummation of
the acquisition of Transamerica Fund Management Company by The Berkeley
Financial Group. The shareholder votes tallied were 38,402,317 FOR, 672,818
AGAINST and 1,806,546 ABSTAINING.
The shareholders next approved new Plans of Distribution for each Class
A and Class B shares of the Fund, also effective on December 22, 1994, and also
on substantially the same terms as the prior Plans of Distribution. The Class A
shareholder votes tallied were 37,803,389 FOR, 899,806 AGAINST and 2,173,542
ABSTAINING. The Class B shareholder votes tallied were 4,943 FOR, 0 AGAINST and
0 ABSTAINING.
The shareholders also voted to ratify the selection of Ernst & Young,
LLP as independent auditors for the Fund for the fiscal year ending March 31,
1995, and the votes tallied were 41,133,844 FOR, 267,609 AGAINST and 267,609
ABSTAINING.
Lastly, the following trustees were elected to serve until their
respective successors shall become duly elected and qualified, with the votes
tabulated as indicated:
<TABLE>
<CAPTION>
NAME OF TRUSTEE FOR WITHHOLD
- --------------- --- --------
<S> <C> <C>
Edward J. Boudreau, Jr.......... 37,870,304 4,830,497
James F. Carlin................. 37,867,524 4,833,277
William H. Cunningham........... 37,865,290 4,835,511
Charles L. Ladner............... 37,853,411 4,847,390
Leo E. Linbeck, Jr.............. 37,841,025 4,859,776
Patricia P. McCarter............ 37,846,165 4,854,635
Steven R. Pruchansky............ 37,836,871 4,863,930
Norman H. Smith................. 37,847,036 4,853,765
John P. Toolan.................. 37,863,161 4,837,640
</TABLE>
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished with
respect to the dividends of the Fund during its tax year ended December 31,
1994. All of the dividends paid for the fiscal year are taxable as ordinary
income. None of the 1994 dividends qualify for the dividends received deduction
available to corporations.
Shareholders will be mailed a 1995 U.S. Treasury Department Form
1099-DIV in January 1996. This will reflect the total of all distributions
which are taxable for calendar year 1995.
18
<PAGE> 167
NOTES
John Hancock Funds - Government Securities Trust
19
<PAGE> 168
EXHIBIT B
---------
JOHN HANCOCK SERIES, INC.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
consisting of six series,
JOHN HANCOCK MONEY MARKET FUND B
JOHN HANCOCK GLOBAL RESOURCES FUND
JOHN HANCOCK GOVERNMENT INCOME FUND
JOHN HANCOCK HIGH YIELD BOND FUND
JOHN HANCOCK HIGH YIELD TAX-FREE FUND
JOHN HANCOCK EMERGING GROWTH FUND
(each, a "Fund" and collectively, the "Funds")
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
MAY 15, 1995
This Statement of Additional Information ("SAI") provides information
about John Hancock Series, Inc. (the "Corporation") and the Funds, in addition
to the information that is contained in the Funds' Prospectuses dated May 15,
1995.
This SAI is not a prospectus. It should be read in conjunction with
the Funds' Prospectuses, copies of which can be obtained free of charge by
writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Organization of the Corporation.......................... 3
Investment Objectives and Policies....................... 3
Certain Investment Practices............................. 5
Special Investment Techniques............................ 21
Investment Restrictions.................................. 25
Those Responsible for Management......................... 30
Investment Advisory and Other Services................... 37
Distribution Contract.................................... 42
Net Asset Value.......................................... 45
Initial Sales Charge on Class A Shares................... 47
Deferred Sales Charge on Class B Shares.................. 48
Special Redemptions...................................... 49
Additional Services and Programs......................... 49
</TABLE>
<PAGE> 169
<TABLE>
<S> <C>
Description of the Corporation's Shares.................. 50
Tax Status............................................... 51
Calculation of Performance............................... 56
Brokerage Allocation..................................... 61
Transfer Agent Services.................................. 63
Custody of Portfolios.................................... 64
Independent Auditors..................................... 64
Appendix A............................................... A-1
Financial Statements..................................... F-1
</TABLE>
-2-
<PAGE> 170
ORGANIZATION OF THE CORPORATION
The Corporation is an open-end management investment company
organized as a Maryland corporation on June 22, 1987. The Corporation
currently has six series: John Hancock Emerging Growth Fund, John
Hancock Global Resources Fund, John Hancock Government Income Fund,
John Hancock High Yield Bond Fund, John Hancock High Yield Tax-Free
Fund and John Hancock Money Market Fund B. Prior to December 22,
1994, the Funds were called Transamerica Emerging Growth Fund,
Transamerica Global Resources Fund, Transamerica Government Income
Fund, Transamerica High Yield Bond Fund, Transamerica High Yield Tax-
Free Fund and Transamerica Money Market Fund B.
Each Fund is managed by John Hancock Advisers, Inc. (the
"Adviser"), a wholly-owned indirect subsidiary of John Hancock Mutual
Life Insurance Company (the "Life Company"), chartered in 1862 with
national headquarters at John Hancock Place, Boston, Massachusetts.
John Hancock Funds, Inc. ("John Hancock Funds") acts as principal
distributor of the shares of the Funds.
INVESTMENT OBJECTIVES AND POLICIES
John Hancock Emerging Growth Fund ("Emerging Growth Fund") seeks
long-term growth of capital through investing primarily (at least 80%
of its assets in normal circumstances) in the common stocks of rapidly
growing small-sized companies (those with a market capitalization of
$500 million or less) to medium-sized companies (those with a market
capitalization of up to $1 billion.) Current income is not a factor
of consequence in the selection of stocks for the Fund.
John Hancock Global Resources Fund's ("Global Resources Fund")
investment objectives are to protect the purchasing power of
shareholders' capital and to achieve growth of capital. The first of
these objectives means that the Fund seeks to protect generally
shareholders' invested capital against erosion of the value of the
U.S. dollar through inflation. Current income will not be a primary
consideration in selecting securities. However, it will be an
important factor in making selections among securities believed
otherwise comparable by the Investment Adviser.
John Hancock Government Income Fund's ("Government Income Fund")
investment objective is to earn a high level of current income
consistent with preservation of capital by investing primarily in
securities that are issued or guaranteed as to principal and interest
by the U.S. government, its agencies or instrumentalities ("U.S.
Government Securities.") The Fund may seek to enhance its current
return and may seek to hedge against changes in interest rates by
engaging in transactions involving options, futures and options on
futures. The Fund expects that under normal market conditions it will
invest at least 80% of its total assets in U.S. Government Securities.
John Hancock High Yield Bond Fund's ("High Yield Bond Fund") primary
investment objective is to maximize current income without assuming
undue risk by investing in a diversified portfolio consisting
primarily of lower-rated, high yielding, fixed income securities, such
as: domestic and foreign corporate bonds; debentures and notes;
convertible securities; preferred stocks; and domestic and foreign
government obligations. As a secondary objective, the Fund seeks
capital appreciation, but only when it is consistent with the primary
objective of maximizing current income.
John Hancock High Yield Tax-Free Fund ("High Yield Tax-Free Fund") has
as its primary investment objective to obtain a high level of current
income that is largely exempt from federal income taxes and is
consistent with the preservation of capital. The Fund pursues this
objective
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by normally investing substantially all of its assets in medium and
lower quality obligations, including bonds, notes and commercial
paper, issued by or on behalf of states, territories and possessions
of the United States, The District of Columbia and their political
subdivisions, agencies or instrumentalities, the interest on which is
exempt from federal income tax ("tax- exempt securities"). The Fund
seeks as its secondary objective preservation of capital by purchasing
and selling interest rate futures contracts ("financial futures") and
tax-exempt bond index futures contracts ("index futures"), and by
purchasing and writing put and call options on debt securities,
financial futures, tax-exempt bond indices and index futures to hedge
against changes in the general level of interest rates.
John Hancock Money Market Fund B ("Money Market Fund") seeks to
provide maximum current income consistent with the preservation of
capital and maintenance of liquidity through investing in high quality
money market instruments. Securities in which the Fund invests may
not earn as high a level of current income as longer term or lower
quality securities, which generally have less liquidity, greater
market risk, and more fluctuation in market value.
_________________________________
Each Fund is a "diversified" management investment company under
the Investment Company Act of 1940 (the "1940 Act"). This means that
with respect to 75% of its total assets: (1) the Fund may not invest
more than 5% of its total assets in the securities of any one issuer
other than U.S. Government securities and securities of other
investment companies and (2) the Fund may not own more than 10% of the
outstanding voting securities of any one issuer. In applying these
limitations, a guarantee of a security will not be considered a
security of the guarantor, provided that the value of all securities
issued or guaranteed by that guarantor, and owned by the Fund, does
not exceed 10% of the Fund's total assets. In determining the issuer
of a security, each state and each political subdivision agency, and
instrumentality of each state and each multi-state agency of which
such state is a member is a separate issuer. Where securities are
backed only by assets and revenues of a particular instrumentality,
facility or subdivision, such entity is considered the issuer.
There can be no assurance that the Funds will achieve their
respective investment objectives.
Investment Philosophy of Global Resources Fund. The Adviser
believes that, based upon past performance, the securities of specific
companies that hold different types of substantial resource assets or
engage in resource-related or energy-related activities may move
relatively independently of one another during different stages of
inflationary or deflationary cycles because of different degrees of
demand for, or market values of, their respective resource holdings or
resource-related or energy-related business during particular portions
of such cycles. For example, during the period 1976 to 1980, the
prices of oil company stocks increased relatively more than the prices
of coal company stocks when compared to the performance of relevant
stock market indices. The Adviser will seek to identify companies or
asset-based securities which it believes are attractively priced
relative to the intrinsic value of the underlying resource assets or
resource-related or energy-related business or are especially well
positioned to benefit during particular portions of inflationary or
deflationary cycles. It is expected that when management of the Fund
anticipates significant economic, political or financial instability,
such as high inflationary or deflationary pressures or major
dislocations in the foreign currency exchange markets, the Fund may,
in seeking to protect the purchasing power of shareholders' capital,
invest a majority of its assets in companies that explore for,
extract, process or deal in gold or in asset-based securities indexed
to the value of gold bullion. Such a switch in investment strategies
could result in substantial liquidation of portfolio securities and
significant transaction costs. The Fund's approach of active
investment management enables it to switch its emphasis among
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various industry groups, depending upon the Adviser's outlook with
respect to prevailing trends and developments. The Fund may seek to
hedge its portfolio partially by writing covered call options or
purchasing put options on its portfolio holdings.
CERTAIN INVESTMENT PRACTICES
Purchases of Warrants. Emerging Growth Fund's and Global
Resources Fund's investment policies permit the purchase of rights and
warrants, which represent rights to purchase the common stock of
companies at designated prices. No such purchase will be made by a
Fund, however, if the Fund's holdings of warrants (valued at lower of
cost or market) would exceed 5% of the value of the Fund's total net
assets as a result of the purchase. In addition, no Fund will
purchase a warrant or right which is not listed on the New York or
American Stock Exchanges if the purchase would result in the Fund's
owning unlisted warrants in an amount exceeding 2% of its net assets.
Eurodollar and Yankee Certificates of Deposit ("CDs") and
Bankers' Acceptance ("BAs"). Money Market Fund B may invest in
Eurodollar CDs and BAs and Yankee CDs and BAs. These instruments are
traded in the secondary market and are subject to the same risks as
investments in CDs and BAs of domestic banks, including interest rate
fluctuations and creditworthiness of the issuing banks. Eurodollar
CDs and BAs issued by foreign banks also are subject to certain risks
not associated with similar investments in domestic obligations, such
as the risk that the country where the branch is located might impose
currency controls, interest limitations or a moratorium which could
terminate or modify the issuing bank's liability against its
outstanding Eurodollar obligation. Additionally, there currently are
no reserve requirements for Eurodollar CDs and BAs and they are not
insured by the FDIC or any other U.S. governmental agency. In the
case of Eurodollar CDs and BAs issued by foreign branches of domestic
banks, the issuing branch is subject to similar such risks. To the
extent, however, that payment on such Eurodollar CDs and BAs is
ultimately the obligation of the domestic parent, if the issuing
branch fails to make payment, such Eurodollar CDs and BAs do not
present risks significantly greater than those associated with CDs and
BAs issued by domestic banks.
In the case of Yankee CDs and BAs, while foreign banks are not
subject to the same regulatory system as domestic banks, domestic
branches of foreign banks are subject to certain federal and/or state
regulation. Yankee CDs and BAs with maturities of less than 18 months
are subject to the Federal Reserve System's reserve requirements;
however, they may or may not be insured by the FDIC. The markets for
Eurodollar and Yankee CDs and BAs may be less liquid than the market
for similar obligations issued by domestic branches of U.S. banks.
Foreign Securities and Emerging Countries. Emerging Growth Fund,
Global Resources Fund and High Yield Bond Fund may invest in
securities of foreign issuers. These Funds may also invest in debt
and equity securities of corporate and governmental issuers of
countries with emerging economies or securities markets. Government
Income Fund may invest in foreign currency denominated securities of
foreign governments considered stable by the Investment Adviser and
may hedge such investments through various options and futures
transactions involving foreign currencies.
Investing in securities of non-U.S. issuers, and in particular
emerging countries, may entail greater risks than investing in
securities of issuers in the U.S. These risks include (i) less
social, political and economic stability; (ii) the small current size
of the markets for many such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and
in greater price volatility; (iii) certain national policies which may
restrict a Fund's investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to
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national interests; (iv) foreign taxation; and (v) the absence of
developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property.
Investing in securities of non-U.S. companies may entail
additional risks due to the potential political and economic
instability of certain countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on
foreign investment and on repatriation of capital invested. In the
event of such expropriation, nationalization or other confiscation by
any country, a Fund could lose its entire investment in any such
country.
In addition, even though opportunities for investment may exist
in foreign countries, and in particular emerging markets, any change
in the leadership or policies of the governments of those countries or
in the leadership or policies of any other government which exercises
a significant influence over those countries, may halt the expansion
of or reverse the liberalization of foreign investment policies now
occurring and thereby eliminate any investment opportunities which may
currently exist.
Investors should note that upon the accession to power of
authoritarian regimes, the governments of a number of Latin American
countries previously expropriated large quantities of real and
personal property similar to the property which may be represented by
the securities purchased by the Funds. The claims of property owners
against those governments were never finally settled. There can be no
assurance that any property represented by foreign securities
purchased by a Fund will not also be expropriated, nationalized, or
otherwise confiscated. If such confiscation were to occur, a Fund
could lose a substantial portion of its investments in such countries.
A Fund's investments would similarly be adversely affected by exchange
control regulation in any of those countries.
Certain countries in which the Funds may invest may have vocal
minorities that advocate radical religious or revolutionary
philosophies or support ethnic independence. Any disturbance on the
part of such individuals could carry the potential for wide-spread
destruction or confiscation of property owned by individuals and
entities foreign to such country and could cause the loss of a Fund's
investment in those countries.
Certain countries prohibit or impose substantial restrictions on
investments in their capital markets, particularly their equity
markets, by foreign entities such as the Funds. As illustrations,
certain countries require governmental approval prior to investments
by foreign persons, or limit the amount of investment by foreign
persons in a particular company, or limit the investment by foreign
persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available
for purchase by nationals. Moreover, the national policies of certain
countries may restrict investment opportunities in issuers or
industries deemed sensitive to national interests. In addition, some
countries require governmental approval for the repatriation of
investment income, capital or the proceeds of securities sales by
foreign investors. A Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other
restrictions on investments.
Foreign companies are subject to accounting, auditing and
financial standards and requirements that differ, in some cases
significantly, from those applicable to U.S. companies. In
particular, the assets, liabilities and profits appearing on the
financial statements of such a company may not reflect its financial
position or results of operations in the way they would be reflected
had such financial statements been prepared in accordance with U.S.
generally accepted accounting principles. Most foreign securities
held by the Funds will not be registered with the Securities and
Exchange Commission (the "SEC") and such issuers thereof will not be
subject to the SEC's reporting requirements. Thus, there will be less
available information concerning
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foreign issuers of securities held by the Funds than is available
concerning U.S. issuers. In instances where the financial statements
of an issuer are not deemed to reflect accurately the financial
situation of the issuer, the Adviser or Subadviser will take
appropriate steps to evaluate the proposed investment, which may
include on-site inspection of the issuer, interviews with its
management and consultations with accountants, bankers and other
specialists. There is substantially less publicly available
information about foreign companies than there are reports and ratings
published about U.S. companies and the U.S. government. In addition,
where public information is available, it may be less reliable than
such information regarding U.S. issuers.
Because the Funds may invest, and Global Resources Fund will
(under normal circumstances) invest a substantial portion of their
total assets, in securities which are denominated or quoted in foreign
currencies, the strength or weakness of the U.S. dollar against such
currencies may account for part of the Funds' investment performance.
A decline in the value of any particular currency against the U.S.
dollar will cause a decline in the U.S. dollar value of a Fund's
holdings of securities denominated in such currency and, therefore,
will cause an overall decline in the Fund's net asset value and any
net investment income and capital gains to be distributed in U.S.
dollars to shareholders of the Fund.
The rate of exchange between the U.S. dollar and other currencies
is determined by several factors including the supply and demand for
particular currencies, central bank efforts to support particular
currencies, the movement of interest rates, the pace of business
activity in certain other countries and the U.S., and other economic
and financial conditions affecting the world economy.
Although the Funds value their respective assets daily in terms
of U.S. dollars, the Funds do not intend to convert their holdings of
foreign currencies into U.S. dollars on a daily basis. However, the
Funds may do so from time to time, and investors should be aware of
the costs of currency conversion. Although currency dealers do not
charge a fee for conversion, they do realize a profit based on the
difference ("spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a Fund at one rate, while offering a lesser rate
of exchange should the Fund desire to sell that currency to the
dealer.
Securities of foreign issuers, and in particular many emerging
country issuers, may be less liquid and their prices more volatile
than securities of comparable U.S. issuers. In addition, foreign
securities exchanges and brokers are generally subject to less
governmental supervision and regulation than in the U.S., and foreign
securities exchange transactions are usually subject to fixed
commissions, which are generally higher than negotiated commissions on
U.S. transactions. In addition, foreign securities exchange
transactions may be subject to difficulties associated with the
settlement of such transactions. Delays in settlement could result in
temporary periods when assets of a Fund are uninvested and no return
is earned thereon. The inability of a Fund to make intended security
purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of a
portfolio security due to settlement problems either could result in
losses to a Fund due to subsequent declines in value of the portfolio
security or, if the Fund has entered into a contract to sell the
security could result in possible liability to the purchaser.
The Funds' investment income or, in some cases, capital gains
from foreign issuers may be subject to foreign withholding or other
taxes, thereby reducing the Funds' net investment income and/or net
realized capital gains. See "Tax Status."
Depositary Receipts. As discussed in the Prospectuses, Emerging
Growth Fund, Global Resources Fund and High Yield Bond Fund may invest
in the securities of foreign issuers in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") or
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other securities convertible into securities of foreign issuers.
These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted but rather
in the currency of the market in which they are traded. ADRs are
receipts typically issued by an American bank or trust company which
evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe by banks or
depositories which evidence a similar ownership arrangement.
Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs, in bearer form, are designed for use in
European securities markets.
Options on Foreign Currencies. Global Resources Fund may
purchase and write put and call options on foreign currencies for the
purpose of protecting against declines in the dollar value of
portfolio securities and against increases in the dollar cost of
securities to be acquired.
As in the case of other types of options, however, the writing of
an option on foreign currency will constitute only a partial hedge,
such as the amount of the premium received and the Fund could be
required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option
on foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate
movements adverse to the Fund's position, it may forfeit the entire
amount of the premium plus related transaction costs.
Options on foreign currencies are traded in a manner
substantially similar to options on securities. In particular, an
option on foreign currency provides the holder with the right to
purchase, in the case of a call option, or to sell, in the case of a
put option, a stated quantity of a particular currency for a fixed
price up to a stated expiration date. The writer of the option
undertakes the obligation to deliver, in the case of a call option, or
to purchase, in the case of a put option, the quantity of the currency
called for in the option, upon exercise of the option by the holder.
As in the case of other types of options, the holder of an option
on foreign currency is required to pay a one-time, non-refundable
premium, which represents the cost of purchasing the option. The
holder can lose the entire amount of this premium, as well as related
transaction costs, but not more than this amount. The writer of the
option, in contrast, generally is required to make initial and
variation margin payments similar to margin deposits required in the
trading of futures contracts and the writing of other types of
options. The writer is therefore subject to risk of loss beyond the
amount originally invested and above the value of the option at the
time it is entered into. Certain options on foreign currencies like
forward contracts are traded over-the-counter through financial
institutions acting as market-makers in such options and the
underlying currencies. Such transactions therefore involve risks not
generally associated with exchange- traded instruments. Options on
foreign currencies may also be traded on national securities exchanges
regulated by the SEC or commodities exchanges regulated by the
Commodity Futures Trading Commission.
Forward Foreign Currency Contracts. Emerging Growth Fund, Global
Resources Fund and High Yield Bond Fund may engage in forward foreign
currency transactions. Generally, the foreign currency exchange
transactions of the Funds may be conducted on a spot (i.e., cash)
basis at the spot rate for purchasing or selling currency prevailing
in the foreign exchange market. A Fund may also deal in forward
foreign currency exchange contracts involving currencies of the
different countries in which it may invest as a hedge against possible
variations in the foreign exchange rate between these currencies.
This is accomplished through contractual agreements to purchase or
sell a specified currency at a specified future date and price set at
the time of the contract. The Funds' dealings in forward foreign
currency exchange contracts will be limited to hedging either
specified transactions or portfolio positions. Transaction hedging is
the purchase
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or sale of forward foreign currency contracts with respect to specific
receivables or payables of a Fund accruing in connection with the
purchase and sale of its portfolio securities denominated in foreign
currencies. Portfolio hedging is the use of forward foreign currency
contracts to offset portfolio security positions denominated or quoted
in such foreign currencies. A Fund will not attempt to hedge all of
its foreign portfolio positions and will enter into such transactions
only to the extent, if any, deemed appropriate by the Adviser. The
Board of Directors has adopted a policy of monitoring the Funds'
foreign currency contract income to assure that the Funds qualify as
regulated investment companies under the Internal Revenue Code of
1986, as amended (the "Code"). The Fund will not engage in
speculative forward foreign currency exchange transactions.
If a Fund purchases a forward contract, its custodian bank will
segregate cash or high grade liquid debt securities in a separate
account of the Fund in an amount equal to the value of the Fund's
total assets committed to the consummation of such forward contract.
Those assets will be valued at market daily and if the value of the
securities in the separate account declines, additional cash or
securities will be placed in the account so that the value of the
account will be equal to the amount of the Fund's commitment with
respect to such contracts.
Hedging against a decline in the value of currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value of
the hedged currency rises. Moreover, it may not be possible for a
Fund to hedge against a devaluation that is so generally anticipated
that the Fund is not able to contract to sell the currency at a price
above the devaluation level it anticipates.
The cost to a Fund of engaging in foreign currency exchange
transactions varies with such factors as the currency involved, the
length of the contract period and the market conditions then
prevailing. Since transactions in foreign currency are usually
conducted on a principal basis, no fees or commissions are involved.
Government Securities. Certain U.S. Government securities,
including U.S. Treasury bills, notes and bonds, and Government
National Mortgage Association certificates ("Ginnie Maes"), are
supported by the full faith and credit of the United States. Certain
other U.S. Government securities, issued or guaranteed by Federal
agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by
the right of the issuer to borrow from the U.S. Treasury. These
securities include obligations of the Federal Home Loan Mortgage
Corporation ("Freddie Macs"), and obligations supported by the credit
of the instrumentality, such as Federal National Mortgage Association
Bonds ("Fannie Maes"). No assurance can be given that the U.S.
Government will provide financial support to such Federal agencies,
authorities, instrumentalities and government sponsored enterprises in
the future.
Mortgage-Backed Securities. Government Income Fund and High
Yield Bond Fund may invest in mortgage pass-through certificates and
multiple-class pass-through securities, such as real estate mortgage
investment conduits ("REMIC") pass-through certificates,
collateralized mortgage obligations ("CMOs") and stripped
mortgage-backed securities ("SMBS"), and other types of
"Mortgage-Backed Securities" that may be available in the future.
Guaranteed Mortgage Pass-Through Securities. Guaranteed mortgage
pass-through securities represent participation interests in pools of
residential mortgage loans and are issued by U.S. Governmental or
private lenders and guaranteed by the U.S. Government or one of its
agencies or instrumentalities, including but not limited to the
Government National Mortgage Association ("Ginnie Mae"), the Federal
National Mortgage Association ("Fannie Mae") and the
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Federal Home Loan Mortgage Corporation ("Freddie Mac"). Ginnie Mae
certificates are guaranteed by the full faith and credit of the U.S.
Government for timely payment of principal and interest on the
certificates. Fannie Mae certificates are guaranteed by Fannie Mae, a
federally chartered and privately owned corporation, for full and
timely payment of principal and interest on the certificates. Freddie
Mac certificates are guaranteed by Freddie Mac, a corporate
instrumentality of the U.S. Government, for timely payment of interest
and the ultimate collection of all principal of the related mortgage
loans.
Multiple-Class Pass-Through Securities and Collateralized
Mortgage Obligations. CMOs and REMIC pass-through or participation
certificates may be issued by, among others, U.S. Government agencies
and instrumentalities as well as private lenders. CMOs and REMIC
certificates are issued in multiple classes and the principal of and
interest on the mortgage assets may be allocated among the several
classes of CMOs or REMIC certificates in various ways. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be
fully retired no later than its final distribution date. Generally,
interest is paid or accrues on all classes of CMOs or REMIC
certificates on a monthly basis.
Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or
Freddie Mac certificates but also may be collateralized by other
mortgage assets such as whole loans or private mortgage pass-through
securities. Debt service on CMOs is provided from payments of
principal and interest on collateral of mortgaged assets and any
reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under
the Code and invests in certain mortgages primarily secured by
interests in real property and other permitted investments.
Stripped Mortgage-Backed Securities. SMBS are derivative
multiple-class mortgage- backed securities. SMBS are usually
structured with two classes that receive different proportions of
interest and principal distributions on a pool of mortgage assets. A
typical SMBS will have one class receiving some of the interest and
most of the principal, while the other class will receive most of the
interest and the remaining principal. In the most extreme case, one
class will receive all of the interest (the "interest only" class)
while the other class will receive all of the principal (the
"principal only" class). The yields and market risk of interest only
and principal only SMBS, respectively, may be more volatile than those
of other fixed income securities. The staff of the SEC considers
privately issued SMBS to be illiquid.
Structured or Hybrid Notes. Government Income Fund, High Yield
Bond Fund and High Yield Tax-Free Fund may invest in "structured" or
"hybrid" notes. The distinguishing feature of a structured or hybrid
note is that the amount of interest and/or principal payable on the
note is based on the performance of a benchmark asset or market other
than fixed-income securities or interest rates. Examples of these
benchmarks include stock prices, currency exchange rates and physical
commodity prices. Investing in a structured note allows a Fund to
gain exposure to the benchmark market while fixing the maximum loss
that the Fund may experience in the event that market does not perform
as expected. Depending on the terms of the note, a Fund may forego
all or part of the interest and principal that would be payable on a
comparable conventional note; a Fund's loss cannot exceed this
foregone interest and/or principal. An investment in structured or
hybrid notes involves risks similar to those associated with a direct
investment in the benchmark asset.
Risk Factors Associated with Mortgage-Backed Securities.
Investing in Mortgage- Backed Securities involves certain risks,
including the failure of a counter-party to meet its commitments,
adverse interest rate changes and the effects of prepayments on
mortgage cash flows. In addition, investing in the lowest tranche of
CMOs and REMIC certificates involves
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risks similar to those associated with investing in equity securities.
Further, the yield characteristics of Mortgage-Backed Securities
differ from those of traditional fixed income securities. The major
differences typically include more frequent interest and principal
payments (usually monthly), the adjustability of interest rates, and
the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest
rates and a variety of economic, geographic, social and other factors
and cannot be predicted with certainty. Both adjustable rate mortgage
loans and fixed rate mortgage loans may be subject to a greater rate
of principal prepayments in a declining interest rate environment and
to a lesser rate of principal prepayments in an increasing interest
rate environment. Under certain interest rate and prepayment rate
scenarios, a Fund may fail to recoup fully its investment in
Mortgage-Backed Securities notwithstanding any direct or indirect
governmental, agency or other guarantee. When a Fund reinvests
amounts representing payments and unscheduled prepayments of
principal, it may receive a rate of interest that is lower than the
rate on existing adjustable rate mortgage pass- through securities.
Thus, Mortgage-Backed Securities, and adjustable rate mortgage
pass-through securities in particular, may be less effective than
other types of U.S. Government securities as a means of "locking in"
interest rates.
Conversely, in a rising interest rate environment, a declining
prepayment rate will extend the average life of many Mortgage-Backed
Securities. This possibility is often referred to as extension risk.
Extending the average life of a Mortgage-Backed Security increases the
risk of depreciation due to future increases in market interest rates.
Risk Associated With Specific Types of Derivative Debt
Securities. Different types of derivative debt securities are subject
to different combinations of prepayment, extension and/or interest
rate risk. Conventional mortgage pass-through securities and
sequential pay CMOs are subject to all of these risks, but are
typically not leveraged. Thus, the magnitude of exposure may be less
than for more leveraged Mortgage-Backed Securities.
The risk of early prepayments is the primary risk associated with
interest only debt securities ("IOs"), super floaters, other leveraged
floating rate instruments and Mortgage-Backed Securities purchased at
a premium to their par value. In some instances, early prepayments
may result in a complete loss of investment in certain of these
securities. The primary risks associated with certain other
derivative debt securities are the potential extension of average life
and/or depreciation due to rising interest rates.
These securities include floating rate securities based on the
Cost of Funds Index ("COFI floaters"), other "lagging rate" floating
rate securities, floating rate securities that are subject to a
maximum interest rate ("capped floaters"), Mortgage-Backed Securities
purchased at a discount, leveraged inverse floating rate securities
("inverse floaters"), principal only debt securities ("POs"), certain
residual or support tranches of CMOs and index amortizing notes.
Index amortizing notes are not Mortgage-Backed Securities, but are
subject to extension risk resulting from the issuer's failure to
exercise its option to call or redeem the notes before their stated
maturity date. Leveraged inverse IOs combine several elements of the
Mortgage-Backed Securities described above and thus present an
especially intense combination of prepayment, extension and interest
rate risks.
Planned amortization class ("PAC") and target amortization class
("TAC") CMO bonds involve less exposure to prepayment, extension and
interest rate risk than other Mortgage-Backed Securities, provided
that prepayment rates remain within expected prepayment ranges or
"collars." To the extent that prepayment rates remain within these
prepayment ranges, the residual or
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support tranches of PAC and TAC CMOs assume the extra prepayment,
extension and interest rate risk associated with the underlying
mortgage assets.
Other types of floating rate derivative debt securities present
more complex types of interest rate risks. For example, range
floaters are subject to the risk that the coupon will be reduced to
below market rates if a designated interest rate floats outside of a
specified interest rate band or collar. Dual index or yield curve
floaters are subject to depreciation in the event of an unfavorable
change in the spread between two designated interest rates. X-reset
floaters have a coupon that remains fixed for more than one accrual
period. Thus, the type of risk involved in these securities depends
on the terms of each individual X-reset floater.
Asset-Backed Securities. As described in their Prospectuses,
Government Income Fund and High Yield Bond Fund may invest a portion
of their assets in "Asset-Backed Securities" which are rated in one of
the two highest rating categories by a nationally recognized
statistical rating organization (e.g., Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's")) or if not so
rated, of equivalent investment quality in the opinion of the
Investment Adviser. The credit quality of most Asset-Backed
Securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security
is insulated from the credit risk of the originator or any other
affiliated entities and the amount and quality of any credit support
provided to the securities. The rate of principal payment on Asset-
Backed Securities generally depends on the rate of principal payments
received on the underlying assets which in turn may be affected by a
variety of economic and other factors. As a result, the yield on any
Asset-Backed Security is difficult to predict with precision and
actual yield to maturity may be more or less than the anticipated
yield to maturity. Asset-Backed Securities may be classified as
"pass-through certificates" such as some of the government guaranteed
mortgage-related securities described above, or "collateralized
obligations".
"Pass Through Certificates" are Asset-Backed Securities which
represent undivided fractional ownership interest in the underlying
pool of assets. Pass Through Certificates usually provide for
payments of principal and interest received to be passed through to
their holders, usually after deduction for certain costs and expenses
incurred in administering the pool. Because Pass Through Certificates
represent ownership interest in the underlying assets, the holders
thereof bear directly the risk of any defaults by the obligors on the
underlying assets not covered by any credit support. See "Types of
Credit Support".
Asset-Backed Securities issued in the form of debt instruments,
also known as collateralized obligations are generally issued as the
debt of a special purpose entity organized solely for the purpose of
owning such assets and issuing such debt. The assets collateralizing
such Asset-Backed Securities are pledged to a trustee or custodian for
the benefit of the holders thereof. Such issuers generally hold no
assets other than those underlying the asset-backed securities and any
credit support provided. As a result, although payments on such
asset-backed securities are obligations of the issuers, in the event
of defaults on the underlying assets not covered by any credit support
(see "Types of Credit Support"), the issuing entities are unlikely to
have sufficient assets to satisfy their obligations on the related
Asset-Backed Securities.
Methods of Allocating Cash Flows. While many Asset-Backed
Securities are issued with only one class of security, many Asset
Backed Securities are issued in more than one class, each with
different payment terms. Multiple class Asset-Backed Securities are
issued for two main reasons. First, multiple classes may be used as a
method of providing credit support. This is accomplished typically
through creation of one or more classes whose right to payments on the
Asset Backed Security is made subordinate to the right to such
payments of the remaining class or classes. See "Types of Credit
Support". Second, multiple classes may permit the issuance of
securities with payment terms, interest rates or other characteristics
differing both from those of
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each other and from those of the underlying assets. Examples include
so-called "multi-tranche CMOs" (CMOs (define above) with serial
maturities such that all principal payments received on the mortgages
underlying the securities are first paid to the class with the
earliest stated maturity and then sequentially to the class with the
next stated maturity), "Strips" (Asset-Backed Securities entitling the
holder to disproportionate interests with respect to the allocation of
interest and principal of the assets backing the security), and
securities with class or classes having characteristics which mimic
the characteristics of non-Asset Backed Securities, such as floating
interest rates (i.e., interest rates which adjust as a specified
benchmark changes) or scheduled amortization of principal.
Asset-Backed Securities in which the payment streams on the
underlying assets are allocated in a manner different than those
described above may be issued in the future. The Fund may invest in
such Asset-Backed Securities if such investment is otherwise
consistent with its investment objective and policies and with the
investment restrictions of the Fund.
Types of Credit Support. Asset-Backed Securities are often
backed by a pool of assets representing the obligations of a number of
different parties. To lessen the effect of failures by obligors on
underlying assets to make payments, such securities may contain
elements of credit support. Such credit support falls into two
classes: liquidity protection and protection against ultimate default
by an obligor on the underlying assets. Liquidity protection refers
to the provision of advances, generally by the entity administering
the pool of assets, to ensure that scheduled payments on the
underlying pool are made in a timely fashion. Protection against
ultimate default ensures ultimate payment of the obligations on at
least a portion of the assets in the pool. Such protection may be
provided through guarantees, insurance policies or letters of credit
obtained from third parties, through various means of structuring the
transaction or through a combination of such approaches. Examples of
Asset-Backed Securities with credit support arising out of the
structure of the transaction include "senior-subordinated securities"
(multiple class Asset-Backed Securities with certain classes
subordinate to other classes as to the payment of principal thereon,
with the result that defaults on the underlying assets are borne first
by the holders of the subordinated class) and Asset-Backed Securities
that have "reserve funds" (where cash or investments, sometimes funded
from a portion of the initial payments on the underlying assets, are
held in reserve against future losses) or that have been
"over-collateralized" (where the scheduled payments on, or the
principal amount of, the underlying assets substantially exceeds that
required to make payment of the Asset-Backed Securities and pay any
servicing or other fees). The degree of credit support provided on
each issue is based generally on historical information respecting the
level of credit risk associated with such payments. Delinquency or
loss in excess of that anticipated could adversely affect the return
on an investment in an Asset-Backed Security.
Automobile Receivable Securities. Government Income Fund and
High Yield Bond Fund may invest in Asset-Backed Securities backed by
receivables from motor vehicle installment sales contracts or
installment loans secured by motor vehicles ("Automobile Receivable
Securities"). Installment sales contracts for motor vehicles or
installment loans related thereto ("Automobile Contracts") typically
have a much shorter duration than mortgages; consequently the weighted
average life on an Automobile Receivable Security is typically
substantially shorter than that of a Mortgage-Backed Security. In
addition, because of the shorter average life of Automobile Receivable
Securities and the prepayment characteristics of most Automobile
Contracts, Automobile Receivable Securities generally are less
susceptible to the prepayment risks inherent in Mortgage-Backed
Securities.
Most entities that issue Automobile Receivable Securities create
an enforceable interest in their respective Automobile Contracts only
by filing a financing statement and by having the servicing agent of
the Automobile Contracts, which is usually the originator of the
Automobile
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Contracts, take custody thereof. In such circumstances, if the
servicing agent of the Automobile Contracts were to sell the same
Automobile Contracts to another party, in violation of its obligation
not to do so, there is a risk that such party could acquire an
interest in the Automobile Contracts superior to that of the holders
of Automobile Receivable Securities. Also although most Automobile
Contracts grant a security interest in the motor vehicle being
financed, in most states the security interest in a motor vehicle must
be noted on the certificate of title to create an enforceable security
interest against competing claims of other parties. Due to the large
number of vehicles involved, however, the certificate of title to each
vehicle financed, pursuant to the Automobile Contracts underlying the
Automobile Receivable Security, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the
holders of the Automobile Receivable Securities. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on the securities. In
addition, various state and federal securities laws give the motor
vehicle owner the right to assert against the holder of the owner's
Automobile Contract certain defenses such owner would have against the
seller of the motor vehicle. The assertion of such defenses could
reduce payments on the Automobile Receivable Securities.
Credit Card Receivable Securities. Government Income Fund and
High Yield Bond Fund may invest in Asset-Backed Securities backed by
receivables from revolving credit card agreements ("Credit Card
Receivable Securities"). Credit balances on revolving credit card
agreements ("Accounts") are generally paid down more rapidly than are
Automobile Contracts. Most of the Credit Card Receivable Securities
issued publicly to date have been Pass Through Certificates. In order
to lengthen the maturity of Credit Card Receivable Securities, most
such securities provide for a fixed period during which only interest
payments on the underlying Accounts are passed through to the security
holder and principal payments received on such Accounts are used to
fund the transfer to the pool of assets supporting the related Credit
Card Receivable Securities of additional credit card charges made on
an Account. The initial fixed period usually may be shortened upon
the occurrence of specified events which signal a potential
deterioration in the quality of the assets backing the security, such
as the imposition of a cap on interest rates. The ability of the
issuer to extend the life of an issue of of Credit Card Receivable
Securities thus depends upon the continued generation of additional
principal amounts in the underlying accounts during the initial period
and the non-occurrence of specified events. The Tax Reform Act of
1986 has eliminated a taxpayer's ability to deduct consumer interest
in his or her federal income tax calculations, which along with
competitive and general economic factors could adversely affect the
rate at which new receivables are created in an Account and conveyed
to an issuer, shortening the expected average life of the related
Credit Card Receivable Security and reducing its yield. An
acceleration in cardholders' payment rates or any other event which
shortens the period during which additional credit card charges on an
Account may be transferred to the pool of assets supporting the
related Credit Card Receivable Security could have a similar effect on
the weighted average life and yield.
Credit card holders are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such holder
the right to set off certain amounts against balances owed on the
credit card, thereby reducing amounts paid on Accounts. In addition,
unlike most other Asset-Backed Securities, Accounts are unsecured
obligations of the cardholder.
Lease-Backed Securities. Government Income Fund and High Yield
Bond Fund may also invest in securities backed by receivables from
leases of such items as automobiles, computers, aircraft and other
capital goods, as well as real property ("Lease-Backed Securities").
In the commercial context, a lessee often agrees to continue payments
on the lease, regardless of any claims it may have with respect to the
leased property or any obligations of the lessor to it. Often the
lessor will transfer or pledge to the issuer, to use as additional
collateral for the Lease-Backed
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Securities, an interest in the property underlying the leases as well
as its interest in any insurance covering such property.
Other Asset-Backed Securities. The Adviser anticipates that
Asset-Backed Securities backed by assets other than those described
above will be issued in the future. Government Income Fund and High
Yield Bond Fund may invest in such securities in the future if such
investment is otherwise consistent with its investment objective and
policies.
Asset-Based Securities. Global Resources Fund may invest in debt
securities, preferred stocks or convertible securities, the principal
amount, redemption terms or conversion terms of which are related to
the market price of some resource asset such as gold bullion. For the
purposes of the Fund's investment policies, these securities are
referred to as "Asset-Based Securities".
If the Asset-Based Security is backed by a bank letter of credit
or other similar facility, the Adviser may take such backing into
account in determining the credit quality of the Asset-Based Security.
Although an Asset-Based Security and the related natural resource
asset generally are expected to move in the same direction, there may
not be perfect correlation in the two price movements. Asset-Based
Securities may not be secured by a security interest in or claim on
the underlying natural resource assets. The Fund's holdings of such
securities may not generate appreciable current income and the return
from such securities primarily will be from any profit on the sale,
maturity or conversion thereof at a time when the price of the related
asset is higher than it was when the Fund purchased such securities.
The Asset-Based Securities in which the Fund may invest may bear
interest or pay preferred dividends at below market (or even
relatively nominal) rates. As an example, assume gold is selling at a
market price of $300 per ounce and an issuer sells a $1,000 face
amount gold related note with a seven year maturity, payable at
maturity at the greater of either $1,000 in cash or the then market
price of three ounces of gold. If, at maturity, the market price of
gold is $400 per ounce, the amount payable on the note would be
$1,200. Certain Asset-Based Securities may be payable at maturity in
cash at the stated principal amount or, at the option of the holder,
directly in a stated amount of the asset to which it is related. In
such instance, because the Fund presently does not intend to invest
directly in natural resource assets other than gold bullion, the Fund
would sell the Asset-Based Security in the secondary market, to the
extent one exists, prior to maturity if the value of the stated amount
of the asset exceeds the stated principal amount and thereby realize
the appreciation in the underlying asset.
The Fund will not acquire Asset-Based Securities for which no
established secondary trading market exists if at the time of
acquisition more than 10% of its total assets are invested in
securities which are not readily marketable. The Fund may invest in
Asset-Based Securities without limit when it has the right to sell
such securities to the issuer or a stand-by bank or broker and receive
the principal amount or redemption price thereof less transaction
costs on no more than seven days notice or when the Fund has the right
to convert such securities into a readily marketable security in which
it could otherwise invest upon not more than seven days notice.
Special Considerations Related to Investment in Gold. Under
certain circumstances, Global Resources Fund may invest a majority of
its assets in gold, gold related securities or securities of
gold-related companies. Based on historic experience, during periods
of economic or financial instability the securities of such companies
may be subject to extreme price fluctuations, reflecting the high
volatility of gold prices during such periods. Gold may be affected
by unpredictable international monetary and political policies, social
conditions within a particular country, trade imbalances or trade or
currency restrictions between countries. In addition, the instability
of gold prices may result in volatile earnings of gold-related
companies which, in turn,
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may affect adversely the financial condition of such companies. Gold
mining companies also are subject to the risks generally associated
with mining operations.
The major producers of gold include the Republic of South Africa,
Russia, Canada, the United States, Brazil and Australia. Sales of
gold by Russia are largely unpredictable and often relate to political
and economic considerations rather than to market forces. Economic,
social and political developments within South Africa may affect
significantly South African gold production and the markets for South
African gold which may in turn significantly affect the price of gold.
The Fund is currently authorized to invest up to 10% of its
assets in gold bullion and coins, although it does not currently
intend to invest in coins. The Fund may seek to increase this limit
to 25% through negotiation with a certain state which imposes the 10%
limit as a condition for qualifying the shares of the Fund for sale in
that state.
Investments in gold may help to hedge against inflation and major
fluctuations in the Fund's shares because at certain times the price
of gold has fluctuated less widely than the value of the securities
which are permitted investments. When the Fund purchases bullion, the
Investment Adviser currently intends that it will be only in a form
that is readily marketable and that it will be delivered to and stored
with a qualified U.S. bank. An investment in bullion earns no
investment income and involves higher custody and transaction costs
than investments in securities. The Fund will also incur the cost of
insurance in connection with holding gold. The market for gold
bullion is presently unregulated which could affect the ability of the
Fund to acquire or dispose of gold bullion. In order to qualify as a
regulated investment company for federal income taxes, the Fund may
receive no more than 10% of its yearly gross income from gains caused
by selling gold bullion or coins and from certain ohter sources that
do not produce "qualifying" income. The Fund may be required,
therefore, either to hold its gold bullion or sell it at a loss, or to
sell its portfolio securities at a gain, when it would not otherwise
do so for investment reasons. The Fund may also purchase precious
metal warehouse receipts that may be convertible into cash or gold
bullion as an alternative to a direct investment in gold. Whereas
gold bullion is traded in the form of contracts to buy or sell bullion
which are in the nature of futures or commodities contracts, warehouse
receipts represent ownership of a specified quantity of identified
gold bars held in storage. Although ownership of gold in this manner
entails storage and insurance expense, there is an active
over-the-counter market in such receipts so that they are a liquid
investment. For purposes of the Fund's investment limitations, such
warehouse receipts would be considered to be equivalent to direct
investments in the precious metals.
Lending of Portfolio Securities. In order to generate additional
income, each Fund may, from time to time, lend up to 33% of its
portfolio securities to brokers, dealers and financial institutions
such as banks and trust companies. Such loans will be secured by
collateral consisting of cash or U.S. Government securities which will
be maintained in an amount equal to at least 100% of the current
market value of the loaned securities. During the period of the loan,
the Fund will receive the income on both the loaned securities and the
collateral and thereby increase its return. Cash collateral will be
invested in short-term high quality debt securities, which will
increase the current income of the Fund. The loans will be terminable
by the Fund at any time and by the borrower on one day's notice. The
Fund will have the right to regain record ownership of loaned
securities to exercise beneficial rights such as rights to interest or
other distributions or voting rights on important issues. The Fund
may pay reasonable fees to persons unaffiliated with the Fund for
services in arranging such loans. Lending of portfolio securities
involves a risk of failure by the borrower to return the loaned
securities, in which event the Fund may incur a loss.
Repurchase Agreements. Each Fund may enter into repurchase
agreements. A repurchase agreement is a contract under which the Fund
would acquire a security for a relatively short period (generally not
more than seven days) subject to the obligation of the seller to
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repurchase and the Fund to resell such security at a fixed time and
price (representing the Fund's cost plus interest). The Fund will
enter into repurchase agreements only with member banks of the Federal
Reserve System and with securities dealers. The Adviser will
continuously monitor the creditworthiness of the parties with whom the
Fund enters into repurchase agreements. The Fund has established a
procedure providing that the securities serving as collateral for each
repurchase agreement must be delivered to the Fund's custodian either
physically or in book-entry form and that the collateral must be
marked to market daily to ensure that each repurchase agreement is
fully collateralized at all times. In the event of bankruptcy or
other default by a seller of a repurchase agreement, the Fund could
experience delays in liquidating the underlying securities and could
experience losses, including the possible decline in the value of the
underlying securities during the period which the Fund seeks to
enforce its rights thereto, possible subnormal levels of income and
lack of access to income during this period, and the expense of
enforcing its rights. The Fund will not invest in a repurchase
agreement maturing in more than seven days, if such investment,
together with other illiquid securities held by the Fund (including
restricted securities) would exceed 10% of the Fund's total assets.
Reverse Repurchase Agreements. Each Fund may also enter into
reverse repurchase agreements which involve the sale of government
securities held in its portfolio to a bank or securities firm with an
agreement that the Fund will buy back the securities at a fixed future
date at a fixed price plus an agreed amount of "interest" which may be
reflected in the repurchase price. Reverse repurchase agreements are
considered to be borrowings by the Fund. The Fund will use proceeds
obtained from the sale of securities pursuant to reverse repurchase
agreements to purchase other investments. The use of borrowed funds
to make investment is a practice known as "leverage," which is
considered speculative. Use of reverse repurchase agreements is an
investment technique that is intended to increase income. Thus, the
Fund will enter into a reverse purchase agreement only when the
Investment Adviser determines that the interest income to be earned
from the investment of the proceeds is greater than the interest
expense of the transaction. However, there is a risk that interest
expense will nevertheless exceed the income earned. Reverse
repurchase agreements involve the risk that the market value of
securities purchased by the Fund with proceeds of the transaction may
decline below the repurchase price of the securities sold by the Fund
which it is obligated to repurchase. The Fund would also continue to
be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those
securities upon effecting their repurchase. To minimize various risks
associated with reverse repurchase agreements, the Fund would
establish and maintain with the Fund's custodian a separate account
consisting of highly liquid, marketable securities in an amount at
least equal to the repurchase prices of the securities (plus any
accrued interest thereon) under such agreements. In addition, the
Fund would not enter into reverse repurchase agreements exceeding in
the aggregate more than 33 1/3% of the market value of its total net
assets. The Fund will enter into reverse repurchase agreements only
with selected registered broker/dealers or with federally insured
banks or savings and loan associations which are approved in advance
as being creditworthy by the Board of Directors. Under procedures
established by the Board of Directors, the Adviser will monitor the
creditworthiness of the firms involved.
Forward Commitment and When-Issued Securities. Each Fund (other
than Money Market Fund) may purchase securities on a when-issued or
forward commitment basis. "When- issued" refers to securities whose
terms are available and for which a market exists, but which have not
been issued. A Fund will engage in when-issued transactions with
respect to securities purchased for its portfolio in order to obtain
what is considered to be an advantageous price and yield at the time
of the transaction. For when-issued transactions, no payment is made
until delivery is due, often a month or more after the purchase. In a
forward commitment transaction, a Fund contracts to purchase
securities for a fixed price at a future date beyond customary
settlement time.
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When a Fund engages in forward commitment and when-issued
transactions, it relies on the seller to consummate the transaction.
The failure of the issuer or seller to consummate the transaction may
result in the Funds losing the opportunity to obtain a price and yield
considered to be advantageous. The purchase of securities on a
when-issued and forward commitment basis also involves a risk of loss
if the value of the security to be purchased declines prior to the
settlement date.
On the date a Fund enters into an agreement to purchase
securities on a when-issued or forward commitment basis, the Fund will
segregate in a separate account cash or liquid, high grade debt
securities equal in value to the Fund's commitment. These assets will
be valued daily at market, and additional cash or securities will be
segregated in a separate account to the extent that the total value of
the assets in the account declines below the amount of the when-issued
commitments. Alternatively, a Fund may enter into offsetting
contracts for the forward sale of other securities that it owns.
Short Sales. Global Resources Fund may engage in short sales in
order to profit from an anticipated decline in the value of a
security. The Fund may also engage in short sales to attempt to limit
its exposure to a possible market decline in the value of its
portfolio securities through short sales of securities which the
Adviser believes possess volatility characteristics similar to those
being hedged. To effect such a transaction, the Fund must borrow the
security sold short to make delivery to the buyer. The Fund then is
obligated to replace the security borrowed by purchasing it at the
market price at the time of replacement. Until the security is
replaced, the Fund is required to pay to the lender any accrued
interest and may be required to pay a premium.
The Fund will realize a gain if the security declines in price
between the date of the short sale and the date on which the Fund
replaces the borrowed security. On the other hand, the Fund will
incur a loss as a result of the short sale if the price of the
security increases between those dates. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of
any premium or interest or dividends the Fund may be required to pay
in connection with a short sale. The successful use of short selling
as a hedging device may be adversely affected by imperfect correlation
between movements in the price of the security sold short and the
securities being hedged.
Under applicable guidelines of the staff of the SEC, if the Fund
engages in short sales, it must put in a segregated account (not with
the broker) an amount of cash or U.S. Government securities equal to
the difference between (a) the market value of the securities sold
short at the time they were sold short and (b) any cash or U.S.
Government securities required to be deposited as collateral with the
broker in connection with the short sale (not including the proceeds
from the short sale). In addition, until the Fund replaces the
borrowed security, it must daily maintain the segregated account at
such a level that (1) the amount deposited in it plus the amount
deposited with the broker as collateral will equal the current market
value of the securities sold short, and (2) the amount deposited in it
plus the amount deposited with the broker as collateral will not be
less than the market value of the securities at the time they were
sold short.
Short selling may produce higher than normal portfolio turnover
which may result in increased transaction costs to the Fund and may
result in gains from the sale of securities deemed to have been held
for less than three months, which gains must be less than 30% of the
Fund's gross income in order for the Fund to qualify as a regulated
investment company under the Code.
Lower Rated High Yield Debt Obligations. Emerging Growth Fund,
Government Income Fund, High Yield Bond Fund and High Yield Tax-Free
Fund may invest in high yielding, fixed income securities rated below
investment grade (e.g., rated Baa or lower by Moody's or BBB or lower
by S&P.
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Ratings are based largely on the historical financial condition
of the issuer. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer's current
financial condition, which may be better or worse than the rating
would indicate.
See Appendix A to this SAI which describes the characteristics of
corporate bonds in the various rating categories. The Fund may invest
in comparable quality unrated securities which, in the opinion of the
Adviser, offer comparable yields and risks to those securities which
are rated.
Debt obligations rated in the lower ratings categories, or which
are unrated, involve greater volatility of price and risk of loss of
principal and income. In addition, lower ratings reflect a greater
possibility of an adverse change in financial condition affecting the
ability of the issuer to make payments of interest and principal. The
high yield fixed income market is relatively new and its growth
occurred during a period of economic expansion. The market has not
yet been fully tested by an economic recession.
The market price and liquidity of lower rated fixed income
securities generally respond to short term corporate and market
developments to a greater extent than do the price and liquidity of
higher rated securities because such developments are perceived to
have a more direct relationship to the ability of an issuer of such
lower rated securities to meet its ongoing debt obligations.
Reduced volume and liquidity in the high yield bond market or the
reduced availability of market quotations will make it more difficult
to dispose of the bonds and to value accurately a Fund's assets. The
reduced availability of reliable, objective data may increase a Fund's
reliance on management's judgment in valuing high yield bonds. In
addition, a Fund's investments in high yield securities may be
susceptible to adverse publicity and investor perceptions, whether or
not justified by fundamental factors. A Fund's investments, and
consequently its net asset value, will be subject to the market
fluctuations and risks inherent in all securities.
Credit and Interest Rate Risks. In addition to the information
contained in the Prospectuses, investors should note that while
ratings by a rating institution provide a generally useful guide to
credit risks, they do not, nor do they purport to, offer any criteria
for evaluating interest rate risk. Changes in the general level of
interest rates cause fluctuations in the prices of fixed-income
securities already outstanding and will therefore result in
fluctuation in net asset value of the shares of Funds to the extent
such the Funds invest in these securities. The extent of the
fluctuation is determined by a complex interaction of a number of
factors. The Investment Adviser will evaluate those factors it
considers relevant and will make portfolio changes when it deems it
appropriate in seeking to reduce the risk of depreciation in the value
of a Fund's portfolio. However, in seeking to achieve a Fund's
primary objectives, there will be times, such as during periods of
rising interest rates, when depreciation and realization of comparable
losses on securities in the portfolio will be unavoidable. Moreover,
medium and lower-rated securities and unrated securities of comparable
quality tend to be subject to wider fluctuations in yield and market
values than higher rated securities. Such fluctuations after a
security is acquired do not affect the cash income received from that
security but are reflected in the net asset value of the Fund's
portfolio. Other risks of lower quality securities include:
(i) subordination to the prior claims of banks and other senior
lenders and
(ii) the operation of mandatory sinking fund or call/redemption
provisions during periods of declining interest rates
whereby the Funds may reinvest premature redemption proceeds
in lower yielding portfolio securities.
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In determining which securities to purchase or hold in a Fund's
portfolio (including, in the case of High Yield Bond Fund, investments
in either unrated or rated securities which are in default) and in
seeking to reduce credit and interest rate risk consistent with a
Fund's investment objective and policies, the Adviser will rely on
information from various sources, including: the rating of the
security; research, analysis and appraisals of brokers and dealers;
the views of the Fund's Directors and others regarding economic
developments and interest rate trends; and the Adviser's own analysis
of factors it deems relevant as it pertains to achieving a Fund's
investment objective(s).
Convertible Securities. Emerging Growth Fund, Global Resources
Fund and High Yield Bond Fund may invest in convertible securities.
Convertible securities are securities that may be converted at either
a stated price or stated rate into underlying shares of common stock
of the same issuer. Convertible securities have general
characteristics similar to both fixed income and equity securities.
Although to a lesser extent than with straight debt securities, the
market value of convertible securities tends to decline as interest
rated increase, and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the market
value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stocks and therefore will also
react to variations in the general market for equity securities. A
unique feature of convertible securities is that as the market price
of the underlying common stock declines, convertible securities tend
to trade increasingly on a yield basis, and consequently may not
experience market value declines to the same extent as the underlying
common stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock. While no
securities investments are without risk, investments in convertible
securities generally entail less risk than investments in common stock
of the same issuer. However, the issuers of convertible securities
may default on their obligations.
Mortgage "Dollar Roll" Transactions. Government Income Fund and
High Yield Bond Fund may enter into mortgage "dollar roll"
transactions with selected banks and broker-dealers pursuant to which
a Fund sells Mortgage-Backed Securities for delivery in the future
(generally within 30 days) and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a
specified future date. These Funds will only enter into covered
rolls. A "covered roll" is a specific type of dollar roll for which
there is an offsetting cash position or a cash equivalent security
position which matures on or before the forward settlement date of the
dollar roll transaction. Covered rolls are not treated as a borrowing
or other senior securities. Dollar rolls in which the Funds may
invest will be limited to covered rolls.
For financial reporting and tax purposes, the Funds propose to
treat mortgage dollar rolls as two separate transactions; one
involving the purchase of a security and a separate transaction
involving a sale. The Funds do not currently intend to enter into
mortgage dollar rolls that are accounted for as a financing. Mortgage
dollar rolls involve certain risks including the following: if the
broker-dealer to whom a Fund sells the security becomes insolvent, the
Fund's right to purchase or repurchase the Mortgage-Backed Securities
subject to the mortgage dollar roll may be restricted and the
instrument which the Fund is required to repurchase may be worth less
than an instrument which the Fund originally held. Successful use of
mortgage dollar rolls will depend upon the Adviser's ability to
predict correctly interest rates and mortgage prepayments. For these
reasons, there is no assurance that mortgage dollar rolls can be
successfully employed.
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SPECIAL INVESTMENT TECHNIQUES
Financial Futures Contracts. To the extent set forth in their
Prospectuses, the Funds (other than Money Market Fund) may buy and
sell futures contracts (and related options) on stocks, stock indices,
debt securities, currencies, interest rate indices, and other
instruments. Each Fund may hedge its portfolio by selling or
purchasing financial futures contracts as an offset against the
effects of changes in interest rates or in security or foreign
currency values. Although other techniques could be used to reduce
exposure to interest rate fluctuations, a Fund may be able to hedge
its exposure more effectively and perhaps at a lower cost by using
financial futures contracts. The Funds may enter into financial
futures contracts for hedging and other non- speculative purposes to
the extent permitted by regulations of the Commodity Futures Trading
Commission ("CFTC").
Financial futures contracts have been designed by boards of trade
which have been designated "contract markets" by the CFTC. Futures
contracts are traded on these markets in a manner that is similar to
the way a stock is traded on a stock exchange. The boards of trade,
through their clearing corporations, guarantee that the contracts will
be performed. Currently, financial futures contracts are based on
interest rate instruments such as long-term U.S. Treasury bonds, U.S.
Treasury notes, Government National Mortgage Association ("GNMA")
modified pass-through mortgage-backed securities, three-month U.S.
Treasury bills, 90-day commercial paper, bank certificates of deposit
and Eurodollar certificates of deposit. It is expected that if other
financial futures contracts are developed and traded the Funds may
engage in transactions in such contracts.
Although some financial futures contracts by their terms call for
actual delivery or acceptance of financial instruments, in most cases
the contracts are closed out prior to delivery by offsetting purchases
or sales of matching financial futures contracts (same exchange,
underlying security and delivery month). Other financial futures
contracts, such as futures contracts on securities indices, by their
terms call for cash settlements. If the offsetting purchase price is
less than a Fund's original sale price, the Fund realizes a gain, or
if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than a Fund's original purchase price,
the Fund realizes a gain, or if it is less, the Fund realizes a loss.
The transaction costs must also be included in these calculations.
Each Fund will pay a commission in connection with each purchase or
sale of financial futures contracts, including a closing transaction.
For a discussion of the Federal income tax considerations of trading
in financial futures contracts, see the information under the caption
"Tax Status" below.
At the time a Fund enters into a financial futures contract, it
is required to deposit with its custodian a specified amount of cash
or U.S. Government securities, known as "initial margin," ranging
upward from 1.1% of the value of the financial futures contract being
traded. The margin required for a financial futures contract is set
by the board of trade or exchange on which the contract is traded and
may be modified during the term of the contract. The initial margin
is in the nature of a performance bond or good faith deposit on the
financial futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have
been satisfied. The Funds expect to earn interest income on their
initial margin deposits. Each day, the futures contract is valued at
the official settlement price of the board of trade or exchange on
which it is traded. Subsequent payments, known as "variation margin,"
to and from the broker are made on a daily basis as the market price
of the financial futures contract fluctuates. This process is known
as "mark to market." Variation margin does not represent a borrowing
or lending by the Funds but is instead settlement between the Funds
and the broker of the amount one would owe the other if the financial
futures contract expired. In computing net asset value, the Funds
will mark to market their respective open financial futures positions.
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Successful hedging depends on a strong correlation between the
market for the underlying securities and the futures contract market
for those securities. There are several factors that will probably
prevent this correlation from being a perfect one, and even a correct
forecast of general interest rate trends may not result in a
successful hedging transaction. There are significant differences
between the securities and futures markets which could create an
imperfect correlation between the markets and which could affect the
success of a given hedge. The degree of imperfection of correlation
depends on circumstances such as: variations in speculative market
demand for financial futures and debt securities, including technical
influences in futures trading and differences between the financial
instruments being hedged and the instruments underlying the standard
financial futures contracts available for trading in such respects as
interest rate levels, maturities and creditworthiness of issuers. The
degree of imperfection may be increased where the underlying debt
securities are lower-rated and, thus, subject to greater fluctuation
in price than higher-rated securities.
A decision as to whether, when and how to hedge involves the
exercise of skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of market behavior or unexpected
interest rate trends. The Funds will bear the risk that the price of
the securities being hedged will not move in complete correlation with
the price of the futures contracts used as a hedging instrument.
Although the Adviser believes that the use of financial futures
contracts will benefit the Funds, an incorrect prediction could result
in a loss on both the hedged securities in the respective Fund's
portfolio and the hedging vehicle so that the Fund's return might have
been better had hedging not been attempted. However, in the absence
of the ability to hedge, the Adviser might have taken portfolio
actions in anticipation of the same market movements with similar
investment results but, presumably, at greater transaction costs. The
low margin deposits required for futures transactions permit an
extremely high degree of leverage. A relatively small movement in a
futures contract may result in losses or gains in excess of the amount
invested.
Futures exchanges may limit the amount of fluctuation permitted
in certain futures contract prices during a single trading day. The
daily limit establishes the maximum amount the price of a futures
contract may vary either up or down from the previous day's settlement
price, at the end of the current trading session. Once the daily
limit has been reached in a futures contract subject to the limit, no
more trades may be made on that day at a price beyond that limit. The
daily limit governs only price movements during a particular trading
day and, therefore, does not limit potential losses because the limit
may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of positions and subjecting some holders
of futures contracts to substantial losses.
Finally, although the Funds engage in financial futures
transactions only on boards of trade or exchanges where there appears
to be an adequate secondary market, there is no assurance that a
liquid market will exist for a particular futures contract at any
given time. The liquidity of the market depends on participants
closing out contracts rather than making or taking delivery. In the
event participants decide to make or take delivery, liquidity in the
market could be reduced. In addition, the Funds could be prevented
from executing a buy or sell order at a specified price or closing out
a position due to limits on open positions or daily price fluctuation
limits imposed by the exchanges or boards of trade. If a Fund cannot
close out a position, it will be required to continue to meet margin
requirements until the position is closed.
Options on Financial Futures Contracts. To the extent set forth
in their Prospectuses, the Funds (other than Money Market Fund) may
buy and sell options on financial futures contracts on stocks, stock
indices, debt securities, currencies, interest rate indices, and other
instruments. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to
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assume a position in a futures contract at a specified exercise price
at any time during the period of the option. Upon exercise, the
writer of the option delivers the futures contract to the holder at
the exercise price. The Funds would be required to deposit with their
custodian initial and variation margin with respect to put and call
options on futures contracts written by them. Options on futures
contracts involve risks similar to the risks relating to transactions
in financial futures contracts. Also, an option purchased by a Fund
may expire worthless, in which case a Fund would lose the premium it
paid for the option.
Other Considerations. The Funds will engage in futures and
options transactions for bona fide hedging or other non-speculative
purposes to the extent permitted by CFTC regulations. A Fund will
determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related
to price fluctuations in securities held by the Fund or which it
expects to purchase. Except as stated below, the Funds' futures
transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in
the price of securities that the Funds own, or futures contracts will
be purchased to protect the Funds against an increase in the price of
securities, or the currency in which they are denominated, the Fund
intends to purchase. As evidence of this hedging intent, the Funds
expect that on 75% or more of the occasions on which they take a long
futures or option position (involving the purchase of futures
contracts), the Funds will have purchased, or will be in the process
of purchasing equivalent amounts of related securities or assets
denominated in the related currency in the cash market at the time
when the futures contract or option position is closed out. However,
in particular cases, when it is economically advantageous for a Fund
to do so, a long futures position may be terminated or an option may
expire without the corresponding purchase of securities or other
assets.
As an alternative to literal compliance with the bona fide
hedging definition, a CFTC regulation permits the Funds to elect to
comply with a different test, under which the aggregate initial margin
and premiums required to establish nonhedging positions in futures
contracts and options on futures will not exceed 5% of the net asset
value of the respective Fund's portfolio, after taking into account
unrealized profits and losses on any such positions and excluding the
amount by which such options were in-the-money at the time of
purchase. The Funds will engage in transactions in futures contracts
only to the extent such transactions are consistent with the
requirements of the Code for maintaining their qualifications as
regulated investment companies for Federal income tax purposes.
When the Funds purchase financial futures contracts, or write put
options or purchase call options thereon, cash or liquid, high grade
debt securities will be deposited in a segregated account with the
Funds' custodian in an amount that, together with the amount of
initial and variation margin held in the account of its broker, equals
the market value of the futures contracts.
Options Transactions. To the extent set forth in their
Prospectuses, the Funds (other than Money Market Fund) may write
listed and over-the-counter covered call options and covered put
options on securities in order to earn additional income from the
premiums received. In addition, the Funds may purchase listed and
over-the-counter call and put options. The extent to which covered
options will be used by the Funds will depend upon market conditions
and the availability of alternative strategies.
A Fund will write listed and over-the-counter call options only
if they are "covered," which means that the Fund owns or has the
immediate right to acquire the securities underlying the options
without additional cash consideration upon conversion or exchange of
other securities held in its portfolio. A call option written by a
Fund may also be "covered" if the Fund holds on a share-for-share
basis a covering call on the same securities where (i) the exercise
price of the covering call held is equal to or less than the exercise
price of the call written if the difference is
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<PAGE> 191
maintained by the Fund in cash, U.S. Treasury bills or high grade
liquid debt obligations in a segregated account with the Fund's
custodian, and (ii) the covering call expires at the same time as the
call written. If a covered call option is not exercised, a Fund would
keep both the option premium and the underlying security. If the
covered call option written by a Fund is exercised and the exercise
price, less the transaction costs, exceeds the cost of the underlying
security, the Fund would realize a gain in addition to the amount of
the option premium it received. If the exercise price, less
transaction costs, is less than the cost of the underlying security, a
Fund's loss would be reduced by the amount of the option premium.
As the writer of a covered put option, each Fund will write a put
option only with respect to securities it intends to acquire for its
portfolio and will maintain in a segregated account with its custodian
bank cash, U.S. Government securities or high-grade liquid debt
securities with a value equal to the price at which the underlying
security may be sold to the Fund in the event the put option is
exercised by the purchaser. The Funds may also write a "covered" put
option by purchasing on a share-for-share basis a put on the same
security as the put written by the Fund if the exercise price of the
covering put held is equal to or greater than the exercise price of
the put written and the covering put expires at the same time or later
than the put written.
When writing listed and over-the-counter covered put options on
securities, the Funds would earn income from the premiums received.
If a covered put option is not exercised, the Funds would keep the
option premium and the assets maintained to cover the option. If the
option is exercised and the exercise price, including transaction
costs, exceeds the market price of the underlying security, a Fund
would realize a loss, but the amount of the loss would be reduced by
the amount of the option premium.
If the writer of an exchange-traded option wishes to terminate
its obligation prior to its exercise, it may effect a "closing
purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the
purchase is that a Fund's position will be offset by the Options
Clearing Corporation. The Funds may not effect a closing purchase
transaction after they have been notified of the exercise of an
option. There is no guarantee that a closing purchase transaction can
be effected. Although the Funds will generally write only those
options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular option or at any
particular time, and for some options no secondary market on an
exchange may exist.
In the case of a written call option, effecting a closing
transaction will permit a Fund to write another call option on the
underlying security with either a different exercise price, expiration
date or both. In the case of a written put option, it will permit a
Fund to write another put option to the extent that the exercise price
thereof is secured by deposited cash or short-term securities. Also,
effecting a closing transaction will permit the cash or proceeds from
the concurrent sale of any securities subject to the option to be used
for other investments. If a Fund desires to sell a particular
security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale
of the security.
A Fund will realize a gain from a closing transaction if the cost
of the closing transaction is less than the premium received from
writing the option. The Funds will realize a loss from a closing
transaction if the cost of the closing transaction is more than the
premium received for writing the option. However, because increases
in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole
or in part by appreciation of the underlying security owned by the
Fund.
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<PAGE> 192
Over-the-Counter Options. Funds that may engage in options
transactions may engage in options transactions on exchanges and in
the over-the-counter markets. In general, exchange- traded options
are third-party contracts (i.e., performance of the parties'
obligations is guaranteed by an exchange or clearing corporation) with
standardized strike prices and expiration dates. Over-the-counter
("OTC") transactions are two-party contracts with price and terms
negotiated by the buyer and seller. A Fund will acquire only those
OTC options for which management believes the Fund can receive on each
business day at least two separate bids or offers (one of which will
be from an entity other than a party to the option) or those OTC
options valued by an independent pricing service. The Funds will
write and purchase OTC options only with member banks of the Federal
Reserve System and primary dealers in U.S. Government securities or
their affiliates which have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50
million. The SEC has taken the position that OTC options are illiquid
securities subject to each Fund's restriction that illiquid securities
are limited to not more than 10% of the Fund's net assets. The SEC,
however, has a partial exemption from the above restrictions on
transactions in OTC options. The SEC allows a Fund to exclude from
the 10% limitation on illiquid securities a portion of the value of
the OTC options written by the Fund, provided that certain conditions
are met. First, the other party to the OTC options has to be a
primary U.S. Government securities dealer designated as such by the
Federal Reserve Bank. Second, the Fund must have an absolute
contractual right to repurchase the OTC options at a formula price.
If the above conditions are met, a Fund may treat as illiquid only
that portion of the OTC option's value (and the value of its
underlying securities) which is equal to the formula price for
repurchasing the OTC option, less the OTC option's intrinsic value.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following policies which cannot be
changed as to any Fund without the approval of the holders of a
majority of that Fund's shares (which, as used in this Statement of
Additional Information, means the lesser of (i) more than 50% of its
outstanding shares, or (ii) 67% or more of its outstanding shares
present at a meeting if holders of more than 50% of its outstanding
shares are represented in person or by proxy. If a percentage
restriction or rating restriction on investment or utilization of
assets is adhered to at the time an investment is made or assets are
so utilized, a later change in percentage resulting from changes in
the value of a Fund's portfolio securities or a later change in the
rating of a portfolio security will not be considered a violation of
policy.
For the purpose of these restrictions, High Yield Bond Fund,
Government Income Fund and Money Market Fund are referred to as the
"Fixed Income Funds" and Emerging Growth Fund and Global Resources
Fund are referred to as the "Equity Funds." The restrictions
applicable to High Yield Tax-Free Fund are set out subsequently.
Each Fixed Income Fund and each Equity Fund may not:
(1) Borrow money in an amount in excess of 33-1/3% of its total
assets, and then only as a temporary measure for extraordinary or
emergency purposes (except that it may enter into a reverse repurchase
agreement within the limits described in the Prospectus), or pledge,
mortgage or hypothecate an amount of its assets (taken at market
value) in excess of 15% of its total assets, in each case taken at the
lower of cost or market value. For the purpose of this restriction,
collateral arrangements with respect to options, futures contracts,
options on futures contracts and collateral arrangements with respect
to initial and variation margins are not considered a pledge of
assets.
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<PAGE> 193
(2) Underwrite securities issued by other persons except insofar
as such Fund may technically be deemed an underwriter under the
Securities Act of 1933 in selling a portfolio security.
(3) Purchase or retain real estate (including limited
partnership interests but excluding securities of companies, such as
real estate investment trusts, which deal in real estate or interests
therein and securities secured by real estate), or mineral leases,
commodities or commodity contracts except, in the case of Resources
Fund, precious metals (except contracts for the future delivery of
fixed income securities, stock index and currency futures and options
on such futures) in the ordinary course of its business. Each Fund
reserves the freedom of action to hold and to sell real estate or
mineral leases, commodities or commodity contracts acquired as a
result of the ownership of securities.
(4) Invest in direct participation interests in oil, gas or
other mineral exploration or development programs.
(5) Make loans to other persons except by the purchase of
obligations in which such Fund is authorized to invest and by entering
into repurchase agreements; provided that a Fund may lend its
portfolio securities not in excess of 30% of its total assets (taken
at market value). Not more than 10% of a Fund's total assets (taken
at market value) will be subject to repurchase agreements maturing in
more than seven days. For these purposes the purchase of all or a
portion of an issue of debt securities shall not be considered the
making of a loan. In addition, the Equity Funds may purchase a
portion of an issue of debt securities of types commonly distributed
privately to financial institutions.
(6) Purchase the securities of any issuer if such purchase, at
the time thereof, would cause more than 5% of its total assets (taken
at market value) to be invested in the securities of such issuer,
other than securities issued or guaranteed by the United States or, in
the case of the Fixed Income Funds, any state or political subdivision
thereof, or any political subdivision of any such state, or any agency
or instrumentality of the United States, any state or political
subdivision thereof, or any political subdivision of any such state.
(7) Invest in companies for the purpose of exercising control or
management.
(8) Purchase or retain in its portfolio any securities issued by
an issuer any of whose officers, directors, trustees or security
holders is an officer or Director of such Fund, or is a member,
partner, officer or Director of the Adviser, if after the purchase of
the securities of such issuer by such Fund one or more of such persons
owns beneficially more than 1/2 of 1% of the shares or securities, or
both, all taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or both, all
taken at market value.
(9) Purchase any securities or evidences of interest therein on
margin, except that each Fund may obtain such short-term credit as may
be necessary for the clearance of purchases and sales of securities
and each Fund (other than the Money Market Fund B) may make deposits
on margin in connection with Futures Contracts and related options.
(10) Sell any security which such Fund does not own unless by
virtue of its ownership of other securities it has at the time of sale
a right to obtain securities without payment of further consideration
equivalent in kind and amount to the securities sold and provided that
if such right is conditional the sale is made upon equivalent
conditions.
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<PAGE> 194
(11) Purchase securities issued by any other investment company
or investment trust except by purchase in the open market where no
commission or profit to a sponsor or dealer results from such purchase
other than the customary broker's commission, or except when such
purchase, though not made in the open market, is part of a plan of
merger or consolidation; provided, however, that a Fund will not
purchase such securities if such purchase at the time thereof would
cause more than 10% of its total assets (taken at market value) to be
invested in the securities of such issuers; and, provided, further,
that a Fund will not purchase securities issued by an open-end
investment company.
(12) Knowingly invest in securities which are subject to legal or
contractual restrictions on resale or for which there is no readily
available market (e.g., trading in the security is suspended or market
makers do not exist or will not entertain bids or offers), except for
repurchase agreements, if, as a result thereof more than 10% of such
Fund's total assets (taken at market value) would be so invested.
(The Staff of the Securities and Exchange Commission has taken the
position that a money market fund may no invest more than 10% of its
net assets in illiquid securities. The Money Market Fund B has
undertaken with the Staff to require, that as a matter of operating
policy, it will not invest in illiquid securities in an amount
exceeding 10% of its net assets.)
(13) Issue any senior security (as that term is defined in the
Act) if such issuance is specifically prohibited by the Act or the
rules and regulations promulgated thereunder. For the purpose of this
restriction, collateral arrangements with respect to options, Futures
Contracts and Options on Futures Contracts and collateral arrangements
with respect to initial and variation margins are not deemed to be the
issuance of a senior security.
In addition, except for Money Market Fund B and High Yield Bond
Fund whose policies on investment in the securities of issuers engaged
in any one industry are set forth in the prospectuses of those Funds,
a Fixed Income Fund may not invest more than 25% of its total assets
(taken at market value) in the securities of issuers engaged in any
one industry. Obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities are not subject to this
limitation. Determinations of industries for purposes of the
foregoing limitation are made in accordance with specific industry
codes set forth in the Standard Industrial Classification Manual and
without considering groups of industries (e.g., all utilities or all
finance companies) to be an industry. Also, a Fixed Income Fund may
not purchase securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities) if such purchase, at the time thereof, would cause
a Fund to hold more than 10% of any class of securities of such
issuer. For this purpose, all indebtedness of an issuer (for the
Money Market Fund B, all indebtedness of an issuer maturing in less
than one year) shall be deemed a single class and all preferred stock
of an issuer shall be deemed a single class.
In addition, an Equity Fund may not:
(1) Concentrate its investments in any particular industry, but
if it is deemed appropriate for the attainment of its investment
objective, such Fund may invest up to 25% of its assets (taken at
market value at the time of each investment) in securities of issuers
in any one industry.
(2) Purchase voting securities of any issuer if such purchase,
at the time thereof, would cause more than 10% of the outstanding
voting securities of such issuer to be held by such Fund; or purchase
securities of any issuer if such purchase at the time thereof would
cause more than 10% of any class of securities of such issuer to be
held by such Fund. For this purpose all indebtedness of an issuer
shall be deemed a single class and all preferred stock of an issuer
shall be deemed a single class.
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<PAGE> 195
High Yield Tax-Free Fund may not:
(1) Borrow money except from banks for temporary or emergency
(not leveraging) purposes, including the meeting of redemption
requests that might otherwise require the untimely disposition of
securities, in an amount up to 15% of the value of the Fund's total
assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the
borrowing was made. While borrowings exceed 5% of the value of the
Fund's total assets, the Fund will not purchase any additional
securities. Interest paid on borrowings will reduce the Fund's net
investment income. The borrowing restriction set forth above does not
prohibit the use of reverse repurchase agreements, in an amount
(including any borrowings) not to exceed 33-1/3% of net assets.
(2) Pledge, hypothecate, mortgage or otherwise encumber its
assets, except in an amount up to 10% of the value of its total assets
but only to secure borrowings for temporary or emergency purposes as
may be necessary in connection with maintaining collateral in
connection with writing put or call options or making initial margin
deposits in connection with the purchase or sale of financial futures
or index futures contracts and related options.
(3) Purchase securities (except obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities) if the
purchase would cause the Fund at the time to have more than 5% of the
value of its total assets invested in the securities of any one issuer
or to own more than 10% of the outstanding debt securities of any one
issuer; provided, however, that up to 25% of the value of the Fund's
asset may be invested without regard to these restrictions.
(4) Purchase or retain the securities of any issuer, if to the
knowledge of the Fund, any officer or director of the Fund or its
Investment Adviser owns more than 1/2 of 1% of the outstanding
securities of such issuer, and all such officers and directors own in
the aggregate more than 5% of the outstanding securities of such
issuer.
(5) Write, purchase or sell puts, calls or combinations thereof,
except put and call options on debt securities, futures contracts
based on debt securities, indices of debt securities and futures
contracts based on indices of debt securities, sell securities on
margin or make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the
securities sold short, and unless not more than 10% of the Fund's net
assets (taken at current value) is held as collateral for such sales
at any one time.
(6) Underwrite the securities of other issuers, except insofar
as the Fund may be deemed an underwriter under the Securities Act of
1933 in disposing of a portfolio security.
(7) Purchase the securities of any issuer if as a result more
than 10% of the value of the Fund's total assets would be invested in
securities that are subject to legal or contractual restrictions on
resale ("restricted securities") and in securities for which there are
no readily available market quotations; or enter into a repurchase
agreement maturing in more than seven days, if as a result such
repurchase agreement together with restricted securities and
securities for which there are no readily available market quotations
would constitute more than 10% of the Fund's total assets.
(8) Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, except commodities and
commodities contracts which are necessary to enable the Fund to engage
in permitted futures and options transactions necessary to implement
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hedging strategies, or oil and gas interests, but this shall not
prevent the Fund from investing in Municipal Obligations secured by
real estate or interests in real estate.
(9) Make loans to others, except insofar as the Fund may enter
in repurchase agreements as set forth in the Prospectus. The purchase
of an issue of publicly distributed bonds or other securities, whether
or not the purchase was made upon the original issuance of securities,
is not to be considered the making of a loan.
(10) Invest more than 25% of its assets in the securities of the
"issuers" in any single industry; provided that there shall be no
limitation on the purchase of Municipal Obligations and obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities. For purposes of this limitation and that set forth
in investment restriction (3) above, when the assets and revenues of
an agency, authority, instrumentality or other political subdivision
are separate from those of the government creating the issuing entity
and a security is backed only by the assets and revenues of the
entity, the entity would be deemed to be the sole issuer of the
security. Similarly, in the case of an industrial development or
pollution control bond, if that bond is backed only by the assets and
revenues of the nongovernmental user, then such non governmental user
would be deemed to be the sole issuer. If, however, in either case,
the creating government or some other entity guarantees a security,
such a guarantee would be considered a separate security and would be
treated as an issue of such government or other entity.
(11) Invest in securities of other investment companies, except
as they may be acquired as part of a merger, consolidation or
acquisition of assets, and except for the purchase, to the extent
permitted by Section 12 of the Act, of shares of registered unit
investment trusts whose assets consist substantially of Municipal
Obligations.
(12) Invest more than 5% of the value of its total assets in the
securities of issuers having a record, including predecessors, of
fewer than three years of continuous operation, except obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities, unless the securities are rated by a nationally
recognized rating service.
(13) Invest for the purpose of exercising control or management
of another company.
(14) Issue any senior security (as that term is defined in the
Act) if such issuance is specifically prohibited by the Act or the
rules and regulations promulgated thereunder. For the purpose of this
restriction, collateral arrangements with respect to options, Futures
Contracts and Options on Futures Contracts and collateral arrangements
with respect to initial and variation margins are not deemed to be the
issuance of a senior security.
OTHER OPERATING POLICIES
Each of the Equity Funds (whose investment restrictions permit
holdings in warrants not to exceed 10% of its assets) may, due to an
undertaking with a state in the Fund's shares are currently qualified
for sale, purchase warrants not to exceed 5% of such Fund's net
assets. Included within that amount, but not exceeding 2% of a Fund's
net assets, may be warrants for which there is no public market. Any
such warrants which are attached to securities at the time such
securities are acquired by a Fund will be deemed to be without value
for the purpose of this restriction.
Each Fund (other than High Yield Tax-Free Fund) will not invest
more than 5% of its total assets in companies which, including their
respective predecessors, have a record of less than three years'
continuous operation.
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<PAGE> 197
In order to comply with certain state regulatory policies, no
Fund will, as a matter of operating policy, pledge, mortgage or
hypothecate its portfolio securities if the percentage of securities
so pledged, mortgaged or hypothecated would exceed 15%.
In order to comply with certain state regulatory policies, the
cost of investments in options, financial futures, stock index futures
and currency futures, other than those acquired for hedging purposes,
may not exceed 10% of a Fund's total net assets. (See "Special
Investment Techniques - Futures and Options on Futures and Regulatory
Matters" for other limitations applicable to these types of
investments.)
These operating policies are not fundamental and may be changed
without shareholder approval. In order to comply with certain state
regulatory practices, certain policies, if changed, would require
advance written notice to shareholders.
The Corporation's Board of Directors has approved the following
nonfundamental investment policy pursuant to an order of the SEC:
Notwithstanding any investment restriction to the contrary, each Fund
may, in connection with the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees/Directors, purchase
securities of other investment companies within the John Hancock Group
of Funds provided that, as a result, (i) no more than 10% of the
Fund's assets would be invested in securities of all other investment
companies, (ii) such purchase would not result in more than 3% of the
total outstanding voting securities of any one such investment company
being held by the Fund and (iii) no more than 5% of the Fund's assets
would be invested in any one such investment company.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Corporation is managed by its Directors who
elect officers who are responsible for the day-to-day operations of
the Corporation and the Funds and who execute policies formulated by
the Directors. Several of the officers and Directors of the
Corporation are also officers and directors of the Adviser or officers
and directors of John Hancock Funds.
Set forth below is the principal occupation or employment of the
Directors and principal officers of the Corporation during the past
five years:
<TABLE>
<CAPTION>
POSITION HELD WITH PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS THE CORPORATION DURING PAST FIVE YEARS
---------------- ------------------ -----------------------
<S> <C> <C>
Edward J. Boudreau, Jr.* Director, Chairman and Chief Executive
101 Huntington Avenue Chairman and Officer, the Adviser and The
Boston, MA 02199 Chief Executive Berkeley Financial Group
Officer(1)(2) ("The Berkeley Group");
Chairman, NM Capital
Management, Inc. ("NM
Capital"); John Hancock
Advisers International Limited
("Advisers International");
John Hancock Funds, Inc.;
John Hancock Investor
Services Corporation
("Investor Services"); and
Sovereign Asset Management
Corporation ("SAMCorp");
</TABLE>
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<PAGE> 198
<TABLE>
<S> <C> <C>
(hereinafter the Adviser, the
Berkeley Group, NM Capital,
Advisers International, John
Hancock Funds, Inc., Investor
Services and SAMCorp are
collectively referred to as the
"Affiliated Companies");
Chairman, First Signature
Bank & Trust; Director, John
Hancock Freedom Securities
Corporation, John Hancock
Capital Corporation, New
England/Canada Business
Council; Member, Investment
Company Institute Board of
Governors; Trustee, Museum
of Science; President, the
Adviser (until July 1992);
Trustee or Director of other
investment companies
managed by the Adviser; and
Chairman, John Hancock
Distributors, Inc. (until April,
1994).
James F. Carlin Director Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc. (insurance);
Natick, MA 01760 Director, Arbella Mutual
Insurance Company
(insurance), Consolidated
Group Trust (group health
plan), Carlin Insurance
Agency, Inc. and West
Insurance Agency, Inc.;
Receiver, the City of Chelsea
(until August 1992); and
Trustee or Director of other
investment companies
managed by the Adviser.
William H. Cunningham Director Chancellor, University of
601 Colorado Street Texas System and former
O'Henry Hall President of the University of
Austin, TX 78701 Texas, Austin, Texas; Regents
Chair in Higher Education
Leadership; James L. Bayless
Chair for Free Enterprise;
Professor of Marketing and
Dean College of Business
Administration/Graduate
School of Business
(1983-1985); Centennial Chair
in Business Education
</TABLE>
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<PAGE> 199
<TABLE>
<S> <C> <C>
Leadership, 1983-1985;
Director, LaQuinta Motor Inns,
Inc. (hotel management
company); Director,
Jefferson-Pilot Corporation
(diversified life insurance
company); Director,
Freeport-McMoran Inc. (oil
and gas company); Director,
Barton Creek Properties, Inc.
(1988-1990) (real estate
development) and LBJ
Foundation Board (education
foundation); and Advisory
Director, Texas Commerce
Bank - Austin.
Charles L. Ladner Director(3) Director, Energy North, Inc.
UGI Corporation (public utility holding
460 North Gulph Road company); Senior Vice
King of Prussia, PA 19406 President, Finance UGI Corp.
(public utility holding
company) (until 1992); and
Trustee or Director of other
investment companies
managed by the Adviser.
Leo E. Linbeck, Jr. Director Chairman, President, Chief
3810 W. Alabama Executive Officer and
Houston, TX 77027 Director, Linbeck Corporation
(a holding company engaged
in various phases of the
construction industry and
warehousing interests);
Director and Chairman,
Federal Reserve Bank of
Dallas; Chairman of the Board
and Chief Executive Officer,
Linbeck Construction
Corporation; Director,
Panhandle Eastern Corporation
(a diversified energy
company); Director, Daniel
Industries, Inc. (manufacturer
of gas measuring products and
energy related equipment);
Director, GeoQuest
International, Inc. (a
geophysical consulting firm);
and Director, Greater Houston
Partnership.
</TABLE>
-32-
<PAGE> 200
<TABLE>
<S> <C> <C>
Patricia P. McCarter Director(3) Director and Secretary, the
Swedesford Road McCarter Corp. (machine
RD #3, Box 121 manufacturer); and Trustee or
Malvern, PA 19355 Director of other investment
companies managed by the
Adviser.
Steven R. Pruchansky Director(1)(3) Director and Treasurer, Mast
360 Horse Creek Drive, #208 Holdings, Inc.; Director,
Naples, FL 33942 First Signature Bank & Trust
Company (until August 1991);
General Partner, Mast Realty
Trust; President, Maxwell
Building Corp. (until 1991);
and Trustee or Director of
other investment companies
managed by the Adviser.
Norman H. Smith Director(3) Lieutenant General, USMC,
Rt. 1, Box 249 E Deputy Chief of Staff for
Linden, VA 22642 Manpower and Reserve
Affairs, Headquarters Marine
Corps; Commanding General
III Marine Expeditionary
Force/3rd Marine Division
(retired 1991); and Trustee or
Director of other investment
companies managed by the
Adviser.
John P. Toolan Director(3) Director, The Smith Barney
13 Chadwell Place Muni Bond Funds, The Smith
Morristown, NJ 07960 Barney Tax-Free Money Fund,
Inc., Vantage Money Market
Funds (mutual funds), The
Inefficient-Market Fund, Inc.
(closed-end investment
company) and Smith Barney
Trust Company of Florida;
Chairman, Smith Barney Trust
Company (retired December,
1991); Director, Smith Barney,
Inc., Mutual Management
Company and Smith, Barney
Advisers, Inc. (investment
advisers) (retired 1991); and
Senior Executive Vice
President, Director and
member of the Executive
Committee, Smith Barney,
Harris Upham & Co.,
Incorporated (investment
bankers) (until 1991); and
</TABLE>
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<PAGE> 201
<TABLE>
<S> <C> <C>
Trustee or Director of other
investment companies
managed by the Adviser.
Robert G. Freedman* Vice Chairman President and Chief
101 Huntington Avenue and Chief Investment Officer, the
Boston, MA 02199 Investment Adviser.
Officer(2)
Anne C. Hodsdon* President(2) Executive Vice President, the
101 Huntington Avenue Adviser.
Boston, MA 02199
James B. Little* Senior Vice Senior Vice President, the
101 Huntington Avenue President and Adviser.
Boston, MA 02199 Chief Financial
Officer
Thomas H. Drohan* Senior Vice Senior Vice President and
101 Huntington Avenue President and Secretary, the Adviser.
Boston, MA 02199 Secretary
Michael P. DiCarlo* Senior Vice Senior Vice President, the
101 Huntington Avenue President(2) Adviser.
Boston, MA 02199
Edgar Larsen* Senior Vice Senior Vice President, the
101 Huntington Avenue President Adviser.
Boston, MA 02199
B.J. Willingham* Senior Vice Senior Vice President, the
101 Huntington Avenue President Adviser. Formerly, Director
Boston, MA 02199 and Chief Investment Officer
of Transamerica Fund
Management Company.
James J. Stokowski* Vice President Vice President, the Adviser.
101 Huntington Avenue and Treasurer
Boston, MA 02199
Susan S. Newton* Vice President Vice President and Assistant
101 Huntington Avenue and Compliance Secretary, the Adviser.
Boston, MA 02199 Officer
John A. Morin* Vice President Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
<FN>
* An "interested person" of the Corporation, as such term is
defined in the 1940 Act.
</TABLE>
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<PAGE> 202
All of the officers listed are officers or employees of the
Adviser or affiliated companies. Some of the Directors and officers
may also be officers and/or Directors and/or Trustees of one or more
of the other funds for which the Adviser serves as investment adviser.
As of April 28, 1995, there were 13,205,309 shares of the
Corporation outstanding and officers and Directors as a group
beneficially owned less than 1% of the outstanding shares of the
Corporation and of each of the Funds. On such date, the following
shareholders were the only record holders and beneficial owners of 5%
or more of the shares of the respective Funds:
NUMBER OF SHARES HELD (EXPRESSED AS PERCENTAGE
OF FUND'S OUTSTANDING SHARES)
Emerging Growth Fund:
<TABLE>
<S> <C>
3,778,946 Shares Merrill Lynch Pierce Fenner & Smith
24.59% 4800 Deerlake Drive East
Jacksonville, Florida 32246
Global Resources Fund:
165,205 Shares Merrill Lynch Pierce Fenner & Smith
6.75% 4800 Deerlake Drive East
Jacksonville, Florida 32246
Government Income Fund:
3,264,901 Shares Merrill Lynch Pierce Fenner & Smith
12.58% 4800 Deerlake Drive East
Jacksonville, Florida 32246
1,339,170 Shares Continental Trust Co.
5.16% 231 S. LaSalle Street
Chicago, IL 60697
High Yield Bond Fund:
2,159,330 Shares Merrill Lynch Pierce Fenner & Smith
8.34% 4800 Deerlake Drive East
Jacksonville, Florida 32246
</TABLE>
At such date, no other person(s), owned of record or was known by the
Corporation to beneficially own as much as 5% of the outstanding
shares of the Corporation or of any of the Funds.
As of December 22, 1994, the Directors have established an
Advisory Board which acts to facilitate a smooth transition of
management over a two-year period (between Transamerica Fund
Management Company ("TFMC"), the prior investment adviser, and the
Adviser). The members of the Advisory Board are distinct from the
Board of Directors, do not serve the Funds in any other capacity and
are persons who have no power to determine what securities are
purchased or sold and behalf of the Funds. Each member of the
Advisory Board may be contacted at 101 Huntington Avenue, Boston,
Massachusetts 02199.
Members of the Advisory Board and their respective principal
occupations during the past five years are as follows:
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<PAGE> 203
R. Trent Campbell, President, FMS, Inc. (financial and management
services); former Chairman of the Board, Mosher Steel Company.
Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman from
Texas; co-founder, Houston Parents' League; former board member
of various civic and cultural organizations in Houston, including
the Houston Symphony, Museum of Fine Arts and YWCA. Mrs. Bentsen
is presently active in various civic and cultural activities in
the Washington, D.C. area, including membership on the Area Board
for The March of Dimes and is a National Trustee for the Botanic
Gardens of Washington, D. C.
Thomas R. Powers, Formerly Chairman of the Board, President and Chief
Executive Officer, TFMC; Director, West Central Advisory Board,
Texas Commerce Bank; Trustee, Memorial Hospital System; Chairman
of the Board of Regents of Baylor University; Member, Board of
Governors, National Association of Securities Dealers, Inc.;
Formerly, Chairman, Investment Company Institute; formerly,
President, Houston Chapter of Financial Executive Institute.
Thomas B. McDade, Chairman and Director, TransTexas Gas Company;
Director, Houston Industries and Houston Lighting and Power
Company; Director, TransAmerican Companies (natural gas producer
and transportation); Member, Board of Managers, Harris County
Hospital District; Advisory Director, Commercial State Bank, El
Campo; Advisory Director, First National Bank of Bryan; Advisory
Director, Sterling Bancshares; Former Director and Vice Chairman,
Texas Commerce Bancshares; and Vice Chairman, Texas Commerce
Bank.
Compensation of the Board of Directors and Advisory Board. The
following tables provide information regarding the compensation paid
by the Fund and the 22 other investment companies in the John Hancock
Fund Complex to the Independent Directors and the Advisory Board
members for their services. Mr. Boudreau, a non-Independent Director,
and each of the officers of the Funds are interested persons of the
Adviser, are compensated by the Adviser and received no compensation
from the Funds for their services.
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Directors from the Funds Funds' Expenses Directors**
--------- -------------- ---------------- ------------------
<S> <C> <C> <C>
James F. Carlin $ 0 $0 $ 60,450
William H. Cunningham $ 18,750* $0 $ 0
Charles L. Ladner $ 0 $0 $ 60,450
Leo E. Linbeck, Jr. $ 26,500* $0 $ 0
Patricia P. McCarter $ 0 $0 $ 60,200
Steven R. Pruchansky $ 0 $0 $ 62,450
Norman H. Smith $ 0 $0 $ 62,450
John P. Toolan $ 0 $0 $ 60,450
Total $ 45,250 $0 $366,450
<FN>
* Messrs. Linbeck and Cunningham, the only current Directors who
were Directors for the fiscal year ended October 31, 1994, were
each paid directors' fees (including expenses) by the Funds
pursuant to different compensation arrangements then in effect,
in the amount of:
</TABLE>
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<PAGE> 204
$4,344 from Government Income Fund; $4,244 from High Yield Bond
Fund; $4,233 from High Yield Tax-Free Fund; $4,439 in Emerging
Growth Fund; $1,529 from Global Resources Fund; and $2,758 for
Money Market Fund B.
** The total compensation paid by the John Hancock Fund Complex to
the Independent Directors is as of the calendar year ended
December 31, 1994. (The Funds were not part of the John Hancock
Fund Complex until December 22, 1994 and Messrs. Cunningham and
Linbeck were not trustees or directors of any funds in the John
Hancock Fund Complex prior to December 22, 1994.)
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Advisory Board*** from the Funds Funds' Expenses Directors***
-------------- -------------- ---------------- ------------------
<S> <C> <C> <C>
R. Trent Campbell $ 19,059 $0 $ 54,000
Mrs. Lloyd Bentsen $ 19,059 $0 $ 54,000
Thomas R. Powers $ 19,059 $0 $ 54,000
Thomas B. McDade $ 19,059 $0 $ 54,000
TOTAL $ 76,236 $0 $ 216,000
<FN>
*** Estimated for the Funds' current fiscal year ending October 31,
1995.
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Funds' Prospecutses, the Funds receive their
investment advice from the Adviser. Investors should refer to the
Prospectuses for a description of certain information concerning the
Funds' investment management contracts. Each of the Directors and
principal officers affiliated with the Corporation who is also an
affiliated person of the Adviser is named above, together with the
capacity in which such person is affiliated with the Corporation and
the Adviser.
The Adviser, located at 101 Huntington Avenue, Boston,
Massachusetts 02199-7603, was organized in 1968 and more than $13
billion in total assets under management in its capacity as investment
adviser to the Funds and the other mutual funds and publicly traded
investment companies in the John Hancock group of funds having a
combined total of over 1,060,000 shareholders. The Adviser is a
wholly-owned subsidiary of The Berkeley Financial Group, which is in
turn a wholly-owned subsidiary of John Hancock Subsidiaries, Inc.,
which is in turn a wholly-owned subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company"), one of the most recognized an
respected financial institutions in the nation. With total assets
under management of over $80 billion, the Life Company is one of the
ten largest life insurance companies in the United States, and carries
Standard & Poor's and A.M. Best's highest ratings. Founded in 1862,
the Life Company has been serving clients for over 130 years.
As described in the Prospectuses, the Corporation, on behalf of
each Fund, has entered into investment management contracts with the
Adviser. Under each investment management contract, the Adviser
provides the Funds with (i) a continuous investment program,
consistent with each Fund's stated investment objective and policies,
(ii) supervision of all aspects of each Fund's operations except those
that are delegated to a custodian, transfer agent or other agent and
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<PAGE> 205
(iii) such executive, administrative and clerical personnel, officers
and equipment as are necessary for the conduct of their business. The
Adviser is responsible for the day-to-day management of each Fund's
portfolio assets.
No person other than the Adviser and its directors and employees
regularly furnish advice to the Funds with respect to the desirability
of a Fund investing in, purchasing or selling securities. The Adviser
may from time to time receive statistical or other similar factual
information, and information regarding general economic factors and
trends, from the Life Company and its affiliates.
Under the terms of the investment management contracts with the
Corporation, on behalf of each Fund, the Adviser provides the
Corporation with office space, equipment and supplies and other
facilities required for the business of the Funds. The Adviser pays
the compensation of all officers and employees of the Corporation, and
pays the expenses of clerical services relating to the administration
of the Funds. All expenses which are not specifically paid by the
Adviser and which are incurred in the operation of the Funds
including, but not limited to, (i) the fees of the Directors of the
Corporation who are not "interested persons," as such term is defined
in the 1940 Act (the "Independent Directors"), (ii) the fees of the
members of the Corporation's Advisory Board (described above) and
(iii) the continuous public offering of the shares of each Fund are
borne by the Funds. Subject to the conditions set forth in a private
letter ruling that the Funds have received from the Internal Revenue
Service relating to their multi-class structure, class expenses
properly allocable to any Class A or Class B shares will be borne
exclusively by such class of shares.
As provided by the investment management contracts, each Fund
pays the Investment Adviser an investment management fee, which is
accrued daily and paid monthly in arrears at the following rates of
the Funds' average daily net assets:
<TABLE>
<CAPTION>
JOHN HANCOCK EMERGING GROWTH FUND FEE
JOHN HANCOCK GLOBAL RESOURCES FUND (ANNUAL RATE)
-------------
<S> <C>
Average Daily Net Assets 0.75%
JOHN HANCOCK GOVERNMENT INCOME FUND
FEE
AVERAGE DAILY NET ASSETS (ANNUAL RATE)
------------------------ -------------
The first $200 million 0.65%
The next $300 million 0.625%
Over $500 million 0.60%
JOHN HANCOCK HIGH YIELD TAX-FREE FUND
JOHN HANCOCK HIGH YIELD BOND FUND
FEE
AVERAGE DAILY NET ASSETS (ANNUAL RATE)
------------------------ -------------
The first $75 million 0.625%
The next $75 million 0.5625%
Over $150 million 0.50%
JOHN HANCOCK MONEY MARKET FUND B
</TABLE>
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<PAGE> 206
<TABLE>
<CAPTION>
FEE
AVERAGE DAILY NET ASSETS (ANNUAL RATE)
------------------------ -------------
<S> <C>
The first $500 million 0.50%
The next $250 million 0.425%
The next $250 million 0.375%
The next $500 million 0.35%
The next $500 million 0.325%
The next $500 million 0.30%
Over $2.5 billion 0.275%
</TABLE>
The Adviser may voluntarily and temporarily reduce its advisory
fee or make other arrangements to limit a Fund's expenses to a
specified percentage of average daily net assets. The Adviser retains
the right to re-impose the advisory fee and recover any other payments
to the extent that, at the end of any fiscal year, a Fund's annual
expenses fall below this limit.
In the event normal operating expenses of a Fund, exclusive of
certain expenses prescribed by state law, are in excess of any state
limit where such Fund is registered to sell shares of common stock,
the fee payable to the Adviser will be reduced to the extent of such
excess and the Adviser will make any additional arrangements necessary
to eliminate any remaining excess expenses. The most restrictive
limit applicable to the Funds is 2.5% of the first $30,000,000 of a
Fund's average daily net asset value, 2% of the next $70,000,000 of
such assets and 1.5% of the remaining average daily net asset value.
Pursuant to the investment management contracts, the Adviser is
not liable for any error of judgment or mistake of law or for any loss
suffered by a Fund in connection with the matters to which their
respective contracts relate, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser
in the performance of its duties or from its reckless disregard of the
obligations and duties under the applicable contract.
The initial term of the investment management contracts expires
on December 22, 1996, and will continue in effect from year to year
thereafter if approved annually by a vote of a majority of the
Independent Directors, cast in person at a meeting called for the
purpose of voting on such approval, and by either a majority of the
Directors or the holders of a majority of the affected Fund's
outstanding voting securities. Each management contract may be
terminated without penalty on 60 days' notice at the option of either
party or by vote of a majority of the outstanding voting securities of
the Fund. Each management contract terminates automatically in the
event of its assignment.
Securities held by a Fund may also be held by other funds or
investment advisory clients for which the Adviser or its affiliates
provide investment advice. Because of different investment objectives
or other factors, a particular security may be bought for one or more
funds or clients when one or more are selling the same security. If
opportunities for purchase or sale of securities by the Adviser for
the Funds or for other funds or clients for which the Adviser renders
investment advice arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for
the respective funds or clients in a manner deemed equitable to all of
them. To the extent that transactions on behalf of more than one
client of the Adviser or its affiliates may increase the demand for
securities being purchased or the supply of securities being sold,
there may be an adverse effect on price.
Under the investment management contracts, the Funds may use the
name "John Hancock" or any name derived from or similar to it only for
as long as the investment management contract or any extension,
renewal or amendment thereof remains in effect. If a Fund's
investment
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<PAGE> 207
management contract is no longer in effect, the Fund (to the extent
that it lawfully can) will cease to use such name or any other name
indicating that it is advised by or otherwise connected with the
Adviser. In addition, the Adviser or the Life Company may grant the
non-exclusive right to use the name "John Hancock" or any similar name
to any other corporation or entity, including but not limited to any
investment company of which the Life Company or any subsidiary or
affiliate thereof or any successor to the business of any subsidiary
or affiliate thereof shall be the investment adviser.
For the fiscal years ended October 31, 1994, 1993 and 1992,
advisory fees payable by the Funds to TFMC, each Fund's former
investment adviser, were as follows:
(1) Emerging Growth Fund - (a) $2,706,438 (b) $1,668,514 and (c)
$809,284
(2) Global Resources Fund - (a) $220,869 (b) $95,411 and (c)
$57,774
(3) Government Income Fund - (a) $1,728,997 (b) $1,698,937 and
(c) $1,197,515
(4) High Yield Bond Fund - (a) $976,834 (b) $777,673 and (c)
$550,109
(5) High Yield Tax-Free Fund - (a) $886,380 (b) $541,737 and (c)
$370,020
(6) Money Market Fund B - (a) $214,088 (b) $142,298 and (c)
$133,127
During the six-month period ended October 31, 1993 and the fiscal
year ended October 31, 1994, TFMC paid subadvisory fees to
Transamerica Investment Services, Inc., its former subadviser, of
$34,536 and $71,992, respectively. High Yield Tax-Free Fund made no
payments of subadvisory fees during these periods.
Administrative Services Agreement. The Corporation, on behalf of
each Fund, was a party to an administrative services agreement with
TFMC (the "Services Agreement"), pursuant to which TFMC performed
bookkeeping and accounting services and functions, including preparing
and maintaining various accounting books, records and other documents
and keeping such general ledgers and portfolio accounts as are
reasonably necessary for the operation of the Funds. Other
administrative services included communications in response to
shareholder inquiries and certain printing expenses of various
financial reports. In addition, such staff and office space,
facilities and equipment was provided as necessary to provide
administrative services to the Funds. The Services Agreement was
amended in connection with the appointment of the Adviser as adviser
to the Fund to permit services under the Agreement to be provided to
the Funds by the Adviser and its affiliates. The Services Agreement
was terminated during the current fiscal year.
The following amounts for each of the following Funds for their
respective periods reflect (a) the total of administrative services
fees paid and of such amount, (b) the amount of which was paid to TFMC
and (c) the amount paid for certain data processing and pricing
information services:
EMERGING GROWTH FUND
(1) for the fiscal year ended October 31, 1994 - (a) $222,044;
(b) $192,019; and (c) $30,025.
(2) for the fiscal year ended October 31, 1993 - (a) $157,911;
(b) $134,656; and (c) $23,255.
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<PAGE> 208
(3) for the fiscal year ended October 31, 1992 - (a) $100,346;
(b) $81,923; and (c) $18,423.
GLOBAL RESOURCES FUND
(1) for the fiscal year ended October 31, 1994 - (a) $54,259;
(b) $43,512; and (c) $10,747.
(2) for the fiscal year ended October 31, 1993 - (a) $44,306;
(b) 34,515; and (c) $9,791.
(3) for the fiscal year ended October 31, 1992 - (a) $48,816;
(b) $38,916; and (c) $9,900.
GOVERNMENT INCOME FUND
(1) for the fiscal year ended October 31, 1994 - (a) $132,786;
(b) $107,246; and (c) $25,540.
(2) for the fiscal year ended October 31, 1993 - (a) $116,354;
(b) $90,782; and (c) $25,572.
(3) for the fiscal year ended October 31, 1992 - (a) $86,781;
(b) $62,627; and (c) $24,154.
HIGH YIELD BOND FUND
(1) for the fiscal year ended October 31, 1994 - (a) $100,822;
(b) $80,593; and (c) $20,229.
(2) for the fiscal year ended October 31, 1993 - (a) $82,030;
(b) $64,844; and (c) $17,186.
(3) for the fiscal year ended October 31, 1992 - (a) $69,403;
(b) $52,920; and (c) $16,483.
HIGH YIELD TAX-FREE FUND
(1) for the fiscal year ended October 31, 1994 - (a) $88,709;
(b) $60,488; and (c) $28,221.
(2) for the fiscal year ended October 31, 1993 - (a) $69,485;
(b) 46,591; and (c) $22,894.
(3) for the fiscal year ended October 31, 1992 - (a) $63,272;
(b) $40,793; and (c) $22,479.
MONEY MARKET FUND B
(1) for the fiscal year ended October 31, 1994 - (a) $46,621;
(b) $36,221; and (c) $10,400.
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(2) for the fiscal year ended October 31, 1993 - (a) $42,511;
(b) $32,451; and (c) $10,060.
(3) for the fiscal year ended October 31, 1992 - (a) $51,109;
(b) $40,808; and (c) $10,301.
DISTRIBUTION CONTRACT
Distribution Agreement. As discussed in the Prospectus, each
Fund's shares are sold on a continuous basis at the public offering
price. John Hancock Funds, a wholly-owned subsidiary of the Adviser,
has the exclusive right, pursuant to the Distribution Agreement dated
December 22, 1994 (the "Distribution Agreement"), to purchase shares
from the Funds at net asset value for resale to the public or to
broker-dealers at the public offering price. Upon notice to all
broker-dealers with whom it has sales agreements ("Selling Brokers"),
John Hancock Funds may allow such Selling Brokers up to the full
applicable sales charge during periods specified in such notice.
During these periods, such Selling Brokers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The Distribution Agreement was initially adopted by the
affirmative vote of the Corporation's Board of Directors including the
vote a majority of Directors who are not parties to the agreement or
interested persons of any such party, cast in person at a meeting
called for such purpose. The Distribution Agreement shall continue in
effect with respect to each Fund until December 22, 1996 and from year
to year if approved by either the vote of the Fund's shareholders or
the Board of Directors including the vote of a majority of the
Directors who are not parties to the agreement or interested persons
of any such party, cast in person at a meeting called for such
purpose. The Distribution Agreement may be terminated at any time as
to one or more of the Funds, without penalty, by either party upon
sixty (60) days' written notice or by a vote of a majority of the
outstanding voting securities of the affected Fund and terminates
automatically in the case of an assignment by John Hancock Funds.
For the fiscal year ended October 31, 1994, the following amounts
for each of Emerging Growth and High Yield Bond Fund reflect (a) the
total underwriting commissions for sales of the Fund's Class A shares
of administrative and (b) the portion of such amount retained by the
Fund's former distributor, Transamerica Fund Distributors, Inc. In
each case, the remainder of such underwriting commissions was
reallowed to dealers.
EMERGING GROWTH FUND
(a) $1,042,959 and (b) $65,421.
HIGH YIELD BOND FUND
(a) $324,876 and (b) $23,651.
The other Funds did not have Class A shares outstanding for the year
ended October 31, 1994, and Emerging Growth Fund and High Yield Bond
Fund did not have Class A shares outstanding for the years prior to
the year ended October 31, 1994.
Distribution Plan. The Board of Directors approved new
distribution plans pursuant to Rule 12b-1 under the 1940 Act for
shares of Money Market Fund ("Money Market B Plan") and Class A Shares
("Class A Plans") and Class B Shares ("Class B Plan") of each other
Fund. Such
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Plans were approved by a majority of the outstanding shares of each
respective class of each Fund on December 16, 1994 and became
effective on December 22, 1994.
Under each Class A Plan, the distribution or service fee will not
exceed an annual rate of 0.25% of the average daily net asset value of
the Class A Shares of a Fund (determined in accordance with the Fund's
Prospectus as from time to time in effect). Any expenses under the
Class A Plan not reimbursed within 12 months of being presented to the
Fund for repayment are forfeited and not carried over to future years.
Under the Money Market B Plan and each Class B Plan, the distribution
or services fee to be paid by the applicable Fund will not exceed an
annual rate of 1.00% of the average daily net assets of its shares (in
the case of Money Market Fund B) or the Class B shares of the Fund (in
each case, determined in accordance with such Fund's prospectus as
from time to time in effect); provided that the portion of such fee
used to cover Service Expenses (described below) shall not exceed an
annual rate of 0.25% of the average daily net asset value of the
shares of the Fund (in the case of Money Market Fund B) or the Class B
Shares of the Fund. In accordance with generally accepted accounting
principles, the Fund does not treat unreimbursed distribution expenses
attributable to Class B shares as a liability of the Fund and does not
reduce the current net assets of Class B by such amount although the
amount may be payable under the Class B Plan in the future.
Under the Plans, expenditures shall be calculated and accrued
daily and paid monthly or at such other intervals as the Directors
shall determine. The fee may be spent by John Hancock Funds on
Distribution Expenses or Service Expenses. "Distribution Expenses"
include any activities or expenses primarily intended to result in the
sale of shares of the relevant class of the Fund, including, but not
limited to: (i) initial and ongoing sales compensation payable out of
such fee as such compensation is received by John Hancock Funds or by
Selling Brokers, (ii) direct out-of-pocket expenses incurred in
connection with the distribution of shares, including expenses related
to printing of prospectuses and reports; (iii) preparation, printing
and distribution of sales literature and advertising material; (iv) an
allocation of overhead and other branch office expenses of John
Hancock Funds related to the distribution of Fund Shares (v)
distribution expenses that were incurred by the Fund's former
distributor and not recovered through payments under the Class A or
Class B former plans (or, in the case of Money Market Fund, the Money
Market B Plan) or through receipt of contingent deferred sales charges
("CDSCs"); and (vi) in the event that any other investment company
(the "Acquired Fund") sells all or substantially all of its assets,
merges with or otherwise engages in a combination with the Fund,
distribution expenses originally incurred in connection with the
distribution of the Acquired Fund's shares. Service Expenses under
the Plans include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of John
Hancock Funds) and others who furnish personal and shareholder account
maintenance services to shareholders of the relevant class of the
Fund.
For the fiscal year ended October 31, 1994, total payments made
by Emerging Growth Fund under the Fund's former Class A Rule 12b-1
plan to the former distributor amounted to $277,671 and of such amount
(1) $9,627, (2) $126,857, (3) $8,204, (4) $16,712 and (5) $116,271
respresented payments for (1) advertising, (2) payments to dealers and
for dealer meetings, (3) cost of prospectuses and shareholder reports,
(4) various sales literature and (5) service fees, respectively. For
the fiscal year ended October 31, 1994, total payments made by High
Yield Bond Fund under the Fund's former Class A Rule 12b-1 plan to the
former distributor amounted to $20,179 and of such amount (1) $68, (2)
$5,975, (3) $383, (4) $1,431 and (5) $12,322 respresented payments for
(1) advertising, (2) payments to dealers and for dealer meetings, (3)
cost of prospectuses and shareholder reports, (4) various sales
literature and (5) service fees, respectively.
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The following amounts for each of the Funds for the fiscal year
ending October 31, 1994 represent each Fund's total payments to the
former distributor made pursuant to its Class B Plan (in the case of
Money Market Fund, pursuant to the Money Market B Plan) and of such
amounts, portions representing:
(1) total of service fees shown as
(a) service fees paid to brokers and dealers; and
(b) service fees paid to the former distributor
(2) total of distribution fees shown as:
(a) dealer commission payments;
(b) underwriting fee; and
(c) carrying charge (separate distribution fee).
Emerging Growth Fund (Class B Shares) - $2,497,907 total;
(1) $639,690; a) $401,762, and b) $237,928 and
(2) $1,858,217; a) $916,075, b) $229,019 and c) $713,123.
Global Resources Fund (Class B Shares) - $281,482 total;
(1) $70,523; a) $40,920, and b) $29,603 and
(2) $210,959; a) $124,689 b) $31,172 and c) $55,098.
Government Income Fund (Class B Shares) - $2,685,298, total;
(1) $671,915; a) $538,084, and b) $133,831 and
(2) $2,013,382; a) $944,718, b) 236,179 and c) $832,485
High Yield Bond Fund (Class B Shares) - $1,583,989 total;
(1) $390,708; a) $288,075, and b) $102,633 and
(2) $1,193,281; a) $591,135, b) $147,784 and c) $454,362
High Yield Tax-Free Fund (Class B Shares) - $1,408,352 total;
(1) $360,232; a) $192,666, and b) $167,566 and
(2) $1,048,120; a) $511,586, b) $127,896 and c) $408,638.
Money Market Fund B - $428,177 total;
(1) $107,432; a) $92,386, and b) $15,046 and
(2) $320,745; a) $182,732, b) $45,683 and c) $92,330.
The following amounts for each of the Funds for the fiscal years
ended October 31, 1994, 1993 and 1992 represent amounts of CDSCs from
redemptions of the Fund's shares as received by the former
distributor: (a) Emerging Growth Fund (Class B Shares) - $382,553,
$288,843 and
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$130,276; (b) Global Resources Fund (Class B Shares) - $68,696,
$27,393 and $31,801; (c) Government Income Fund (Class B Shares) -
$766,358, $518,924 and $398,691; (d) High Yield Bond Fund (Class B
Shares) - $387,591, $408,082 and $316,349; (e) High Yield Tax-Free
Fund (Class B Shares) - $253,265, $99,725 and $142,804; and (f) Money
Market Fund B - $343,829, $211,332 and $271,728.
Each of the Plans provides that it will continue in effect only
so long as its continuance is approved at least annually by a majority
of both the Directors and the Independent Directors. Each of the
Plans provides that it may be terminated without penalty (a) by vote
of a majority of the Independent Directors, (b) by a majority of the
respective Class' outstanding voting securities (or, in the case of
the Money Market B Plan, a majority of the Fund's outstanding voting
securities) upon 60 days' written notice to John Hancock Funds, and
(c) automatically in the event of assignment. Each of the Plans
further provides that it may not be amended to increase the maximum
amount of the fees for the services described therein without the
approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to the Plan. Each of the
Plans provides that no material amendment to the Plan will, in any
event, be effective unless it is approved by a majority vote of the
Directors and the Independent Directors of the Corporation. The
holders of Class A Shares and Class B Shares have exclusive voting
rights with respect to the Plan applicable to their respective class
of shares. In adopting the Plans, the Board of Directors has
determined that, in their judgment, there is a reasonable likelihood
that each Plan will benefit the holders of the applicable class of
shares of the affected Fund.
Information regarding the services rendered under the Plans and
the Distribution Agreement and the amounts paid therefore by the
respective Class of the Funds are provided to, and reviewed by, the
Board of Directors on a quarterly basis. In its quarterly review, the
Board of Directors considers the continued appropriateness of the
Plans and the Distribution Agreement and the level of compensation
provided therein.
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the
shares of the Funds, the following procedures are utilized wherever
applicable.
Debt investment securities are valued on the basis of valuations
furnished by a principal market maker or a pricing service, both of
which generally utilize electronic data processing techniques to
determine valuations for normal institutional size trading units of
debt securities without exclusive reliance upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ
National Market Issues are generally valued at last sale price on the
day of valuation. Securities in the aforementioned category for which
no sales are reported and other securities traded over-the-counter are
generally valued at the mean between the current closing bid and asked
prices.
Short-term debt investments which have a remaining maturity of 60
days or less are generally valued at amortized cost which approximates
market value. If market quotations are not readily available or if in
the opinion of the Investment Adviser any quotation or price is not
representative of true market value, the fair value of the security
may be determined in good faith in accordance with procedures approved
by the Directors.
Any assets or liabilities expressed in terms of foreign
currencies are translated into U.S. dollars by the custodian bank
based on London currency exchange quotations as of 5:00 p.m., London
time (12:00 noon, New York time) on the date of any determination of
the Fund's NAV.
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The Funds will not price their securities on the following
national holidays: New Year's Day; Presidents' Day; Good Friday;
Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and
Christmas Day. On any day an international market is closed and the
New York Stock Exchange is open, any foreign securities will be valued
at the prior day's close with the current day's exchange rate.
Trading of foreign securities may take place on Saturdays and U.S.
business holidays on which a Fund's NAV is not calculated.
Consequently, a Fund's portfolio securities may trade and the NAV of
the Fund's redeemable securities may be significantly affected on days
when a shareholder has no access to the Fund.
AMORTIZED COST METHOD OF PORTFOLIO VALUATION
Money Market Fund utilizes the amortized cost valuation method of
valuing portfolio instruments in the absence of extraordinary or
unusual circumstances. Under the amortized cost method, assets are
valued by constantly amortizing over the remaining life of an
instrument the difference between the principal amount due at maturity
and the cost of the instrument to the Fund. The Directors will from
time to time review the extent of any deviation of the net asset
value, as determined on the basis of the amortized cost method, from
net asset value as it would be determined on the basis of available
market quotations. If any deviation occurs which may result in
unfairness either to new investors or existing shareholders, the
Directors will take such actions as they deem appropriate to eliminate
or reduce such unfairness to the extent reasonably practicable. These
actions may include selling portfolio instruments prior to maturity to
realize gains or losses or to shorten the Fund's average portfolio
maturity, withholding dividends, splitting, combining or otherwise
recapitalizing outstanding shares or utilizing available market
quotations to determine net asset value per share.
Since a dividend is declared to shareholders each time net asset
value is determined, the net asset value per share of the Fund will
normally remain constant at $1.00 per share. There is no assurance
that the Fund can maintain the $1.00 per share value. Monthly, any
increase in the value of a shareholder's investment from dividends is
reflected as an increase in the number of shares in the shareholder's
account or is distributed as cash if a shareholder has so elected.
It is expected that the Fund's net income will be positive each
time it is determined. However, if because of a sudden rise in
interest rates or for any other reason the net income of the Fund
determined at any time is a negative amount, the Fund will offset the
negative amount against income and accrued during the month for each
shareholder account. If at the time of payment of a distribution such
negative amount exceeds a shareholder's portion of accrued income, the
Fund may reduce the number of its outstanding shares by treating the
shareholder as having contributed to the capital of the Fund that
number of full or fractional shares which represent the amount of
excess. By investing in the Fund, shareholders are deemed to have
agreed to make such a contribution. This procedure permits the Fund
to maintain its net asset value at $1.00 per share.
If in the view of the Directors it is inadvisable to continue the
practice of maintaining net asset value at $1.00 per share, the
Directors reserve the right to alter the procedures for determining
net asset value. The Fund will notify shareholders of any such
alteration.
The Fund is permitted to redeem shares in kind. Nevertheless,
the Fund has filed with the Securities and Exchange Commission a
notification of election committing itself to pay in cash on
redemption by a shareholder of record, limited during any 90-day
period to the lesser of $250,000 or 1% of the net asset value of the
Fund at the beginning of such period.
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The Fund will not price its securities on the following national
holidays: New Year's Day; President's Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day and Christmas Day.
INITIAL SALES CHARGE ON CLASS A SHARES
Class A shares of the Funds are offered at a price equal to their
net asset value plus a sales charge which, at the option of the
purchaser, may be imposed either at the time of purchase (the "initial
sales charge alternative") or on a contingent deferred basis (the
"deferred sales charge alternative"). Share certificates will not be
issued unless requested by the shareholder in writing, and then only
will be issued for full shares. The Directors reserves the right to
change or waive a Fund's minimum investment requirements and to reject
any order to purchase shares (including purchase by exchange) when in
the judgment of the Adviser such rejection is in the Fund's best
interest.
The sales charges applicable to purchases of Class A shares of
the Funds are described in each Fund's Prospectus. Methods of
obtaining reduced sales charges referred to generally in the
Prospectuses are described in detail below. In calculating the sales
charge applicable to current purchases of Class A shares, the investor
is entitled to cumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund,
or if Investor Services is notified by the investor's dealer or the
investor at the time of the purchase, the cost of the Class A shares
owned.
Combined Purchases. In calculating the sales charge applicable
to purchases of Class A shares made at one time, the purchases will be
combined if made by (a) an individual, his or her spouse and their
children under the age of 21 purchasing securities for his or her own
account, (b) a trustee or other fiduciary purchasing for a single
trust, estate or fiduciary account and (c) certain groups of four or
more individuals making use of salary deductions or similar group
methods of payment whose funds are combined for the purchase of mutual
fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from
Investor Services or a Selling Broker's representative.
Without Sales Charge. As described in the Prospectuses, Class A
shares of the Funds may be sold without a sales charge to certain
persons described in the Prospectuses.
Accumulation Privilege. Investors (including investors combining
purchases) who are already Class A shareholders may also obtain the
benefit of the reduced sales charge by taking into account not only
the amount then being invested but also the purchase price or value of
the Class A shares already held by such person.
Combination Privilege. Reduced sales charges (according to the
schedule set forth in the Class A and Class B Prospectus) also are
available to an investor based on the aggregate amount of his
concurrent and prior investments in Class A shares of a Fund and
shares of all other John Hancock funds which carry a sales charge.
Letter of Intention. The reduced sales loads are also applicable
to investments made over a specified period pursuant to a Letter of
Intention (LOI), which should be read carefully prior to its execution
by an investor. Each Fund (other than Money Market Fund) offers two
options regarding the specified period for making investments under
the LOI. All investors have the option of making their investments
over a period of thirteen (13) months. Investors who are using the
Fund as a funding medium for a qualified retirement plan, however, may
opt to make the necessary investments called for by the LOI over a
forty-eight (48) month period. These qualified
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retirement plans include IRA's, SEP, SARSEP, TSA, 401(k) plans, TSA
plans and 457 plans. Such an investment (including accumulations and
combinations) must aggregate $100,000 or more invested during the
specified period from the date of the LOI or from a date within ninety
(90) days prior thereto, upon written request to Investor Services
($50,000 in the case of Emerging Growth Fund and Global Resources
Fund). The sales charge applicable to all amounts invested under the
LOI is computed as if the aggregate amount intended to be invested had
been invested immediately. If such aggregate amount is not actually
invested, the difference in the sales charge actually paid and the
sales charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made with the specified
period (either 13 or 48 months), the sales charge applicable will not
be higher than that which would have been applied (including
accumulations and combinations) had the LOI been for the amount
actually invested.
The LOI authorizes Investor Services to hold in escrow sufficient
Class A shares (approximately 5% of the aggregate) to make up any
difference in sales charges on the amount intended to be invested and
the amount actually invested, until such investment is completed
within the specified period, at which time the escrow shares will be
released. If the total investment specified in the LOI is not
completed, the Class A shares held in escrow may be redeemed and the
proceeds used as required to pay such sales charges as may be due. By
signing the LOI, the investor authorizes Investor Services to act as
his attorney-in-fact to redeem any escrowed shares and adjust the
sales charge, if necessary. A LOI does not constitute a binding
commitment by an investor to purchase, or by a Fund to sell, any
additional shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares and shares of Money Market Fund are
purchased at net asset value per share without the imposition of a
sales charge so that the Fund will receive the full amount of the
purchase payment.
Contingent Deferred Sales Charge. Class B shares which are
redeemed within six years of purchase will be subject to a CDSC at the
rates set forth in the Funds' respective Prospectuses as a percentage
of the dollar amount subject to the CDSC. The charge will be assessed
on an amount equal to the lesser of the current market value or the
original purchase cost of the Class B shares being redeemed.
Accordingly, no CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B shares derived
from reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number
of years from the time of payment for the purchase of Class B shares
until the time of redemption of such shares. Solely for purposes of
determining the number of years from the time of any payment for the
purchases of shares, all payments during a month will be aggregated
and deemed to have been made on the last day of the month.
Proceeds from the CDSC are paid to John Hancock Funds and are
used in whole or in part by John Hancock Funds to defray its expenses
related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the payment of
compensation to select Selling Brokers for selling Class B shares.
The combination of the CDSC and the distribution and service fees
facilitates the ability of the Fund to sell the Class B shares without
a sales charge being deducted at the time of the purchase. See the
Prospectuses for additional information regarding the CDSC.
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SPECIAL REDEMPTIONS
Although the Funds would not normally do so, each Fund has the
right to pay the redemption price of shares of the Fund in whole or in
part in portfolio securities as prescribed by the Directors. When the
shareholder sells portfolio securities received in this fashion, he
would incur a brokerage charge. Any such security would be valued for
the purpose of making such payment at the same value as used in
determining the Fund's net asset value. Each Fund has elected to be
governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund
is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day
period for any one account.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. As described more fully in the Prospectuses,
the Funds permit exchanges of shares of any class for shares of the
same class in any other John Hancock fund offering that class. Also,
as described more fully in Money Market Fund's Prospectus, Money Market
Fund requires investors to elect a Systematic Exchange Plan under
certain circumstances.
Systematic Withdrawal Plan. As described briefly in the
Prospectuses, the Funds permit the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising
from the redemption of Fund shares. Since the redemption price of
Fund shares may be more or less than the shareholder's cost, depending
upon the market value of the securities owned by the Fund at the time
of redemption, the distribution of cash pursuant to this plan may
result in realization of gain or loss for purposes of Federal, state
and local income taxes. The maintenance of a Systematic Withdrawal
Plan concurrently with purchases of additional Class A or Class B
shares of a Fund could be disadvantageous to a shareholder because of
the initial sales charge payable on such purchases of Class A shares
and the CDSC imposed on redemptions of Class B shares and because
redemptions are taxable events. Therefore, a shareholder should not
purchase Fund shares at the same time as a Systematic Withdrawal Plan
is in effect. Each Fund reserves the right to modify or discontinue
the Systematic Withdrawal Plan of any shareholder on 30 days' prior
written notice to such shareholder, or to discontinue the availability
of such plan in the future. The shareholder may terminate the plan at
any time by giving proper notice to Investor Services.
Monthly Automatic Accumulation Program ("MAAP"). This program is
explained fully in each Fund's Prospectus and the Account Privileges
Application. The program, as it relates to automatic investment
checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month
indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior
notice if any investment is not honored by the shareholder's bank.
The bank shall be under no obligation to notify the shareholder as to
the non-payment of any check.
The program may be discontinued by the shareholder either by
calling Investor Services or upon written notice to Investor Services
which is received at least five (5) business days prior to the due
date of any investment.
Reinvestment Privilege. A shareholder who has redeemed Fund
shares may, within 120 days after the date of redemption, reinvest
without payment of a sales charge any part of the redemption proceeds
in shares of the same class of the Fund or another John Hancock mutual
fund, subject to the minimum investment limit in that fund. The
proceeds from the redemption of
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Class A shares may be reinvested at net asset value without paying a
sales charge in Class A Shares of the Fund or in Class A shares of
another John Hancock mutual fund. If a CDSC was paid upon a
redemption, a shareholder may reinvest the proceeds from that
redemption at net asset value in additional shares of the class from
which the redemption was made. The shareholder's account will be
credited with the amount of any CDSC charged upon the prior redemption
and the new shares will continue to be subject to the CDSC. The
holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption,
include the holding period of the redeemed shares. The Fund may
modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction
for Federal income tax purposes. Even if the reinvestment privilege
is exercised, and any gain or loss realized by a shareholder on the
redemption or other disposition of Fund shares will be treated for tax
purposes as described under the caption "Tax Status."
DESCRIPTION OF THE CORPORATION'S SHARES
Each Fund operates as one series of the Corporation. All shares
of stock of the Corporation ($.01 par value per share) have equal
voting rights among shares of the same series (except that each class
of shares within a series has sole voting rights with respect to
matters solely affecting that class). On May 25, 1994, the
Corporation's Articles of Incorporation were amended to increase the
authorized common stock of the Corporation from 250,000,000 to
375,000,000 of Class A common Stock and from 250,000,000 to
625,000,000 shares of Class B common stock. No shares of any series
or class have pre-emptive or conversion rights. Each series of shares
represents interests in a separate portfolio of investments. Each is
entitled to all income and gains (or losses) and bears all of the
expenses associated with the operations of that portfolio except that
each class of a series bears its own transfer agency fees. Common
expenses of the Corporation are allocated among the series, based upon
the respective net assets or ratably or a combination of both
whichever is more appropriate, of each series.
The Board of Directors is authorized to create additional series
of shares and classes within any series at any time without approval
by shareholders. Six series of shares representing interests in the
Corporation are presently authorized.
Each share of each series or class of the Corporation represents
an equal proportionate interest with each other share in that series
or class, none having priority or preference over other shares of the
same series or class. The interest of investors in the various series
or classes of the Corporation is separate and distinct. All
consideration received for the sales of shares of a particular series
or class of the Corporation, all assets in which such consideration is
invested and all income, earnings and profits derived from such
investments will be allocated to and belong to that series or class.
As such, each share is entitled to dividends and distributions out of
the net income belonging to that series or class as declared by the
Board of Directors. The assets of each series are segregated on the
Corporation's books and are charged with the liabilities of that
series and with a share of the Corporation's general liabilities.
The Board of Directors determines those assets and liabilities
deemed to be general assets or liabilities of the Corporation, and
these items are allocated among each series in proportion to the
relative total net assets of each series. In the unlikely event that
the liabilities allocable to a series exceed the assets of that
series, the amount to be deemed available for distribution to each
affected series shall be determined by the Board of Directors in order
to effect an equitable allocation among each series of the
Corporation.
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The Corporation has received an order from the Securities and
Exchange Commission permitting the issuance and sale of two classes of
stock. The Corporation reclassified its shares, as Class B Shares on
June 5, 1991 and authorized in respect of Emerging Growth Fund, on
June 5, 1991 and in respect of High Yield Bond Fund and High Yield
Tax-Free Fund on April 15, 1993, and in respect of Global Resources
Fund and Government Income Fund on February 15, 1994, the issuance of
shares of Class A common stock which represent an interest in the same
assets of the respective Funds and are identical in all respects
except that the Class B Shares bear certain expenses related to the
distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. The
Directors of the Corporation may classify and reclassify the shares of
all Funds into additional classes of common stock at a future date.
Voting Rights. Each shareholder of the Corporation is entitled
to a full vote for each full share held (and fractional votes for
fractional shares). Shareholders of each series or class vote
separately from other shareholders of the Corporation with respect to
all matters which affect solely the interests of that series or class.
After Directors have been elected by shareholders, they will continue
to serve indefinitely and they may appoint their own successors,
provided that always at least a majority of the Directors have been
elected by the Corporation's shareholders. The voting rights of
stockholders are not cumulative, so that the holders of more than 50
percent of the shares voting can, if they choose, elect all Directors
being selected, while the holders of the remaining shares would be
unable to elect any Directors. It is the intention of the Corporation
not to hold annual meetings of shareholders. The Directors may call
annual or special meetings of shareholders of the Corporation or any
class of series for action by shareholder vote as may be required by
the Investment Company Act of 1940. Pursuant to an undertaking to the
Securities and Exchange Commission, the Corporation will call a
meeting of shareholders for any purpose, including voting to remove
one or more Director, on the written request of the holders of at
least 10% of outstanding shares of the Corporation. The Funds will
assist shareholders with any communications including shareholder
proposals.
Director and Officer Liability. Under the Corporation's Articles
of Incorporation and the Maryland General Corporation Law, the
directors, officers, employees and agents of the Corporation are
entitled to indemnification under certain circumstances against
liabilities, claims and expenses arising from any threatened, pending
or completed action, suit or proceeding to which they are made parties
by reason of the fact that they are or were such directors, officers,
employees or agents of the Corporation except as such liability may
arise from their own bad faith, willful misfeasance, gross negligence
or reckless disregard of duties.
The Corporation is not required to issue stock certificates. The
Corporation shall continue without limitation of time subject to the
provisions in the Articles of Incorporation concerning termination by
action of the shareholders.
TAX STATUS
Each Fund is treated as a separate entity for accounting and tax
purposes. Each Fund has qualified and elected to be treated as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to continue
to so qualify in the future. As such and by complying with the
applicable provisions of the Code regarding the sources of its income,
the timing of its distributions, and the diversification of its
assets, each Fund will not be subject to Federal income tax on taxable
income (including net realized capital gains) which is distributed to
shareholders at least annually in accordance with the timing
requirements of the Code.
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Each Fund will be subject to a 4% non-deductible Federal excise
tax on certain amounts not distributed (and not treated as having been
distributed) on a timely basis in accordance with annual minimum
distribution requirements. Each Fund intends under normal
circumstances to avoid liability for such tax by satisfying such
distribution requirements.
Distributions from a Fund's current or accumulated earnings and
profits ("E&P"), as computed for Federal income tax purposes, will be
taxable as described in such Fund's Prospectus whether taken in shares
or in cash. Distributions, if any, in excess of E&P will constitute a
return of capital, which will first reduce an investor's tax basis in
Fund shares and thereafter (after such basis is reduced to zero) will
generally give rise to capital gains. Shareholders electing to
receive distributions in the form of additional shares will have a
cost basis for Federal income tax purposes in each share so received
equal to the amount of cash they would have received had they elected
to receive the distributions in cash, divided by the number of shares
received.
Distributions of tax-exempt interest ("exempt-interest
dividends") timely designated as such by High Yield Tax-Free Fund will
be treated as tax-exempt interest under the Code, provided that such
Fund qualifies as a regulated investment company and at least 50% of
the value of its assets at the end of each quarter of its taxable year
is invested in tax-exempt obligations. Shareholders are required to
report their receipt of tax-exempt interest, including such
distributions, on their Federal income tax returns. The portion of
High Yield Tax-Free Fund's distributions designated as exempt-interest
dividends may differ from the actual percentage that its tax-exempt
income comprised of its total income during the period of any
particular shareholder's investment. High Yield Tax-Free Fund will
report to shareholders the amount designated as exempt-interest
dividends for each year.
Interest income from certain types of tax-exempt bonds that are
private activity bonds in which High Yield Tax-Free Fund may invest is
treated as an item of tax preference for purposes of the Federal
alternative minimum tax. To the extent that High Yield Tax-Free Fund
invests in these types of tax-exempt bonds, shareholders will be
required to treat as an item of tax preference for Federal alternative
minimum purposes that part of such Fund's exempt-interest dividends
which is derived from interest on these tax-exempt bonds.
Exempt-interest dividends derived from interest income from all
tax-exempt bonds may be included in corporate "adjusted current
earnings" for purposes of computing the alternative minimum tax
liability, if any, of corporate shareholders of High Yield Tax-Free
Fund.
If Global Resources Fund or Emerging Growth Fund acquires stock
in certain non-U.S. corporations that receive at least 75% of their
annual gross income from passive sources (such as interest, dividends,
rents, royalties or capital gain) or hold at least 50% of their assets
in investments producing such passive income ("passive foreign
investment companies"), that Fund could be subject to Federal income
tax and additional interest charges on "excess distributions" received
from such companies or gain from the sale of stock in such companies,
even if all income or gain actually received by the Fund is timely
distributed to its shareholders. The Fund would not be able to pass
through to its shareholders any credit or deduction for such a tax.
Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require the applicable Fund
to recognize taxable income or gain without the concurrent receipt of
cash. Any Fund that is permitted to acquire stock in foreign
corporations may limit and/ or manage its holdings in passive foreign
investment companies to minimize its tax liability or maximize its
return from these investments.
Foreign exchange gains and losses realized by Emerging Growth
Fund, Global Resources Fund, Government Income Fund or High Yield Bond
Fund in connection with certain transactions involving foreign
currency-denominated debt securities, certain foreign currency futures
and options, foreign currency forward contracts, foreign currencies,
or payables or receivables
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denominated in a foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as
ordinary income and losses and may affect the amount, timing and
character of distributions to shareholders. Any such transactions
that are not directly related to a Fund's investment in stock or
securities, possibly including speculative currency positions or
currency derivatives not used for hedging purposes, may increase the
amount of gain it is deemed to recognize from the sale of certain
investments held for less than three months, which gain is limited
under the Code to less than 30% of its annual gross income, and could
under future Treasury regulations produce income not among the types
of "qualifying income" from which the Fund must derive at least 90% of
its annual gross income. Income from investments in commodities, such
as gold and certain related derivative instruments, is also not
treated as qualifying income under this test. If the net foreign
exchange loss for a year treated as ordinary loss under Section 988
were to exceed a Fund's investment company taxable income computed
without regard to such loss but after considering the post-October
loss regulations (i.e., all of the Fund's net income other than any
excess of net long-term capital gain over net short-term capital loss)
the resulting overall ordinary loss for such year would not be
deductible by the Fund or its shareholders in future years.
Global Resources Fund, Emerging Growth Fund, Government Income
Fund and High Yield Bond Fund may be subject to withholding and other
taxes imposed by foreign countries with respect to their investments
in foreign securities. Tax conventions between certain countries and
the U.S. may reduce or eliminate such taxes. Investors may be
entitled to claim U.S. foreign tax credits or deductions with respect
to such taxes, subject to certain provisions and limitations contained
in the Code. Specifically, if more than 50% of the value of a Fund's
total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Fund may file an election with
the Internal Revenue Service pursuant to which shareholders of the
Fund will be required to (i) include in ordinary gross income (in
addition to taxable dividends actually received) their pro rata shares
of foreign income taxes paid by the Fund even though not actually
received by them, and (ii) treat such respective pro rata portions as
foreign income taxes paid by them. Global Resources Fund or Emerging
Growth Fund may, but the other Funds probably will no, satisfy this
50% requirement.
If a Fund makes this election, shareholders may then deduct such
pro rata portions of foreign income taxes in computing their taxable
incomes, or, alternatively, use them as foreign tax credits, subject
to applicable limitations, against their U.S. Federal income taxes.
Shareholders who do not itemize deductions for Federal income tax
purposes will not, however, be able to deduct their pro rata portion
of foreign income taxes paid by the Fund, although such shareholders
will be required to include their share of such taxes in gross income.
Shareholders who claim a foreign tax credit for such foreign taxes may
be required to treat a portion of dividends received from the Fund as
a separate category of income for purposes of computing the
limitations on the foreign tax credit. Tax-exempt shareholders will
ordinarily not benefit from this election. Each year that a Fund
files the election described above, its shareholders will be notified
of the amount of (i) each shareholder's pro rata share of foreign
income taxes paid by the Fund and (ii) the portion of Fund dividends
which represents income from each foreign country. A Fund that cannot
or does not make this election may deduct such taxes in computing its
taxable income.
The amount of a Fund's net realized capital gains, if any, in any
given year will vary depending upon the Adviser's current investment
strategy and whether the Adviser believes it to be in the best
interest of such Fund to dispose of portfolio securities or enter into
options or futures transactions that will generate capital gains. At
the time of an investor's purchase of Fund shares, a portion of the
purchase price is often attributable to realized or unrealized
appreciation in the Fund's portfolio or, in the case of Global
Resources Fund and Emerging Growth Fund, to undistributed taxable
income of the Fund. Consequently, subsequent distributions from such
appreciation or income may be taxable to such investor even if the net
asset value of the investor's
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shares is, as a result of the distributions, reduced below the
investor's cost for such shares, and the distributions in reality
represent a return of a portion of the purchase price.
Upon a redemption of shares of a Fund (including by exercise of
the exchange privilege) a shareholder may realize a taxable gain or
loss depending upon his basis in his shares, except that a redemption
of shares of Money Market Fund B may not result in a gain or loss if
the Fund always successfully maintains a constant net asset value per
share, although a loss may still arise if a CDSC is paid. Any gain or
loss will be treated as capital gain or loss if the shares are capital
assets in the shareholder's hands and will be long-term or short-term,
depending upon the shareholder's tax holding period for the shares. A
sales charge paid in purchasing Class A shares of a Fund cannot be
taken into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after their
purchase to the extent shares of the Fund or another John Hancock fund
are subsequently acquired without payment of a sales charge pursuant
to the reinvestment or exchange privilege. Such disregarded load will
result in an increase in the shareholder's tax basis in the shares
subsequently acquired. Also, any loss realized on a redemption or
exchange may be disallowed to the extent the shares disposed of are
replaced with other shares of the same Fund within a period of 61 days
beginning 30 days before and ending 30 days after the shares are
disposed of, such as pursuant to an election to reinvest dividends in
additional shares. In such a case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss. Any loss realized
upon the redemption of shares with a tax holding period of six months
or less will be disallowed (in the case of High Yield Tax-Free Fund)to
the extent of all exempt-interest dividends paid with respect to such
shares and, if not thus disallowed, will (in the case of any Fund) be
treated as a long-term capital loss to the extent of any amounts
treated as distributions of long-term capital gain with respect to
such shares.
Although its present intention is to distribute all net capital
gains, if any, each Fund reserves the right to retain and reinvest all
or any portion of the excess, as computed for Federal income tax
purposes, of net long-term capital gain over net short-term capital
loss in any year. The Funds will not in any event distribute net
long-term capital gain realized in any year to the extent that a
capital loss is carried forward from prior years against such gain.
To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to
Federal income tax in the hands of the Fund. Each shareholder would
be treated for Federal income tax purposes as if the Fund had
distributed to him on the last day of its taxable year his pro rata
share of such excess, and he had paid his pro rata share of the taxes
paid by the Fund and reinvested the remainder in the Fund.
Accordingly, each shareholder would (a) include his pro rata share of
such excess as long-term capital gain income in his return for his
taxable year in which the last day of such Fund's taxable year falls,
(b) be entitled either to a tax credit on his return for, or to a
refund of, his pro rata share of the taxes paid by such Fund, and (c)
be entitled to increase the adjusted tax basis for his shares in such
Fund by the difference between his pro rata share of such excess and
his pro rata share of such taxes.
For Federal income tax purposes, each Fund is generally permitted
to carry forward a net capital loss in any year to offset its own net
capital gains, if any, during the eight years following the year of
the loss. To the extent subsequent net capital gains are offset by
such losses, they would not result in Federal income tax liability to
the applicable Fund and, as noted above, would not be distributed as
such to shareholders. As of October 31, 1994, Emerging Growth Fund
had capital loss carryforwards of $17,163,122, of which $1,477,890
will expire in 1996, $177,369 will expire in 1998, $2,304,137 will
expire in 2000, $4,446,419 will expire in 2001 and $8,817,307 will
expire in 2002. As of October 31, 1994, Global Resources Fund had
capital loss carryforwards of $106,861, of which $16,520 will expire
in 2000 and $90,341 will expire in 2002. As of the same date,
Government Income Fund, High Yield Bond Fund and High Yield Tax-Free
Fund had capital loss carryforwards of $15,347,195, $9,184,252 and
$2,785,979, respectively, all of which will expire in 2002.
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Interest on indebtedness incurred by a shareholder to purchase or
carry shares of High Yield Tax-Free Fund will not be deductible for
Federal income tax purposes to the extent it is deemed related to
exempt-interest dividends paid by such Fund. Pursuant to published
guidelines, the Internal Revenue Service may deem indebtedness to have
been incurred for the purpose of purchasing or carrying shares of this
Fund even though the borrowed funds may not be directly traceable to
the purchase of shares.
For purposes of the dividends-received deduction available to
corporations, dividends received by a Fund, if any, from U.S. domestic
corporations in respect of the stock of such corporations held by the
Fund, for U.S. Federal income tax purposes, for at least 46 days (91
days in the case of certain preferred stock) and distributed and
designated by the Fund may be treated as qualifying dividends. Only
Emerging Growth Fund or Global Resources Fund may sometimes have any
significant portion of its distributions treated as qualifying
dividends. Corporate shareholders must meet the minimum holding
period requirement stated above (46 or 91 days) with respect to their
shares of the applicable Fund in order to qualify for the deduction
and, if they borrow to acquire such shares, may be denied a portion of
the dividends-received deduction. The entire qualifying divdend,
including the otherwise deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted
current earnings over its alternative minimum taxable income, which
may increase its alternative minimum tax liability. Additionally, any
corporate shareholder should consult its tax adviser regarding the
possibility that its basis in its shares may be reduced, for Federal
income tax purposes, by reason of "extraordinary dividends" received
with respect to the shares, for the purpose of computing its gain or
loss on redemption or other disposition of the shares.
Each Fund that invests in certain PIKs, zero coupon securities or
certain increasing rate securities (an, in general, any other
securities wih original issue discount or with market discount if the
Fund elects to include market discount in income currently) must
accrue income on such investments prior to the receipt of the
corresponding cash payments. However, each Fund must distribute, at
least annually, all or substantially all of its net income, including
such accrued income, to shareholders to qualify as a regulated
investment company under the Code and avoid Federal income and excise
taxes. Therefore, a Fund may have to dispose of its portfolio
securities ude disadvantageous circumstances to generate cash, or may
have to leverage itself by borrowing the cash, to satisfy distribution
requirements.
Investments in debt obligations that are at risk of or in default
presents special tax issues for any Fund that may hold such
obligations, such as High Yield Bond Fund and High Yield Tax- Free
Fund. Tax rules are not entirely clear about issues such as when the
Funds may cease to accrue interest, original issue discount, or market
discount, when and to what extent deductions may be taken for bad
debts or worthless securities, how payments received on obligations in
default should be allocated between principal and income, and whether
exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by any Fund that may hold such
obligations in order to reduce the risk of distributing insufficient
income to preserve its status as a regulated investment company and
seek to avoid becoming subject to Federal income or excise tax.
Limitations imposed by the Code on regulated investment companies
like the Funds may restrict a Fund's ability to enter into futures,
options and currency forward transactions.
Certain options, futures and forward foreign currency
transactions undertaken by a Fund may cause such Fund to recognize
gains or losses from marking to market even though its positions have
not been sold or terminated and affect the character as long-term or
short-term (or, in the case of certain currency forwards, options and
futures, as ordinary income or loss) and timing of some capital gains
and losses realized by the Fund. Also, certain of a Fund's losses on
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its transactions involving options, futures and forward foreign
currency contracts and/or offsetting portfolio positions may be
deferred rather than being taken into account currently in calculating
the Fund's taxable income or gains. These transactions may therefore
affect the amount, timing and character of a Fund's distributions to
shareholders. Certain of the applicable tax rules may be modified if
the Fund is eligible and chooses to make one or more of certain tax
elections that may be available. The Funds will take into account the
special tax rules (including consideration of available elections)
applicable to options, futures or forward contracts in order to
minimize any potential adverse tax consequences.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and
post-retirement distributions and certain prohibited transactions, is
accorded to accounts maintained as qualified retirement plans.
Shareholders should consult their tax advisers for more information.
The foregoing discussion relates solely to U.S. Federal income
tax law as applicable to U.S. persons (i.e., U.S. citizens or
residents and U.S. domestic corporations, partnerships, trusts or
estates) subject to tax under such law. The discussion does not
address special tax rules applicable to certain classes of investors,
such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of
or gains realized on the redemption (including an exchange) of Fund
shares may also be subject to state and local taxes. Shareholders
should consult their own tax advisers as to the Federal, state or
local tax consequences of ownership of shares of, and receipt of
distributions from, a Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with
which their investment in a Fund is effectively connected will be
subject to U.S. Federal income tax treatment that is different from
that described above. These investors may be subject to nonresident
alien withholding tax at the rate of 30% (or a lower rate under an
applicable tax treaty) on amounts treated as ordinary dividends from a
Fund and, unless an effective IRS Form W-8 or authorized substitute is
on file, to 31% backup withholding on certain other payments from the
Fund. Non- U.S. investors should consult their tax advisers regarding
such treatment and the application of foreign taxes to an investment
in the Funds.
Provided that each Fund qualifies as a regulated investment
company under the Code, it will not be required to pay any
Massachusetts income, corporate excise or franchise taxes.
CALCULATION OF PERFORMANCE
For the 30-day period ended December 31, 1994, the yields of (a)
High Yield Bond Fund's Class A and Class B shares were 11.55% and
11.35%, respectively, (b) High Yield Tax-Free Fund's Class A and Class
B shares were 6.71% and 6.28%, respectively and (c) Government Income
Fund's Class A and Class B shares were 6.14% and 5.64%, respectively.
The performance of High Yield Bond Fund's Class A and Class B shares
quoted (1) partially reflects an increase due to significant declines
in prices of certain bonds held in the Fund's portfolio due to current
adverse market conditions and (2) may not reflect the actual income
stream investors can expect if portfolio issuers experience financial
difficulties. For a thorough explanation, investors may obtain
further information from their broker.
Each Fund's yield is computed by dividing net investment income
per share determined for a 30-day period by the maximum offering price
per share (which includes the full sales charge) on the last day of
the period, according to the following standard formula:
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Yield = 2 [ (a-b + 1 )6 -1]
cd
Where:
a= dividends and interest earned during the period.
b= net expenses accrued during the period.
c= the average daily number of fund shares outstanding during
the period that would be entitled to receive dividends.
d= the maximum offering price per share on the last day of
the period (NAV where applicable).
High Yield Tax-Free Fund may advertise a tax-equivalent yield,
which is computed by dividing that portion of the yield of that Fund
which is tax-exempt by one minus a stated income tax rate and adding
the product to that portion, if any, of the yield of the Fund that is
not tax- exempt. The tax-equivalent yields for the High Yield
Tax-Free Fund's Class A and Class B Shares at the 36% federal income
tax rate for the 30-day period ended December 31, 1994 were 10.48% and
9.81%, respectively.
Each Fund's total return is computed by finding the average
annual compounded rate of return over the 1-year, 5-year, and 10-year
periods that would equate the initial amount invested to the ending
redeemable value according to the following formula:
P(1+T)n = ERV
P= a hypothetical initial payment of $1,000.
T= average annual total return
n= number of years
ERV= ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1-year and life-of-fund
periods.
In the case of Class A shares or Class B shares, this calculation
assumes the maximum sales charge is included in the initial investment
or the CDSC is applied at the end of the period. This calculation
also assumes that all dividends and distributions are reinvested at
net asset value on the reinvestment dates during the period. The
"distribution rate" is determined by annualizing the result of
dividing the declared dividends of a Fund during the period stated by
the maximum offering price or net asset value at the end of the
period.
The total return in the case of Class B shares of Emerging Growth
Fund, Global Resources Fund, Government Income Fund, High Yield Bond
Fund and High Yield Tax-Free Fund and shares of each other Fund is
calculated by determining the net asset value of all shares held at
the end of the period for each share held from the beginning of the
period (assuming reinvestment of all dividends and distributions at
net asset value during the period and the deduction of any applicable
contingent deferred sales charge as if the shares were redeemed at the
end of the period), subtracting the maximum offering price (net asset
value per share) per share at the beginning of such period and then
dividing the result by the maximum offering price (net asset value per
share) per share at the beginning of the same period. Total return
for Class A shares of
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each of Emerging Growth Fund, Global Resources Fund, Government Income
Fund, High Yield Bond Fund and High Yield Tax-Free Fund is calculated
in the same manner except the maximum offering price reflects the
deduction of the maximum initial sales charge and the redemption value
is at net asset value.
In addition to average annual total returns, a Fund may quote
unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a
series of redemptions, over any time period. Total returns may be
quoted with or without taking the Fund's maximum sales charge on Class
A shares or the CDSC on Class B shares into account. A Fund's
"distribution rate" is determined by annualizing the result of
dividing the declared dividends of the Fund during the stated period
by the maximum offering price or net asset value at the end of the
period. Excluding a Fund's sales charge on Class A shares and the
CDSC on Class B shares from a total return calculation produces a
higher total return figure.
From time to time, in reports and promotional literature, a
Fund's yield and total return will be compared to indices of mutual
funds and bank deposit vehicles such as Lipper Analytical Services,
Inc.'s "Lipper--Fixed Income Fund Performance Analysis," a monthly
publication which tracks net assets, total return, and yield on
approximately 1,700 fixed income mutual funds in the United States.
Ibottson and Associates, CDA Weisenberger and F.C. Towers are also
used for comparison purposes, as well as the Russell and Wilshire
Indices.
Performance rankings and ratings reported periodically in
national financial publications such as MONEY Magazine, FORBES,
BUSINESS WEEK, THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR,
STANGER'S and BARRON'S, etc. will also be utilized. A Fund's
promotional and sales literature may make reference to the Fund's
"beta." Beta reflects the market-related risk of the Fund by showing
how responsive the Fund is to the market.
The performance of a Fund is not fixed or guaranteed.
Performance quotations should not be considered to be representations
of performance of a Fund for any period in the future. The
performance of a Fund is a function of many factors including its
earnings, expenses and number of outstanding shares. Fluctuating
market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest;
and changes in operating expenses are all examples of items that can
increase or decrease a Fund's performance.
Additional Performance Information. The Funds may use
comparative performance information from certain industry research
materials and/or published in various periodicals. The
characteristics of the investments in such comparisons may be
different from those investments of a Fund's portfolio. In addition,
the formula used to calculate the performance statistics of such
investments may not be identical to the formula used by a Fund to
calculate its performance figures. From time to time, advertisements
or information for the Funds may include a discussion of certain
attributes or benefits to be derived by an investment in a Fund. Such
advertisements or information may include symbols, headlines or other
material which highlight or summarize the information discussed in
more detail in the communication.
The following publications, indexes, averages and investments
which may be used in advertisements or information concerning the
Funds for dissemination to investors or shareholders, include, but are
not limited, to:
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a) Dow Jones Composite Average or its component averages - an
unmanaged index composed of 30 blue-chip industrial corporation
stocks (Dow Jones Industrial Average), 15 utilities company
stocks (Dow Jones Utilities Average), and 20 transportation
company stocks. Comparisons of performance assume reinvestment
of dividends.
b) Standard & Poor's 500 Stock Index or its component indices -
an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks, and 20 transportation
stocks. Comparisons of performance assume reinvestment of
dividends.
c) The New York Stock Exchange composite or component indices -
unmanaged indices of all industrial, utilities, transportation,
and finance stocks listed on the New York Stock Exchange.
d) Wilshire 5000 Equity Index - represents the return on the
market value of all common equity securities of which daily
pricing is available. Comparisons of performance assume
reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed
Income Analysis, and Lipper Mutual Fund indices - measure total
return and average current yield for the mutual fund industry.
Ranks individual mutual fund performance over specified time
periods assuming reinvestment of all distributions, exclusive of
any applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment
Technologies, Inc. - analyzes price, current yield, risk, total
return, and average rate of return (average annual compounded
growth rate) over specified time periods for the mutual fund
industry.
g) Mutual Fund Source Book and other similar rating
publications by Morningstar, Inc. - independent performance
monitor of equity and fixed income mutual funds. Morningstar
ratings (ranging from one star for lowest and five stars for
highest) are based on analysis of a fund's ratio, i.e., price
yield, risk (volatility) and total return, including all loads
and fees, compared with similar funds for three-, five- and
ten-year periods.
h) Financial publications: Barrons, Business Week, Personal
Finance, Financial World, Forbes, Fortune, "The Wall Street
Journal", "New York Times", Weisenberger Investment Companies
Service, Institutional Investor, and Money - rate fund
performance over specified time periods and provide other
relative performance or industry information.
i) Consumer Price Index (or Cost of Living Index), published by
the U. S. Bureau of Labor Statistics - a statistical measure of
change, over time, in the price of goods and services in major
expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson
Associates - historical measure of yield, price, and total return
for common and small company stock, long-term government bonds,
Treasure bills, and inflation.
k) Savings and Loan Historical Interest Rates - as published in
the U. S. Savings & Loan League Fact Book.
l) Salomon Brothers Broad Bond Index or its component indices -
The Broad Index measures yield, price and total return for
Treasury, Agency, Corporate, and Mortgage bonds.
-59-
<PAGE> 227
m) Salomon Brothers Composite High Yield Index or its component
indices - The High Yield Index measures yield, price and total
return for Long-Term High-Yield Index, Intermediate-Term
High-Yield index and Long-Term Utility High-Yield Index.
n) Shearson Lehman Brothers Aggregate Bond index or its
component indices (including Municipal Bond Index) - The
Aggregate Bond Index measures yield, price and total return for
Treasury, Agency, Corporate, Mortgage, and Yankee bonds.
o) Standard & Poor's Bond Indices - measure yield and price of
Corporate, Municipal, and government bonds.
p) Other taxable investments, including certificates of deposit
(CDs), money market deposit accounts (MMDAs), checking accounts,
savings accounts, money market mutual funds, and repurchase
agreements.
q) Historical data supplied by the research departments of
Shearson Lehman Hutton, First Boston Corporation, Morgan Stanley,
Salomon Brothers, Merrill Lynch, and Donaldson Lufkin and
Jenrette.
r) Donoghues's Money Fund Report - industry averages for 7-day
annualized and compounded yields of taxable, tax-free and
government money funds.
s) Russell 2000 (small capitalization stock index), Bond Buyer
25 Revenue Bond Index and other indices as may from time to time
become available.
t) The Value Line Mutual Fund Survey, published by Value Line,
assigns rankings of 1 (best) to 5 (worst) in terms of risk
adjusted performance covering more than 2,000 equity and fixed
income mutual funds.
From time to time, in reports and promotional literature, a
Fund's performance will be compared to other mutual funds and
investment vehicles such as F.C. Towers.
In addition, advertisements and sales materials may from time to
time, contain hypothetical performance examples for purposes of
illustrating reinvestment (or "compounding") of dividends at fixed
rates of return or tax advantages to be derived from deferring payment
of federal (and state) income taxes (at maximum rates) as compared to
taxable investments assuming fixed rates of return. Illustrations may
also include (1) hypothetical investments in various retirement plans,
such as IRAs, made by investors of various ages or (2) comparisons to
retirement plans funded by annuity or bank products.
In assessing such comparisons, an investor should consider the
following factors:
a) It is generally either not possible or not practicable to
invest in an average or index of certain investments.
b) Certificates of deposit issued by banks and other depository
institutions represent an alternative income producing product.
Certificates of deposit may offer fixed or variable interest
rates and principal is guaranteed and may be insured. Withdrawal
of deposits prior to maturity will normally be subject to a
penalty. Rates offered by banks and other depository
institutions are subject to change at any time specified by the
issuing institution.
-60-
<PAGE> 228
Each Fund may from time to time advertise its comparative
performance as measured or refer to results published by various
periodicals including, but not limited to, Lipper Analytical Services,
Inc. Barron's, "The Wall Street Journal", "New York Times",
Weisenberger Investment Companies Service, Donoghue's Money Fund
Report, Stanger's Investment Advisor, Financial Planning, Money,
Fortune, Personal Finance, Muni Week, Institutional Investor, Business
Week, Financial World and Forbes. In addition, the Funds may from
time to time advertise their performance relative to certain indexes
and benchmark investments, including: (a) the Shearson Lehman
Municipal Bond Index, (b) Bond Buyer 25 Review Bond Index, (c) the
Consumer Price Index, and (d) taxable investments such as certificates
of deposit, money market deposit accounts, checking accounts, savings
accounts, and money market mutual funds.
The composition of the investments in such indexes and the
characteristics of such benchmark investments are not identical to,
and in some cases are very different from, those of a Fund's
portfolio. These indexes and averages are generally unmanaged and the
items included in the calculations of such indexes and averages may
not be identical to the formulas used by a Fund to calculate its
performance figures.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio
securities and the allocation of brokerage commissions are made by the
Adviser and officers of the Corporation pursuant to recommendations
made by its investment committee, which consists of officers and
directors of the Adviser and affiliates and officers and Directors who
are interested persons of the Funds. Orders for purchases and sales
of securities are placed in a manner which, in the opinion of the
Adviser, will offer the best price and market for the execution of
each such transaction. Purchases from underwriters of portfolio
securities may include a commission or commissions paid by the issuer
and transactions with dealers serving as market makers reflect a
"spread." Investments in debt securities are generally traded on a
net basis through dealers acting for their own account as principals
and not as brokers; no brokerage commissions are payable on such
transactions.
Each Fund's primary policy is to execute all purchases and sales
of portfolio instruments at the most favorable prices consistent with
best execution, considering all of the costs of the transaction
including brokerage commissions. This policy governs the selection of
brokers and dealers and the market in which a transaction is executed.
Consistent with the foregoing primary policy, the Rules of Fair
Practice of the NASD and other policies that the Directors may
determine, the Adviser may consider sales of shares of the Funds as a
factor in the selection of broker-dealers to execute a Fund's
portfolio transactions.
Purchase of securities for Government Income Fund, High Yield
Bond Fund and High Yield Tax-Free Fund are normally principal
transactions made directly from the issuer or from an underwriter or
market maker for which no brokerage commissions are usually paid.
Purchases from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases and sales from
dealers serving as market makers will usually include a mark up or
mark down. Purchases and sales of options and futures will be
effected through brokers who charge a commission for their services
and are reflected in amounts for Government Income Fund and High Yield
Bond Fund below.
To the extent consistent with the foregoing, each Fund will be
governed in the selection of brokers and dealers, and the negotiation
of brokerage commission rates and dealer spreads, by the reliability
and quality of the services, including primarily the availability and
value of research information and to a lesser extent statistical
assistance furnished to the Adviser of the Fund, and their value and
expected contribution to the performance of the Fund. It is not
possible to place a
-61-
<PAGE> 229
dollar value on information and services to be received from brokers
and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to
reduce significantly the expenses of the Adviser. The research
information and statistical assistance furnished by brokers
and dealers may benefit the Life Company or other advisory clients of
the Adviser, and conversely, brokerage commissions and spreads paid by
other advisory clients of the Adviser may result in research
information and statistical assistance beneficial to the Funds. The
Funds will make no commitments to allocate portfolio transactions upon
any prescribed basis. While the Corporation's officers will be
primarily responsible for the allocation of each Fund's brokerage
business, their policies and practices in this regard must be
consistent with the foregoing and will at all times be subject to
review by the Directors.
Brokerage commissions of those Funds which pay such commissions
for their respective reporting periods, as follows, amounted to:
Emerging Growth Fund - (a) $318,023 for the fiscal year ended
October 31, 1994; (b) $330,454 for the fiscal year ended October
31, 1993; and (c) $182,533 for the fiscal year ended October 31,
1992.
Global Resources Fund - (a) $148,469 for the fiscal year ended
October 31, 1994; (b) $54,463 for the fiscal year ended October
31, 1993; and (c) $29,204 for the fiscal year ended October 31,
1992.
Government Income Fund - (a) $96,931 for the fiscal year ended
October 31, 1994; (b) $254,859 for the fiscal year ended October
31, 1993; and (c) $140,463 for the fiscal year ended October 31,
1992.
High Yield Bond Fund - (a) $2,320 for the fiscal year ended
October 31, 1994; (b) $13,050 for the fiscal year ended October
31, 1993; and (c) $0 for the fiscal year ended October 31, 1992.
As permitted by Section 28(e) of the Securities Exchange Act of
1934, the Fund may pay to a broker which provides brokerage and
research services to the Fund an amount of disclosed commission in
excess of the commission which another broker would have charged for
effecting that transaction. This practice is subject to a good faith
determination by the Directors that the price is reasonable in light
of the services provided and to policies that the Directors may adopt
from time to time. During the fiscal year ended October 31, 1994, the
Funds did not pay commissions as compensation to any brokers for
research services such as industry, economic and company reviews and
evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect
sole shareholder of John Hancock Freedom Securities Corporation and
its subsidiaries, three of which, Tucker Anthony Incorporated ("Tucker
Anthony") John Hancock Distributors, Inc. ("John Hancock
Distributors") and Sutro & Company, Inc. ("Sutro"), are broker-dealers
("Affiliated Brokers"). Pursuant to procedures determined by the
Trustees and consistent with the above policy of obtaining best net
results, the Fund may execute portfolio transactions with or through
Tucker Anthony, Sutro or John Hancock Distributors. During the year
ended October 31, 1994, the Fund did not execute any portfolio
transactions with then affiliated brokers.
Any of the Affiliated Brokers may act as broker for a Fund on
exchange transactions, subject, however, to the general policy of the
Fund set forth above and the procedures adopted by the Directors
pursuant to the 1940 Act. Commissions paid to an Affiliated Broker
must be at least as favorable as those which the Directors believe to
be contemporaneously charged by other
-62-
<PAGE> 230
brokers in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be placed
with an Affiliated Broker if the Fund would have to pay a commission
rate less favorable than the Affiliated Broker's contemporaneous
charges for comparable transactions for its other most favored, but
unaffiliated, customers, except for accounts for which the Affiliated
Broker acts as a clearing broker for another brokerage firm, and any
customers of the Affiliated Broker not comparable to a Fund as
determined by a majority of the Directors who are not "interested
persons" (as defined in the 1940 Act) of the Funds, the Investment
Adviser or the Affiliated Brokers. Because the Adviser, which is
affiliated with the Affiliated Brokers, has, as an investment adviser
to the Fund, the obligation to provide investment management services,
which includes elements of research and related investment skills,
such research and related skills will not be used by the Affiliated
Brokers as a basis for negotiating commissions at a rate higher than
that determined in accordance with the above criteria. The Funds will
not effect principal transactions with Affiliated Brokers. The Funds
may, however, purchase securities from other members of underwriting
syndicates of which Tucker Anthony and Sutro are members, but only in
accordance with the policy set forth above and procedures adopted and
reviewed periodically by the Directors.
Brokerage or other transactions costs of a Fund are generally
commensurate with the rate of portfolio activity. The portfolio
turnover rates for each of the following Funds for (a) the fiscal year
ended October 31, 1994 and (b) the fiscal year ending October 31, 1993
were:
Emerging Growth Fund - (a) 25% and (b) 29%.
Global Resources Fund - (a) 96% and (b) 83%.
Government Income Fund - (a) 92% and (b) 138%.
High Yield Bond Fund - (a) 153%* and (b) 204%*.
High Yield Tax-Free Fund - (a) 62% and (b) 100%.
* Higher turnover rates were due to volatile market conditions.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116,
Boston, MA 02205-9116, a wholly owned indirect subsidiary of the Life
Company, is the transfer and dividend paying agent for the Funds.
Emerging Growth Fund and Global Resources Fund pay Investor Services
monthly a transfer agent fee equal to $16 per account for the Class A
Shares and $18.50 per account for the Class B shares on an annual
basis, plus out-of-pocket expenses. Government Income Fund and High
Yield Bond Fund pay Investor Services monthly a transfer agent fee
equal to $20 per account for the Class A shares and $22.50 per account
for the Class B shares on an annual basis, plus out-of-pocket
expenses. High Yield Tax-Free Fund pays Investor Services monthly a
transfer agent fee of $19 per account for the Class A shares and
$21.50 per account for the Class B shares on an annual basis, plus
out-of-pocket expenses. Money Market Fund pays Investor Services
monthly a tranfser agent fee of $25 per account on an annual basis,
plus out-of-pocket expenses.
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<PAGE> 231
CUSTODY OF PORTFOLIO
Portfolio securities of the Funds are held pursuant to a
custodian agreemetn between the Corporation and Investors Bank & Trust
Company ("IBT") 24 Federal Street, Boston, Massachusetts. Under the
custodian agreement, IBT performs custody, portfolio and fund
accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Funds are Ernst & Young LLP, 200
Clarendon Street, Boston, Massachusetts 02116. The independent
auditors audit and render an opinion on the Funds' annual financial
statements and prepare the Funds' annual income tax returns. The
financial statements of the Funds included in the Prospectuses and
this Statement of Additional Information have been audited by Ernst &
Young LLP for the periods indicated in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
-64-
<PAGE> 232
APPENDIX A
CORPORATE AND TAX-EXEMPT BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S)
Aaa, Aa, A and Baa - Tax-exempt bonds rated Aaa are judged to be
of the "best quality." The rating of Aa is assigned to bonds that are
of "high quality by all standards," but long-term risks appear
somewhat larger than Aaa rated bonds. The Aaa and Aa rated bonds are
generally known as "high grade bonds." The foregoing ratings for
tax-exempt bonds are rated conditionally. Bonds for which the
security depends upon the completion of some act or upon the
fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals
that begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Such conditional ratings
denote the probable credit stature upon completion of construction or
elimination of the basis of the condition. Bonds rated A are
considered as upper medium grade obligations. Principal and interest
are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future. Bonds rated Baa
are considered a medium grade obligations; i.e., they are neither
highly protected or poorly secured. Interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment
characteristics and in fact, have speculative characteristics as well.
STANDARD & POOR'S RATINGS GROUP ("S&P")
AAA, AA, A and BBB - Bonds rated AAA bear the highest rating
assigned to debt obligations, which indicates an extremely strong
capacity to pay principal and interest. Bonds rated AA are considered
"high grade," are only slightly less marked than those of AAA ratings
and have the second strongest capacity for payment of debt service.
Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat susceptible to the adverse effects of
changes in circumstances and economic conditions. The foregoing
ratings are sometimes followed by a "p" indicating that the rating is
provisional. A provisional rating assumes the successful completion
of the project financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. Although a
provisional rating addresses credit quality subsequent to completion
of the project, it makes no comment on the likelihood of, or the risk
of default upon failure of, such completion. Bonds rated BBB are
regarded as having an adequate capacity to repay principal and pay
interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in the A category.
FITCH INVESTORS SERVICE ("FITCH")
AAA, AA, A, BBB - Bonds rated AAA are considered to be investment
grade and of the highest quality. The obligor has an extraordinary
ability to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events. Bonds rated AA are
considered to be investment grade and of high quality. The obligor's
ability to pay interest and repay principal, while very strong, is
somewhat less than for AAA rated securities or more subject to
possible
A-1
<PAGE> 233
change over the term of the issue. Bonds rated A are considered to be
investment grade and of good quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be
more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings. Bonds rated BBB are
considered to be investment grade and of satisfactory quality. The
obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to weaken this ability than
bonds with higher ratings.
TAX-EXEMPT NOTE RATINGS
Moody's - MIG-1 and MIG-2. Notes rated MIG-1 are judged to be of
the best quality, enjoying strong protection from established cash
flow or funds for their services or from established and broad-based
access to the market for refinancing or both. Notes rated MIG-2 are
judged to be of high quality with ample margins of protection, though
not as large as MIG-1.
S&P - SP-1 and SP-2. SP-1 denotes a very strong or strong
capacity to pay principal and interest. Issues determined to possess
overwhelming safety characteristics are given a plus (+) designation
(SP-1+). SP-2 denotes a satisfactory capacity to pay principal and
interest.
Fitch - FIN-1 and FIN-2. Notes assigned FIN-1 are regarded as
having the strongest degree of assurance for timely payment. A plus
symbol may be used to indicate relative standing. Notes assigned
FIN-2 reflect a degree of assurance for timely payment only slightly
less in degree than the highest category.
CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
Moody's - Commercial Paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an
original maturity in excess of nine months. Prime-1, indicates
highest quality repayment capacity of rated issue and Prime-2
indicates higher quality.
S&P - Commercial Paper ratings are a current assessment of the
likelihood of timely payment of debts having an original maturity of
no more than 365 days. Issues rated A have the greatest capacity for
a timely payment and the designation 1, 2 and 3 indicates the relative
degree of safety. Issues rated "A-1+" are those with an "overwhelming
degree of credit protection."
Fitch - Commercial Paper ratings reflect current appraisal of the
degree of assurance of timely payment. F-1 issues are regarded as
having the strongest degree of assurance for timely payment. (+) is
used to designate the relative position of an issuer within the rating
category. F-2 issues reflect an assurance of timely payment only
slightly less in degree than the strongest issues. The symbol (LOC)
may follow either category and indicates that a letter of credit
issued by a commercial bank is attached to the commercial paper note.
Other Considerations - The ratings of S&P, Moody's, and Fitch
represent their respective opinions of the quality of the municipal
securities they undertake to rate. It should be emphasized, however,
that ratings are general and are not absolute standards of quality.
Consequently, municipal securities with the same maturity, coupon and
ratings may have different yields and municipal securities of the same
maturity and coupon with different ratings may have the same yield.
A-2
<PAGE> 234
The Annual Report of John Hancock Government Income Fund dated
October 31, 1994 appears as Exhibit C to the Prospectus/Proxy
Statement included in this Registration Statement on Form N-14.
A-3
<PAGE> 235
Exhibit C
JOHN HANCOCK GOVERNMENT INCOME FUND
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
MARCH 31, 1995
Pro forma information is intended to provide shareholders of the John Hancock
Government Income Fund (JHGI) and John Hancock Government Securities Trust
(JHGST) with information about the impact of the proposed merger by indicating
how the merger might have affected information had the merger been consummated
as of March 31, 1994.
The pro forma combined statements of assets and liabilities and results of
operations as of March 31, 1995, have been prepared to reflect the merger
of JHGI and JHGST after giving effect to pro forma adjustments described in the
notes listed below.
(a) Issuance of JHGI Class A and Class B shares in exchange for all of the
outstanding Class A and Class B shares of JHGST.
(b) The investment advisory fee was adjusted to reflect the application of
the fee structure in effect for JHGI.
(c) The actual expenses incurred by JHGI and JHGST for various expenses
included on a pro forma basis were reduced to reflect the estimated
savings arising from the merger.
(d) The transfer agent fee for Class A and Class B shares is the total of
the respective individual fund's transfer agent fees. The main
criteria in determining the transfer agent fees for a specific class
is the number of shareholder accounts.
<PAGE> 236
<TABLE>
JOHN HANCOCK GOVERNMENT INCOME FUND
PRO-FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
<CAPTION>
JOHN HANCOCK JOHN HANCOCK
GOVERNMENT GOVERNMENT PRO
SECURITIES INCOME FORMA
TRUST FUND ADJUSTMENTS COMBINED
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Investments at value $477,340,959 $227,065,280 $ - $ 704,406,239
Cash $15,932 $2,421 - 18,353
Receivable for shares sold 48,900 89,330 - 138,230
Interest receivable 10,626,102 5,115,506 - 15,741,608
Receivable for investments sold 20,375,176 604 - 20,375,780
Other Assets 161,157 110,844 - 272,001
------------ ------------ ------------- --------------
Total assets 508,568,226 232,383,985 - 740,952,211
------------ ------------ ------------- --------------
LIABILITIES
Dividend payable 1,699,023 1,408,618 - 3,107,641
Payable for shares repurchased 697,349 426,143 - 1,123,492
Payable for investments purchased 15,218,646 0 - 15,218,646
Payable to John Hancock Advisers
and affiliates 294,367 0 - 294,367
Accounts payable and accrued expenses 149,422 249,473 - 398,895
------------ ------------ ------------- --------------
Total liabilities 18,058,807 2,084,234 - 20,143,041
------------ ------------ ------------- --------------
CAPITAL PAID-IN $880,735,120 $256,994,003 - $1,137,729,123
Accumulated net realized loss
on investments and financial
futures contracts (383,830,716) (20,073,315) - (403,904,031)
Net unrealized depreciation
of investments (6,631,823) (6,527,820) - (13,159,643)
Undistributed net investment income 236,838 (93,117) - 143,721
------------ ------------ ------------- --------------
Net assets $490,509,419 $230,299,751 - $ 720,809,170
============ ============ ============= ==============
NET ASSETS:
Government Securities Trust
Class A $489,090,058 $ - $(489,090,058) a $ 0
Class B 1,419,361 - (1,419,361) a 0
Government Income
Class A - 248,077 489,090,058 a 489,338,135
Class B - 230,051,674 1,419,361 a 231,471,035
------------ ------------ ------------- --------------
$490,509,419 230,299,751 $ 0 $ 720,809,170
============ ============ ============= ==============
SHARES OUTSTANDING:
Government Securities Trust
Class A 64,755,573 - (64,755,573) a 0
Class B 187,890 - (187,890) a 0
Government Income
Class A - 27,941 55,086,362 a 55,114,303
Class B - 25,903,642 159,819 a 26,063,462
------------ ------------ ------------- --------------
NET ASSET VALUE PER SHARE:
Government Securities Trust
Class A $ 7.55 - $ (7.55) -
Class B $ 7.55 - $ (7.55) -
Government Income
Class A - $ 8.88 - $ 8.88
Class B - $ 8.88 - $ 8.88
============ ============ ============= ==============
</TABLE>
See Notes to Pro-forma Combined Financial Statements
<PAGE> 237
<TABLE>
JOHN HANCOCK GOVERNMENT INCOME FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1995
<CAPTION>
JOHN HANCOCK JOHN HANCOCK
GOVERNMENT GOVERNMENT
SECURITIES TRUST INCOME FUND PRO
YEAR ENDED YEAR ENDED FORMA
MARCH 31, 1995 MARCH 31, 1995 * ADJUSTMENTS COMBINED
--------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $50,531,323 $ 22,744,637 $ - $73,275,960
----------- ------------ -------- -----------
Total 50,531,323 22,744,637 - 73,275,960
----------- ------------ -------- -----------
Expenses
Investment managment fee 3,434,718 1,510,817 (109,119) b 4,836,416
Distribution fee-
Class A 1,356,913 634 - 1,357,547
Class B ** 2,612 2,381,580 - 2,384,192
Transfer agent fee (d)
Class A 1,093,725 383 - 1,094,108
Class B 3,174 356,598 - 359,772
Interest Expense 504,216 0 - 504,216
Custodian fee 266,437 89,040 (38,140) c 317,337
Registration and filing fees 37,353 61,236 (24,647) c 73,942
Advisory board fee 10,008 16,130 - 26,138
Auditing fee 102,922 82,054 (46,244) c 138,732
Legal fees 58,579 16,236 (8,118) c 66,697
Printing 48,978 17,496 (16,619) c 49,855
Directors' fee 38,127 26,222 - 64,349
Miscellaneous 79,055 15,677 (8,748) c 85,984
----------- ------------ -------- -----------
Total expenses 7,036,817 4,574,103 (251,635) 11,359,285
----------- ------------ -------- -----------
Net investment income 43,494,506 18,170,534 251,635 61,916,675
----------- ------------ -------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments sold (52,517,105) (6,126,112) - (58,643,217)
Net realized gain/(loss) on financial futures contracts 1,594,199 (1,182,117) - 412,082
Change in net unrealized appreciation/depreciation
of investments and financial future contracts 23,396,985 (5,779,100) - 17,617,885
----------- ------------ -------- -----------
Net Realized and Unrealized
Loss on Investments (27,525,921) (13,087,329) - (40,613,250)
----------- ------------ -------- -----------
Net Increase in Net Assets
Resulting from Operations $15,968,585 $ 5,083,205 $251,635 $21,303,425
=========== ============ ======== ===========
<FN>
* Actual income and expense numbers annualized using 5 months actuals (11/1/94-3/31/95)
** JH Government Securities Trust Class B Shares commenced operations on September 30, 1994.
</TABLE>
See Notes to Pro-forma Combined Financial Statements
<PAGE> 238
<TABLE>
John Hancock Government Income Fund
SCHEDULE OF INVESTMENTS
March 31, 1995 (Unaudited)
<CAPTION>
Par Value
Interest Maturity (000`s Market
Issuer, Description Rate Date Omitted) Value
- ------------------- ---- ---- -------- -----
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
GOVERNMENTAL - U.S. ( 42.75%)
Financing Corp.,
Bond 9.400% 02-08-18 $ 4,000 $ 4,626,240
Bond 9.650 11-02-18 1,600 1,900,752
Tennessee Valley Authority,
Bond 7.250 07-15-43 8,000 7,084,800
Bond 7.850 06-15-44 5,000 4,701,550
United States Treasury,
Bond 12.625 05-15-95 8,850 8,913,631
Bond 11.500 11-15-95 * 15,000 15,468,750
Bond 15.750 11-15-01 16,865 24,412,087
Bond** 11.625 11-15-04 * 22,000 28,493,520
Bond 8.875 08-15-17 * 2,500 2,841,800
------------
98,443,130
------------
GOVERNMENTAL - U.S. AGENCIES ( 41.07%)
Federal Home Loan Mortgage Corp.,
30 Yr SF Pass Thru Ctf 7.750 11-01-08 33 33,056
30 Yr SF Pass Thru Ctf 8.000 04-01-07 68 67,468
CMO REMIC 1393-D 6.500 11-15-05 7,134 6,701,466
CMO REMIC 1094-K 7.000 06-15-21 2,300 2,126,764
CMO REMIC 1218-G 4.500 05-15-14 2,000 1,716,240
CMO REMIC 1408-H 6.500 10-15-19 4,754 4,357,693
CMO REMIC 1611-F 5.750 05-15-21 17,006 15,241,579
Federal Judiciary Office Building.
Zero Coupon Bond 0.000 02-15-01 250 161,875
Federal National Mortgage Association,
30 Yr SF Pass Thru Ctf 8.500 08-01-24 to 22,697 22,938,046
10-01-24
GTD REMIC Pass Thru Ctf 1994-72-K 6.000 04-25-24 6,389 5,055,010
GTD REMIC Pass Thru Ctf 1990-94- D 6.500 08-25-20 1,660 1,480,504
GTD REMIC Pass Thru Ctf 1992-210-H 6.500 03-25-19 10,000 9,168,700
GTD REMIC Pass Thru Ctf 1991-56- M 6.750 06-25-21 4,000 3,593,720
GTD REMIC Pass Thru Ctf 1990-58- J 7.000 05-25-20 3,700 3,369,294
GTD REMIC Pass Thru Ctf 1990-51- H 7.500 05-25-20 200 190,936
STRIP MBS Ser 249 Class 2 6.500 10-25-23 1,900 676,248
Indexed Sinking Fund 9.950 05-10-99 131 135,895
Government National Mortgage Association,
30 Yr SF Pass Thru Ctf 8.000 05-15-24 to* 17,725 17,570,828
08-15-24
------------
94,585,322
------------
TOTAL U.S. GOVERNMENT AND AGENCIES SECURITIES 193,028,452
------------
FOREIGN GOVERNMENT
U.S. DOLLAR DENOMINATED FOREIGN GOVERNMENT BONDS( 10.75%)
Brazil, Republic of,
Notes IDU Ser A-L 7.813 # 01-01-01 2,940 2,153,550
British Columbia Hydro and Power Auth.
Bond Ser FG 15.000 04-15-11 3,900 4,394,793
Bond Ser FJ 15.500 11-15-11 1,700 2,007,785
Hydro-Quebec Corp.,
Deb Ser GH 8.250 04-15-26 1,000 956,520
Deb Ser GQ 8.250 01-15-27 1,000 958,990
Deb Ser GF 8.875 03-01-26 2,000 2,046,280
Deb Ser HK 9.375 04-15-30 2,000 2,152,300
Deb Ser FV 11.750 02-01-12 270 352,018
International Bank for Reconstruction and Development,
Bond 8.875 03-01-26 * 2,000 2,202,200
Ontario, Province of,
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 239
<TABLE>
<S> <C> <C> <C> <C>
Deb 15.125 05-01-11 1,345 1,526,104
Deb 17.000 11-05-11 5,000 6,013,700
------------
TOTAL FOREIGN GOVERNMENT BONDS 24,764,240
------------
MULTI-FAMILY MORTGAGE BACKED BONDS ( 4.01%)
DLJ Mortgage Acceptance Corp.,
CMO REMIC 1993-M10-A2 7.200 07-15-03 4,806 4,564,095
CMO REMIC 1993-MF7-A1 7.400 06-18-03 4,879 4,674,493
------------
TOTAL MULTI-FAMILY MORTGAGE BACKED BONDS 9,238,588
------------
TOTAL LONG TERM BONDS
(Cost $233,541,600) (98.58%) 227,031,280
======== ============
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT ( 0.02%)
Investment in a joint repurchase agreement transaction with
U.B.S. Securities Inc., Dated 03-31-95, Due 04-03-95
(secured by U. S. Treasury Bond 6.25% Due 08-15-23,
U.S. Treasury Notes, 5.25% Due 07-31-98, 6.50% Due 04-30-99,
9.125% Due 05-15-99, and 8.00% Due 05-15-01) Note A 6.125 04-03-95 34 34,000
CORPORATE SAVINGS ACCOUNT ( 0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account Current Rate 3.00% 301
------------
TOTAL SHORT-TERM INVESTMENTS (0.02%) 34,301
-------- ------------
TOTAL INVESTMENTS (98.60%) 227,065,581
======== ============
<FN>
* Securities, other than short-term investments, newly added to the portfolio during the period ended March 31, 1995.
** U.S. Treasury Bonds with a value of $4,884,696 owned by the Fund were designated as margin deposits for futures
contracts at March 31, 1995.
# Represents rate in effect on March 31, 1995.
The percentage shown for each investment category is the total value of that catgegory as a percentage of the net assets of the
Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 240
FINANCIAL STATEMENTS
John Hancock Funds - Government Securities Trust
SCHEDULE OF INVESTMENTS
March 31, 1995
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
GOVERNMENT SECURITIES TRUST ON MARCH 31, 1995. IT'S DIVIDED INTO TWO MAIN
CATEGORIES: U.S. GOVERNMENT AND AGENCIES SECURITIES AND SHORT-TERM INVESTMENTS.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
GOVERNMENTAL - U.S. (54.83%)
United States Treasury, Bond........................ 15.750% 11-15-01 $27,475 $ 39,770,063
United States Treasury, Bond........................ 11.625 11-15-02 27,000* 33,897,690
United States Treasury, Bond........................ 11.875 11-15-03 6,000* 7,749,366
United States Treasury, Bond........................ 11.625 11-15-04 14,000* 18,132,240
United States Treasury, Bond........................ 12.750 11-15-10 7,250* 10,052,567
United States Treasury, Bond........................ 12.000 08-15-13 27,000* 37,150,272
United States Treasury, Bond........................ 8.875 08-15-17 17,000* 19,324,240
United States Treasury, Note........................ 11.250 05-15-95 68,745* 69,142,346
United States Treasury, Note........................ 9.375 04-15-96 32,800* 33,712,168
------------
268,930,952
------------
GOVERNMENTAL - U.S. AGENCIES (41.30%)
Federal Home Loan Mortgage Corp,
CMO REMIC 1575-PG.................................. 6.000 08-15-07 5,444 4,960,845
CMO REMIC 1630-PK.................................. 6.000 11-15-23 11,920 9,476,400
CMO REMIC 1634-PN.................................. 4.500 12-15-23 10,575* 6,896,804
CMO REMIC 1643-PK.................................. 6.500 12-15-23 5,439 4,594,215
CMO REMIC 1667-PE.................................. 6.000 03-15-08 11,750 10,648,438
CMO REMIC 1994-48-E................................ 6.000 11-25-08 3,685 3,222,053
CMO REMIC 1576-PH.................................. 6.000 01-15-08 25,975 23,076,969
CMO REMIC Gold..................................... 9.000 03-01-25 5,100* 5,243,665
Federal National Mortgage Association,
30 Yr Pass Thru Ctf................................ 8.000 11-01-24 4,905* 4,857,324
30 Yr Pass Thru Ctf................................ 8.500 01-01-25 10,000* 10,106,199
GTD REMIC Pass Thru Ctf 1993-71-PH................. 6.500 05-25-08 5,000 4,559,350
GTD REMIC Pass Thru Ctf 1994-51-PV................. 6.000 03-25-24 20,926 16,557,698
GTD REMIC Pass Thru Ctf 1994-62-PK................. 7.000 04-25-24 5,986* 5,329,396
GTD REMIC Pass Thru Ctf X225C-TK................... 6.500 12-25-23 5,032* 4,241,020
STRIP MBS Ser 249 Class 2.......................... 6.500 10-25-23 2,945* 1,048,184
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 241
FINANCIAL STATEMENTS
John Hancock Funds - Government Securities Trust
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
GOVERNMENTAL - U.S. AGENCIES (CONTINUED)
Government National Mortgage Association,
30 Yr Pass Thru Ctf................................................... 7.500% 06-15-23 to $20,989* $ 20,265,851
05-15-24
30 Yr Pass Thru Ctf................................................... 8.000 01-15-04 to 10,201* 10,124,061
09-15-23
30 Yr Pass Thru Ctf................................................... 8.500 07-15-24 to 19,549* 19,828,978
02-15-25
30 Yr Pass Thru Ctf................................................... 9.000 02-15-25 4,900* 5,057,677
30 Yr Pass Thru Ctf................................................... 9.500 10-15-19 0 376
30 Yr Pass Thru Ctf................................................... 10.000 08-15-19 128 137,145
30 Yr Pass Thru Ctf................................................... 11.000 01-15-14 to 13,245* 14,582,334
12-15-15
30 Yr Pass Thru Ctf................................................... 11.500 08-14-10 101 110,903
30 Yr Pass Thru Ctf................................................... 12.000 01-15-13 to 15 17,378
05-15-15
30 Yr Pass Thru Ctf................................................... 13.000 01-15-11 to 191 214,347
08-15-15
30 Yr Pass Thru Ctf................................................... 14.000 05-15-11 to 56 62,790
07-15-12
30 Yr Pass Thru Ctf................................................... 14.500 06-15-11 to 194 216,502
10-15-12
30 Yr Pass Thru Ctf................................................... 15.000 08-15-11 to 346* 394,183
10-15-12
30 Yr Pass Thru Ctf................................................... 15.500 07-15-11 to 269 304,497
10-15-11
Tennessee Valley Authority,
Pwr Bonds 1994 Ser A.................................................. 7.850 06-15-44 17,500* 16,455,425
------------
202,591,007
------------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $478,153,782) 96.13% 471,521,959
------- ------------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (1.19%)
Investment in a joint repurchase agreement
transaction with U.B.S. Securities Inc.
Dated 03-31-95, Due 04-03-95 (secured by
U.S. Treasury Bond 6.250% due 08-15-23,
and U.S.Treasury Notes, 5.250% thru 9.125%
due 07-31-98 thru 05-15-01) - Note A.................................. 6.125% 5,819 5,819,000
------------
TOTAL SHORT-TERM INVESTMENTS (1.19%) 5,819,000
------- ------------
TOTAL INVESTMENTS (97.32%) $477,340,959
======= ============
<FN>
* Securities, other than short-terms investments, newly added to the portfolio during the period ended March 31, 1995. The
percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 242
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
No change from the information set forth in Item 27 of the
Registration Statement of John Hancock Series, Inc.
(the "Registrant") on Form N-1A under the Securities Act of 1933
and the Investment Company Act of 1940 and (File No. 811-5254),
which information is incorporated herein by reference.
ITEM 16. EXHIBITS:
1.1 Registrant's Articles of Filed as Exhibit 1(a)
Incorporation dated to Registrant's
June 22, 1987 Registration Statement on
Form N-1A and incorporated
herein by reference.
1.2 Articles of Amendment and Filed as Exhibit 1(b)
Restatement dated July 1, 1987. to Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
1.3 Articles of Amendment dated Filed as Exhibit 1(c)
July 24, 1987. to Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
1.4 Articles Supplementary Filed as Exhibit 1(d)
dated August 6, 1981. to Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
1.5 Articles Supplementary Filed as Exhibit 1(e)
dated October 8, 1987. to Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
<PAGE> 243
1.6 Articles Supplementary Filed as Exhibit 1(f)
dated June 16, 1989. to Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
1.7 Articles Supplementary. Filed as Exhibit 1(g)
to Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
1.8 Articles Supplementary Filed as Exhibit 1(h)
dated October 22, 1993. to Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
1.9 Articles Supplementary Filed as Exhibit 1(i)
dated May 7, 1994. to Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
1.10 Articles Supplementary Filed as Exhibit 1(j)
dated December 22, 1994. to Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
2. Amended By-Laws of Registrant. Filed as Exhibit 2 to the
Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
3. Not applicable.
4. Form of Agreement and Plan of Filed herewith as Exhibit
Reorganization between the A to the Proxy Statement
Registrant, on behalf of John and Prospectus included as
Hancock Government Income Fund, Part A of this
and John Hancock Bond Fund, Registration Statement on
on behalf of John Hancock Form N-14.
Government Securities Trust.
5. Not applicable.
- 2 -
<PAGE> 244
6. Investment Management Contract Filed as Exhibit 5(a)(4)
between the Registrant, on behalf to Registrant's
of John Hancock Government Fund, Registration Statement
and John Hancock Advisers, Inc. on Form N-1A and
incorporated herein by
reference.
7.1 Distribution Agreement between Filed as Exhibit 6(a) to
the Registrant and John Hancock Registrant's Registration
Funds, Inc. (formerly named John Statement on Form N-1A and
Hancock Broker Distribution incorporated herein by
Services, Inc.). reference.
7.2 Form of Soliciting Dealer Filed as Exhibit 6(b) to
Agreement between John Hancock Registrant's Registration
Funds, Inc. and Selected Dealers Statement on Form N-1A and
incorporated herein by
reference.
7.3 Form of Financial Institution Filed as Exhibit 6(c) to
Sales and Service Agreement Registrant's Registration
between John Hancock Funds, Inc. Statement on Form N-1A and
and Selected Financial incorporated herein by
Institutions. reference.
8. Not applicable.
9. Master Custodian Agreement Filed as Exhibit 8 to
between John Hancock Mutual Registrant's Registration
Funds (including Registrant) and Statement on Form N-1A and
Investors Bank & Trust Company. incorporated herein by
reference.
10.1 Class A Distribution Plan between Filed as Exhibit 15(a)(iii)
John Hancock Government Income to Registrant's Registration
Fund and John Hancock Funds, Inc. Statement on Form N-1A and
incorporated herein by
reference.
10.2 Class B Distribution Plan between Filed as Exhibit 15(b)(iv)
John Hancock Government Income to Registrant's Registration
Fund and John Hancock Funds, Statement on Form N-1A and
Inc. and incorporated herein by
reference.
10.3 Class A Distribution Plan between Filed as Exhibit 15(a)(ii)
John Hancock Government Securities to Registrant's Registration
Trust and John Hancock Funds, Statement on Form N-1A
Inc. and incorporated herein by
reference.
- 3 -
<PAGE> 245
10.4 Class B Distribution Plan between Filed as Exhibit 15(b)(ii)
John Hancock Government Securities to Registrant's Registration
Trust and John Hancock Funds, Statement on Form N-1A and
Inc. incorporated herein by
reference.
11. Opinion as to legality of Filed herewith as Exhibit
shares, and consent. 11.
12. Form of Opinion as to tax matters. Filed herewith as Exhibit
12.
13. Not applicable.
14. Consent of Ernst & Young LLP Filed herewith as Exhibit
regarding the financial 14.
statements and highlights of
John Hancock Government Income
Fund and John Hancock Government
Securities Trust.
15. Not applicable.
16. Powers of Attorney. Filed as addendum to
signature pages of
Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
17.1 Declaration of the Registrant Filed herewith as Exhibit
pursuant to Rule 24f-2 under 17.1.
the Investment Company Act of
1940.
17.2 Prospectus of John Hancock Filed herewith as Exhibit
Government Securities Trust for 17.2.
Class A and Class B shares,
dated May 15, 1995.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) under the Securities Act of 1933, as amended
(the "1933 Act"), the reoffering prospectus will contain the
information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other items of the applicable
form.
- 4 -
<PAGE> 246
(2) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as a part of
an amendment to the Registration Statement and will not be used
until the amendment is effective, and that, in determining any
liability under the 1933 Act, each post-effective amendment shall be
deemed to be a new registration statement for the securities offered
therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees that it will furnish to
each person to whom a Prospectus of the Registrant is delivered a
copy of the latest annual report to shareholders of the Registrant,
upon request and without charge.
- 5 -
<PAGE> 247
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the City of Boston and The Commonwealth of Massachusetts, on the
13th day of June, 1995.
JOHN HANCOCK SERIES, INC.
By:/s/Edward J. Boudreau, Jr.
----------------------------
Edward J. Boudreau, Jr.
Chairman and Director
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
/s/Edward J. Boudreau, Jr. Chairman and Director )
-------------------------- (Principal Executive )
Edward J. Boudreau, Jr. Officer) )
)
) June 13, 1995
/s/James B. Little Senior Vice President )
-------------------------- and Chief Financial )
James B. Little Officer (Principal )
Financial and )
Accounting Officer) )
)
Directors:
James F. Carlin* Director )
-------------------------- )
James F. Carlin )
)
)
William H. Cunningham* Director )
-------------------------- )
William H. Cunningham )
</TABLE>
- 6 -
<PAGE> 248
<TABLE>
<S> <C> <C>
)
Charles L. Ladner* Director )
-------------------------- )
Charles L. Ladner )
)
)
Leo E. Linbeck, Jr.* Director )
-------------------------- )
Leo E. Linbeck, Jr. )
)
)
)
Patricia P. McCarter* Director )
-------------------------- )
Patricia P. McCarter )
)
)
Steven R. Pruchansky* Director )
-------------------------- )
Steven R. Pruchansky )
)
)
Norman H. Smith* Director )
-------------------------- )
Norman H. Smith )
)
)
John P. Toolan* Director )
-------------------------- )
John P. Toolan )
)
--------------
<FN>
*By:/s/Thomas H. Drohan Dated: June 13, 1995
-----------------------------------
Thomas H. Drohan, Attorney-in-fact
</TABLE>
- 7 -
<PAGE> 249
EXHIBIT INDEX
The following exhibits are filed as part of this Registration
Statement.
Exhibit No. Description
------------------------------------------------------------------
4. Form of Agreement and Plan of
Reorganization Between the
Registrant, on behalf of John
Hancock Government Income Fund,
and John Hancock Bond Fund, on
behalf of John Hancock
Government Securities Trust.
11. Opinion as to legality of shares, and
consent.
12. Form of Opinion as to tax matters.
14. Consent of Ernst & Young LLP
regarding the financial statements
and highlights of John Hancock Government
Income Fund and John Hancock Government
Securities Trust.
17.1 Declaration of the Registrant pursuant
to Rule 24f-2 under the Investment
Company Act of 1940.
17.2 Prospectus of John Hancock Government
Securities Trust for Class A and Class B
shares, dated May 15, 1995.
- 8 -
<PAGE> 1
Exhibit 11
June 13, 1995
John Hancock Series, Inc.
101 Huntington Avenue
Boston, MA 02199
Ladies and Gentlemen:
In connection with the filing of a registration statement
under the Securities Act of 1993, as amended (the "Act"),
on Form N-14, with respect to the shares of capital stock
of John Hancock Series, Inc., a Maryland Corporation (the
"Corporation"), it is the opinion of the undersigned that
such shares of capital stock of the Corporation when issued
will be legally issued, fully paid and nonassessable,
assuming that the Corporation receives proper consideration
therefor in accordance with the provisions of the
Corporation's Articles of Incorporation as Amended and
Restated and By-Laws and subject to compliance with the
Act, the Investment Company Act of 1940, as amended, and
the applicable state laws regarding the offer and sale of
securities.
The undersigned hereby consents to the filing of a copy of
this opinion, as an exhibit to the Corporation's
registration statement on Form N-14, with the Securities
and Exchange Commission and with the various state
securities administrators.
Sincerely,
JOHN HANCOCK ADVISERS, INC.
/s/ Thomas H. Connors
Thomas H. Connors
Assistant Secretary
Member of Massachusetts Bar
<PAGE> 1
Exhibit 12
_________________, 1995
Board of Trustees
John Hancock Bond Fund, on behalf of
John Hancock Government Securities Trust
101 Huntington Avenue
Boston, Massachusetts 02199
Board of Directors
John Hancock Series, Inc., on behalf of
John Hancock Government Income Fund
101 Huntington Avenue
Boston, Massachusetts 02199
Dear Members of the Board of Trustees and the Board of Directors:
You have requested our opinion regarding the federal income
tax consequences of the acquisition by John Hancock Government
Income Fund ("Acquiring Fund"), a series of John Hancock Series,
Inc. (the "Company"), of all of the assets of John Hancock
Government Securities Trust ("Acquired Fund"), a series of John
Hancock Bond Fund (the "Trust"), in exchange solely for (i) the
assumption by Acquiring Fund of all of the liabilities of Acquired
Fund and (ii) the issuance of Class A and Class B shares of voting
common stock of Acquiring Fund (the "Acquiring Fund Shares") to
Acquired Fund, followed by the distribution by Acquired Fund, in
liquidation of Acquired Fund, of the Acquiring Fund Shares to the
shareholders of Acquired Fund and the termination of Acquired Fund
(the foregoing together constituting the "reorganization" or the
"transaction").
In rendering this opinion, we have examined and relied upon
(i) the prospectus for the Class A and Class B shares of Acquired
Fund, dated May 15, 1995, (ii) the statement of additional
information for the Class A and Class B shares of Acquired Fund,
dated May 15, 1995, (iii) the prospectus for the Class A and
Class B shares of Acquiring Fund, dated May 15, 1995, (iv) the
statement of additional information for the Class A and Class B
shares of Acquiring Fund, dated May 15, 1995, (v) the registration
statement on Form N-14 of the Company relating to the transaction
<PAGE> 2
Board of Trustees and Board of Directors
John Hancock Bond Fund and John Hancock Series, Inc.
__________, 1995
Page 2
(the "Registration Statement") filed with the Securities and
Exchange Commission (the "SEC") on June __, 1995, (vi) the proxy
statement/prospectus relating to the transaction (the "Proxy
Statement") included in the Registration Statement, (vii) the
Agreement and Plan of Reorganization, dated as of ,
1995, between the Company, on behalf of Acquiring Fund, and the
Trust, on behalf of Acquired Fund (the "Agreement"), (viii) the
representation letters on behalf of Acquiring Fund and Acquired
Fund referred to below and (ix) such other documents as we deemed
appropriate. We have assumed that all parties to the Agreement
and to other documents relating to the transaction have acted and
will act in accordance with the terms of the Agreement and such
other documents.
The conclusions expressed herein represent our judgment
regarding the proper treatment of Acquiring Fund, Acquired Fund
and the shareholders of Acquired Fund on the basis of our analysis
of the Internal Revenue Code of 1986, as amended (the "Code"),
case law, Treasury regulations and the rulings and other
pronouncements of the Internal Revenue Service (the "Service")
which exist at the time this opinion is rendered, all of which are
subject to prospective or retroactive change. Our opinion
represents our best judgment regarding the issues presented and is
not binding upon the Service or any court. Moreover, our opinion
does not provide any assurance that a position taken in reliance
on such opinion will not be challenged by the Service and does not
constitute any representation or warranty that such position, if
so challenged, will not be rejected by a court.
Acquiring Fund is a series of a corporation, the Company,
which was established under the laws of Maryland in 1987 and is
registered as an open-end investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Company has
several separate series and may create additional series in the
future. Each series of the Company has separate assets and
liabilities from those of each other series. Each such series is
treated as a separate corporation and regulated investment company
pursuant to Section 851(h) of the Code.
Acquiring Fund commenced operations on February 23, 1988.
The investment objective of Acquiring Fund is to earn a high level
of current income consistent with preservation of capital by
investing primarily in securities that are issued or guaranteed as
to principal and interest by the United States ("U.S.")
Government, its agencies or instrumentalities ("U.S. Government
securities"). Under normal market conditions, it is expected that
at least 80% of Acquiring Fund's total assets will consist of U.S.
<PAGE> 3
Board of Trustees and Board of Directors
John Hancock Bond Fund and John Hancock Series, Inc.
_________, 1995
Page 3
Government securities and related repurchase agreements and
forward commitments.
Acquired Fund is a series of a business trust, the Trust,
which was established under the laws of The Commonwealth of
Massachusetts in 1984 and is registered as an open-end investment
company under the 1940 Act. The Trust has several separate series
and may create additional series in the future. Each series of
the Trust has separate assets and liabilities from those of each
other series. Each such series is treated as a separate
corporation and regulated investment company pursuant to Section
851(h) of the Code.
Acquired Fund commenced operations on December 31, 1984.
Acquired Fund's investment objective is to seek a high level of
current income, consistent with safety of principal. Acquired
Fund seeks to achieve its investment objective by investing in
U.S. Government securities.
The steps to be taken in the reorganization, as set forth in
the Agreement, will be as follows:
(i) Acquired Fund will transfer to Acquiring Fund all
of its assets (consisting, without limitation, of portfolio
securities and instruments, dividend and interest receivables,
cash and other assets). In exchange for the assets transferred to
it, Acquiring Fund will (A) assume all of the liabilities of
Acquired Fund (comprising all of its known and unknown liabilities
and referred to hereinafter as the "Acquired Fund Liabilities")
and (B) issue Acquiring Fund Shares to Acquired Fund that have an
aggregate net asset value equal to the value of the assets
transferred to Acquiring Fund by Acquired Fund, less the value of
the Acquired Fund Liabilities assumed by Acquiring Fund.
(ii) Promptly after the transfer of its assets to
Acquiring Fund, Acquired Fund will distribute in liquidation the
Acquiring Fund Shares it receives in the exchange to Acquired Fund
shareholders pro rata in exchange for their surrender of their
shares of Acquired Fund ("Acquired Fund Shares"). In these
exchanges, holders of Acquired Fund Shares designated as Class A
("Class A Acquired Fund Shares") will receive Acquiring Fund
Shares designated as Class A ("Class A Acquiring Fund Shares"),
and holders of Acquired Fund Shares designated as Class B
("Class B Acquired Fund Shares") will receive Acquiring Fund
Shares designated as Class B ("Class B Acquiring Fund Shares").
<PAGE> 4
Board of Trustees and Board of Directors
John Hancock Bond Fund and John Hancock Series, Inc.
_________, 1995
Page 4
(iii) After such exchanges, liquidation and distribution,
the existence of Acquired Fund will be promptly terminated in
accordance with Massachusetts law.
The Agreement and the transactions contemplated thereby were
approved by the Board of Directors of the Company at a meeting
held on May 16, 1995. The Company's shareholders are not required
and were not asked to approve the transaction. The Agreement and
the transactions contemplated thereby were approved by the Board
of Trustees of the Trust at a meeting held on May 16, 1995,
subject to the approval of the shareholders of Acquired Fund.
Acquired Fund shareholders approved the transaction at a meeting
held on , 1995.
Massachusetts law does not provide dissenters' rights for
Acquired Fund shareholders in the transaction. Additionally, it
is the position of the Division of Investment Management of the
SEC that appraisal rights, in contexts such as the reorganization,
are inconsistent with Rule 22c-1 under the 1940 Act and are
therefore preempted and invalidated by such rule. Consequently,
Acquired Fund shareholders will not have dissenters' or appraisal
rights in the transaction.
Our opinions set forth below are subject to the following
factual assumptions being true on the date the transaction is
consummated, i.e., the date of this opinion letter. Authorized
representatives of Acquiring Fund and Acquired Fund have
represented to us by letters of even date herewith that the
following assumptions are true on this date:
(a) Acquiring Fund has no plan or intention to redeem or
otherwise reacquire any of the Acquiring Fund Shares received by
shareholders of Acquired Fund in the transaction except in
connection with its legal obligation under Section 22(e) of the
1940 Act as a registered open-end investment company to redeem its
own shares.
(b) After the transaction, Acquiring Fund will continue the
historic business of Acquired Fund and will use all of the assets
acquired from Acquired Fund in the ordinary course of a business.
(c) Acquiring Fund has no plan or intention to sell or
otherwise dispose of any assets of Acquired Fund acquired in the
transaction, except for dispositions made in the ordinary course
of its business or to maintain its qualification as a regulated
investment company under Subchapter M of the Code.
<PAGE> 5
Board of Trustees and Board of Directors
John Hancock Bond Fund and John Hancock Series, Inc.
_________, 1995
Page 5
(d) The shareholders of Acquiring Fund and the shareholders
of Acquired Fund will bear their respective expenses, if any, in
connection with the transaction.
(e) Acquiring Fund and Acquired Fund will each bear its own
expenses incurred in connection with the transaction. If any
liabilities of Acquired Fund attributable to such expenses remain
unpaid on the closing date of the transaction and are assumed by
Acquiring Fund in the transaction, the amount assumed will be
attributable to Acquired Fund's expenses that are solely and
directly related to the transaction in accordance with the
guidelines established in Rev. Rul. 73-54, 1973-1 C.B. 187.
(f) There is no indebtedness between Acquiring Fund and
Acquired Fund.
(g) Acquired Fund has elected to be treated as a regulated
investment company under Subchapter M of the Code, has qualified
as a regulated investment company for each taxable year since its
inception, and qualifies as such for its final taxable year ending
on the closing date of the transaction.
(h) Acquiring Fund has elected to be treated as a regulated
investment company under Subchapter M of the Code, has qualified
as a regulated investment company for each taxable year since its
inception, and qualifies as such as of the date of the
transaction.
(i) Neither Acquiring Fund nor Acquired Fund is under the
jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
(j) Acquiring Fund does not own and since its inception has
not owned, directly or indirectly, any shares of Acquired Fund.
(k) Acquiring Fund will not pay cash in lieu of fractional
shares in connection with the transaction.
(l) As of the date of the transaction, the fair market value
of the Acquiring Fund Shares issued to Acquired Fund in exchange
for the assets of Acquired Fund is approximately equal to the fair
market value of the assets of Acquired Fund received by Acquiring
Fund, minus the value of the Acquired Fund Liabilities assumed by
Acquiring Fund.
(m) Acquired Fund shareholders will be in control (within
the meaning of Sections 368(a)(2)(H) and 304(c) of the Code, which
provide that control means the ownership of shares possessing at
<PAGE> 6
Board of Trustees and Board of Directors
John Hancock Bond Fund and John Hancock Series, Inc.
_________, 1995
Page 6
least 50% of the total combined voting power of all classes of
shares that are entitled to vote or at least 50% of the total
value of shares of all classes) of Acquiring Fund after the
transaction, and to the best knowledge of management of Acquired
Fund, there is no intention on the part of any shareholders of
Acquired Fund to redeem, sell, exchange, or otherwise dispose of a
number of the shares of Acquiring Fund received in the transaction
that would affect the retention of control of Acquiring Fund by
former shareholders of Acquired Fund after consummation of the
transaction.
(n) At the time of the transaction, Acquiring Fund does not
have outstanding any warrants, options, convertible securities, or
any other type of right pursuant to which any person could acquire
shares of Acquiring Fund that, if exercised or converted, would
affect the acquisition or retention of control (within the meaning
of Sections 368(a)(2)(H) and 304(c) of the Code) of Acquiring Fund
by the shareholders of Acquired Fund.
(o) The principal business purposes of the transaction are
to combine the assets of Acquiring Fund and Acquired Fund in order
to capitalize on economies of scale in expenses such as the costs
of accounting, legal, transfer agency, insurance, custodial, and
administrative services and to increase diversification.
(p) As of the date of the transaction, the fair market value
of the Class A Acquiring Fund Shares received by each holder of
Class A Acquired Fund Shares is approximately equal to the fair
market value of the Class A Acquired Fund Shares surrendered by
such shareholder, and the fair market value of the Class B
Acquiring Fund Shares received by each holder of Class B Acquired
Fund Shares is approximately equal to the fair market value of the
Class B Acquired Fund Shares surrendered by such shareholder.
(q) There is no plan or intention on the part of any
shareholder of Acquired Fund that owns beneficially 5% or more of
the Acquired Fund Shares and, to the best knowledge of management
of Acquired Fund, there is no plan or intention on the part of the
remaining shareholders of Acquired Fund to sell, redeem, exchange
or otherwise dispose of a number of the Acquiring Fund Shares
received in the transaction that would reduce the aggregate
ownership of the Acquiring Fund Shares by former Acquired Fund
shareholders to a number of shares having a value, as of the date
of the transaction, of less than fifty percent (50%) of the value
of all of the formerly outstanding Acquired Fund Shares as of the
same date. Shares of Acquired Fund and Acquiring Fund held by
Acquired Fund shareholders and otherwise sold, redeemed, exchanged
or disposed of prior or subsequent to the transaction as part of
<PAGE> 7
Board of Trustees and Board of Directors
John Hancock Bond Fund and John Hancock Series, Inc.
_________, 1995
Page 7
the plan of reorganization are taken into account for purposes of
this representation.
(r) Acquired Fund assets transferred to Acquiring Fund
comprise at least ninety percent (90%) of the fair market value of
the net assets of Acquired Fund and at least seventy percent (70%)
of the fair market value of the gross assets held by Acquired Fund
immediately prior to the transaction. For purposes of this
representation, amounts used by Acquired Fund to pay its
outstanding liabilities, including reorganization expenses, and
all redemptions and distributions (except for redemptions in the
ordinary course of business upon demand of a shareholder that
Acquired Fund is required to make as an open-end investment
company pursuant to Section 22(e) of the 1940 Act and regular,
normal dividends, which dividends include any final distribution
of previously undistributed investment company taxable income and
net capital gain for Acquired Fund's final taxable year ending on
the closing date of the transaction) made by Acquired Fund
immediately preceding the transaction are taken into account as
assets of Acquired Fund held immediately prior to the transaction.
(s) The Acquired Fund Liabilities assumed by Acquiring Fund
plus the liabilities, if any, to which the transferred assets are
subject were incurred by Acquired Fund in the ordinary course of
its business or are expenses of the transaction.
(t) The fair market value of the Acquired Fund assets
transferred to Acquiring Fund equals or exceeds the sum of the
Acquired Fund Liabilities assumed by Acquiring Fund and the amount
of liabilities, if any, to which the transferred assets are
subject.
(u) The total adjusted basis of the Acquired Fund assets
transferred to Acquiring Fund equals or exceeds the sum of the
Acquired Fund Liabilities assumed by Acquiring Fund and the amount
of liabilities, if any, to which the transferred assets are
subject.
(v) Acquired Fund does not pay compensation to any
shareholder-employee.
(w) Acquired Fund has no outstanding warrants, options,
convertible securities or any other type of right pursuant to
which any person could acquire Acquired Fund Shares.
On the basis of and subject to the foregoing and in reliance
upon the representations described above, we are of the opinion
that:
<PAGE> 8
Board of Trustees and Board of Directors
John Hancock Bond Fund and John Hancock Series, Inc.
_________, 1995
Page 8
(a) The acquisition by Acquiring Fund of all of the assets
of Acquired Fund solely in exchange for the issuance of Acquiring
Fund Shares to Acquired Fund and the assumption of all of the
Acquired Fund Liabilities by Acquiring Fund, followed by the
distribution by Acquired Fund, in liquidation of Acquired Fund, of
Acquiring Fund Shares to Acquired Fund shareholders in exchange
for their Acquired Fund Shares and the termination of Acquired
Fund, will constitute a "reorganization" within the meaning of
Section 368(a)(1)(D) of the Code. Acquiring Fund and Acquired
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 Acquired Fund upon
(i) the transfer of all of its assets to Acquiring Fund solely in
exchange for the issuance of Acquiring Fund Shares to Acquired
Fund and the assumption of all of the Acquired Fund Liabilities by
Acquiring Fund and (ii) the distribution by Acquired Fund of such
Acquiring Fund Shares to the shareholders of Acquired Fund
(Sections 361(a) and 361(c) of the Code).
(c) No gain or loss will be recognized by Acquiring Fund
upon the receipt of the assets of Acquired Fund solely in exchange
for the issuance of Acquiring Fund Shares to Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by Acquiring
Fund (Section 1032(a) of the Code).
(d) The basis of the assets of Acquired Fund acquired by
Acquiring Fund will be, in each instance, the same as the basis of
such assets in the hands of Acquired Fund immediately prior to the
transfer (Section 362(b) of the Code).
(e) The tax holding period of the assets of Acquired Fund in
the hands of Acquiring Fund will, in each instance, include
Acquired Fund's tax holding period for those assets (Section
1223(2) of the Code).
(f) The shareholders of Acquired Fund will not recognize
gain or loss upon the exchange of all of their Acquired Fund
Shares solely for Acquiring Fund Shares as part of the transaction
(Section 354(a)(l) of the Code).
(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 Acquired Fund Shares surrendered in exchange
therefor (Section 358(a)(1) of the Code).
(h) The tax holding period of the Acquiring Fund Shares
received by Acquired Fund shareholders will include, for each
<PAGE> 9
Board of Trustees and Board of Directors
John Hancock Bond Fund and John Hancock Series, Inc.
__________, 1995
Page 9
shareholder, the tax holding period for the Acquired Fund Shares
surrendered in exchange therefor, provided the Acquired Fund
Shares were held as capital assets on the date of the exchange
(Section 1223(1) of the Code).
No opinion is expressed or implied regarding the federal
income tax consequences to Acquiring Fund, Acquired Fund or
Acquired Fund shareholders of any conditions existing at the time
of, effects resulting from, or other aspects of the transaction
except as expressly set forth above.
Very truly yours,
Hale and Dorr
<PAGE> 1
EXHIBIT 14
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"
in the Proxy Statement and Prospectus and to the use, in this
Registration Statement (Form N-14) dated June 14, 1995, of our
report on the financial statements and financial highlights of
John Hancock Government Securities Trust, a series of John Hancock
Bond Fund, dated May 15, 1995 and our report on the financial
statements and financial highlights of John Hancock Government
Income Fund, a series of John Hancock Series, Inc., dated
December 2, 1994.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
June 9, 1995
<PAGE> 1
EXHIBIT 17.1
Registration No. 33-16048
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM N-1A
REGISTRATION STATEMENT UNDER /x/
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No . / /
Post-Effective Amendment No. 1 /x/
and
REGISTRATION STATEMENT UNDER /x/
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 1
(Check appropriate box or boxes)
___________________________
CRITERION SPECIAL SERIES, INC.
(Exact name of registrant as specified in charter)
1000 Louisiana
Houston, Texas 77002
(Address of principal executive offices)
Registrant's Telephone Number -- (713) 751-2400
Thomas R. Powers
1000 Louisiana
Houston, Texas 77002
(Name and Address of Agent for Service)
Copies to:
John w. Belash, Esq. Robert L. Stillwell, Esq.
Gordon Hurwitz Butowsky Weitzen Baker & Bots
Shalov & Wein 3000 One Shell Plaza
101 Park Avenue Suite 3121
New York, NY 10178 Houston, Texas 77002
Approximate date of commencement of proposed public offering: as soon
as practicable after the effective date of this Registration Statement.
It is proposed that this filing will be come effective:
60 days after filing pursuant to paragraph (c).
______________________________
Registrant has registered, pursuant to Rule 24f-2(a)(1) under the
Investment Company Act of 1940, an indefinite number of shares under the
Securities Act of 1933, and will file a rule 24f-2 Notice by December 31,
1987 for its fiscal year ending October 31, 1987.
<PAGE> 1
EXHIBIT 17.2
JOHN HANCOCK
GOVERNMENT
SECURITIES TRUST
CLASS A AND CLASS B SHARES
PROSPECTUS
MAY 15, 1995
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Expense Information................................................................... 2
The Fund's Financial Highlights....................................................... 3
Investment Objective and Policies..................................................... 4
Organization and Management of the Fund............................................... 6
Alternative Purchase Arrangements..................................................... 7
The Fund's Expenses................................................................... 8
Dividends and Taxes................................................................... 9
Performance........................................................................... 10
How to Buy Shares..................................................................... 11
Share Price........................................................................... 12
How to Redeem Shares.................................................................. 18
Additional Services and Programs...................................................... 20
Investments, Techniques and Risk Factors.............................................. 23
</TABLE>
This Prospectus sets forth the information about John Hancock Government
Securities Trust (the "Fund"), a diversified series of John Hancock Bond Fund
(the "Trust"), that you should know before investing. Please read and retain it
for future reference.
Additional information about the Fund and the Trust has been filed with the
Securities and Exchange Commission (the "SEC"). You can obtain a copy of the
Fund's Statement of Additional Information, dated May 15, 1995 and incorporated
by reference into this Prospectus, free of charge by writing or telephoning:
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts
02205-9116, 1-800-225-5291 (1-800-554-6713 TDD).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 2
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various fees and expenses you will bear, directly or indirectly, when you
purchase Fund shares. The operating expenses included in the table and
hypothetical example below are based on fees and expenses of the Fund's fiscal
year ended March 31, 1994, adjusted to reflect current sales charges. The
operating expenses for the Class B shares are estimates. Actual fees and
expenses in the future of the Class A and Class B shares may be greater or less
than those indicated.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
------- -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a percentage of offering price)....................... 4.50% None
Maximum sales charge imposed on reinvested dividends................................................ None None
Maximum deferred sales charge....................................................................... None * 5.00%
Redemption fee+..................................................................................... None None
Exchange fee........................................................................................ None None
ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets)
Management fee...................................................................................... 0.62% 0.62%
12b-1 fee**......................................................................................... 0.25% 1.00%
Other expenses***................................................................................... 0.27% 0.27%
Total Fund operating expenses....................................................................... 1.14% 1.89%
<FN>
* No sales charge is payable at the time of purchase on investments of $1
million or more, but for these investments a contingent deferred sales
charge may be imposed, as described below under the caption "Share Price,"
in the event of certain redemption transactions within one year of purchase.
</TABLE>
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average net assets, and the remaining portion will be
used to cover distribution expenses.
*** Other Expenses include transfer agent, legal, audit, custody and other
expenses.
+ Redemption by wire fee (currently $4.00) not included.
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses for the indicated period of years on a
hypothetical $1,000 investment, assuming 5% annual return:
Class A Shares............................................................... $ 56 $80 $ 105 $177
Class B Shares
-- Assuming complete redemption at end of period......................... $ 69 $89 $ 122 $202
-- Assuming no redemption................................................ $ 19 $59 $ 102 $202
</TABLE>
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.)
The Fund's payment of a distribution fee may result in a long-term shareholder
indirectly paying more than the economic equivalent of the maximum front-end
sales charge permitted under the Rules of Fair Practice of the National
Association of Securities Dealers, Inc.
The management and 12b-1 fees referred to above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contract."
2
<PAGE> 3
THE FUND'S FINANCIAL HIGHLIGHTS
The information in the following table of financial highlights for each of the
periods ended March 31, 1994, and prior, has been audited by Ernst & Young LLP,
the Fund's independent auditors, whose unqualified report is included in the
Statement of Additional Information. The financial highlights for the six month
period ended September 30, 1994 are unaudited. Further information about the
performance of the Class A shares of the Fund is contained in the Fund's Annual
and Semi-Annual Reports to shareholders which may be obtained free of charge by
writing or telephoning John Hancock Investor Services Corporation ("Investor
Services"), at the address or telephone number listed on the front page of this
Prospectus. No information is presented for Class B shares since no Class B
shares were outstanding during the periods presented.
Selected data for Class A shares is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
1994(3) ------------------------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990 1989 1988
----------------- -------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share income and capital
changes for a share outstanding
during each period:
Net asset value, beginning of
period............................ $7.89 $8.41 $8.04 $8.03 $7.87 $8.17 $8.82 $9.52
INCOME FROM INVESTMENT OPERATIONS
Net investment income.............. 0.30 0.64 0.66 0.87 0.89 0.88 0.85 0.76
Net realized and unrealized gain
(loss) on securities.............. (0.38) (0.52) 0.40 (0.09) 0.14 (0.27) (0.51) (0.45)
--------- -------- -------- -------- -------- -------- ---------- ----------
Total from Investment Operations... (0.08) 0.12 1.06 0.78 1.03 0.61 0.34 0.31
LESS DISTRIBUTIONS
Dividends from net investment
income............................ (0.30) (0.64) (0.69) (0.77) (0.87) (0.88) (0.85) (0.76)
Distributions from realized
gains............................. -- -- -- -- -- -- (0.07) (0.25)
Returns of capital................. -- -- -- -- -- (0.03) (0.07) --
--------- -------- -------- -------- -------- -------- ---------- ----------
Total Distributions................ (0.30) (0.64) (0.69) (0.77) (0.87) (0.91) (0.99) (1.01)
--------- -------- -------- -------- -------- -------- ---------- ----------
Net asset value, end of period..... $7.51 $7.89 $8.41 $8.04 $8.03 $7.87 $8.17 $8.82
========= ======== ======== ======== ======== ======== ========== ==========
TOTAL RETURN*...................... (1.06)% 1.26% 13.68% 10.09% 13.87% 7.54% 4.02% 3.62%
========= ======== ======== ======== ======== ======== ========== ==========
RATIOS AND SUPPLEMENTAL DATA
Ratio of operating expenses to
average net assets................ 0.58% 1.14% 1.17% 1.21% 1.11% 1.09% 1.09% 1.07%
Ratio of interest expense to
average net assets................ 0.03% 0.02% 0.27% 0.32% -- -- -- --
--------- -------- -------- -------- -------- -------- ---------- ----------
Ratio of total expenses to average
net assets........................ 0.61% 1.16% 1.44% 1.53% 1.11% 1.09% 1.09% 1.07%
Ratio of expense reduction to
average net assets................ -- -- -- -- -- -- -- --
--------- -------- -------- -------- -------- -------- ---------- ----------
Ratio of net expenses to average
net assets........................ -- 1.16% 1.44% 1.53% 1.11% 1.09% 1.09% 1.07%
========= ======== ======== ======== ======== ======== ========== ==========
Ratio of net investment income to
average net assets................ 3.86% 7.60% 7.93% 10.63% 11.13% 10.58% 9.89% 8.43%
Portfolio turnover................. 203% 453% 322% 199% 117% 292% 164% 83%
Net Assets, end of period (in
thousands)........................ $ 544,230 $611,865 $718,426 $725,645 $771,826 $871,636 $1,140,455 $1,492,491
Debt outstanding at end of year (in
thousands)(2)..................... $15,666 $ 0 $0 $94,451 -- -- -- --
Average daily amount of debt
outstanding during the year (in
thousands)(2)..................... $10,214 $5,912 $54,774 $55,898 -- -- -- --
Average monthly number of shares
outstanding during the year (in
thousands)........................ 75,182 82,398 88,348 92,144 -- -- -- --
Average daily amount of debt
outstanding per share during the
year(2)........................... $0.14 $0.07 $0.62 $0.61 -- -- -- --
<CAPTION>
PERIOD ENDED
MARCH 31,
1987 1986 1985(1)
---------- ---------- --------------
<S> <C> <C> <C>
Per share income and capital
changes for a share outstanding
during each period:
Net asset value, beginning of
period............................ $10.11 $10.06 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income.............. 0.71 0.95 0.30
Net realized and unrealized gain
(loss) on securities.............. (0.15) 0.48 0.12
---------- --------- --------
Total from Investment Operations... 0.56 1.43 0.42
LESS DISTRIBUTIONS
Dividends from net investment
income............................ (0.71) (0.95) (0.30)
Distributions from realized
gains............................. (0.44) (0.43) (0.06)
Returns of capital................. -- -- --
---------- --------- --------
Total Distributions................ (1.15) (1.38) (0.36)
---------- --------- --------
Net asset value, end of period..... $9.52 $10.11 $10.06
========== ========= ========
TOTAL RETURN*...................... 5.82% 15.35% 4.07%
========== ========= ========
RATIOS AND SUPPLEMENTAL DATA
Ratio of operating expenses to
average net assets................ 1.03% 1.13% 0.33%
Ratio of interest expense to
average net assets................ -- -- --
---------- --------- --------
Ratio of total expenses to average
net assets........................ 1.03% 1.13% 0.33%
Ratio of expense reduction to
average net assets................ -- -- (0.32)%
---------- --------- --------
Ratio of net expenses to average
net assets........................ 1.03% 1.13% 0.01%
========== ========= ========
Ratio of net investment income to
average net assets................ 7.12% 8.57% 1.15%
Portfolio turnover................. 295% 1328% 62%
Net Assets, end of period (in
thousands)........................ $2,290,368 $1,641,364 $ 20,911
Debt outstanding at end of year (in
thousands)(2)..................... -- -- --
Average daily amount of debt
outstanding during the year (in
thousands)(2)..................... -- -- --
Average monthly number of shares
outstanding during the year (in
thousands)........................ -- -- --
Average daily amount of debt
outstanding per share during the
year(2)........................... -- -- --
<FN>
- ---------------
(1) Financial highlights are for the period from December 31, 1984 (the date of
commencement of the Fund's operations) to March 31, 1985 and have not been
annualized.
(2) Debt outstanding consists of reverse repurchase agreements entered into
during the year.
(3) Financial highlights, including total return, have not been annualized.
* Total return does not include the effect of the initial sales charge for
Class A Shares.
</TABLE>
3
<PAGE> 4
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek a high level of current income,
consistent with safety of principal. The Fund seeks to achieve its investment
objective by investing in debt obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government securities").
Because of the uncertainty inherent in all investments, no assurance can be
given that the Fund will achieve its investment objective. U.S. Government
Securities include the following:
- -------------------------------------------------------------------------------
THE FUND SEEKS TO PROVIDE A HIGH LEVEL OF
CURRENT INCOME CONSISTENT WITH SAFETY OF
PRINCIPAL.
- -------------------------------------------------------------------------------
1. U.S. Treasury obligations, which differ only in their interest rates,
maturities and times of issuance including U.S. Treasury bills (maturity of
one year or less), U.S. Treasury notes (maturities of one to ten years) and
U.S. Treasury bonds (generally maturities greater than ten years); and
2. Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities which are supported by: (i) the full faith and credit of
the U.S. Government (e.g., securities issued by the Government National
Mortgage Association ("GNMA")); (ii) the right of the issuer to borrow an
amount limited to a specific line of credit from the U.S. Government (e.g.,
securities of the Federal Home Loan Bank Board); or (iii) the credit of the
instrumentality (e.g., bonds issued by the Federal National Mortgage
Association).
While the Fund may invest in any of the foregoing obligations, a substantial
portion of the Fund's assets will be invested in Certificates of GNMA, which are
a type of mortgage-backed security. GNMA Certificates are loans that are issued
by lenders such as mortgage bankers, commercial banks and savings and loan
associations and are either insured by the Federal Housing Administration or
guaranteed by the Veterans Administration. A "pool" or group of such mortgages
is assembled and, after being approved by GNMA, is offered to investors through
securities dealers. Once approved by GNMA, the timely payment of interest and
principal on each mortgage is guaranteed by GNMA and backed by the full faith
and credit of the U.S. Government. GNMA Certificates differ from bonds in that
principal is paid back monthly by the borrower over the term of the loan rather
than returned in a lump sum at maturity. GNMA Certificates are called "pass
through" securities because both interest and principal payments (including
prepayments) are passed through to the holder of the Certificate. Upon receipt,
principal payments will be reinvested by the Fund in additional securities.
The Fund may invest in various types of mortgage-backed securities, such as
collateralized mortgage obligations ("CMOs"), real estate mortgage investment
conduits ("REMICs"), other multiclass pass through securities issued or
guaranteed by a U.S. Government agency and stripped mortgage-backed securities.
See "Investments, Techniques and Risk Factors" for a further description of the
types of mortgage-backed securities in which the Fund may invest and associated
risks.
The Fund may engage in a variety of investment techniques in an attempt to
protect against changes in the general level of interest rates. These techniques
include the purchase of put and call options on debt securities and the purchase
and sale of interest rates futures contracts and options on such futures.
Options
4
<PAGE> 5
and futures contracts derive their value from an underlying instrument or
index and accordingly are known as "derivatives" or "derivative contracts."
These derivative contracts, as well as other types of derivatives (such as
stripped mortgage-backed securities), involve substantial risk including higher
price volatility, liquidity risk and counterparty risk. These investment
techniques and various policies the Fund may employ in seeking to achieve its
investment objective, such as lending its portfolio securities, and committing
to purchase securities for which the normal settlement date for the transaction
occurs later than the normal settlement date for the U.S. Treasury obligations,
or securities subject to repurchase and reverse repurchase agreements, may
involve a greater degree of risk than those inherent in more conservative
investment approaches. As a non-fundamental investment policy, the Fund will at
all times invest at least 80% of its total assets in U.S. Government
securities. This will serve to limit the Fund's investments in privately issued
CMOs, REMICs and multiclass pass-through securities, put and call options,
futures and options on futures, and reverse repurchase agreements, in the
aggregate, to not more than 20% of its total assets. In addition, the Fund will
not invest more than 10% of its total assets in stripped mortgage-backed
securities. While the Fund is permitted to invest up to 100% of its net assets
in other derivative securities, it does not expect to invest substantially in
derivative securities. See "Investments, Techniques and Risk Factors" for a
discussion of these techniques and their associated risks.
The Fund's rate of return fluctuates, as does its net asset value per share.
These fluctuations depend largely on changes in the general level of interest
rates. An increase in interest rates will tend to reduce the market values of
securities in which the Fund invests and, therefore, the Fund's net asset value;
whereas a decline in interest rates will tend to increase their values. The Fund
will seek to reduce risks associated with changes in the interest rates through
its transactions in options and futures contracts. However, this technique will
not eliminate such risks and will result in transaction costs to the Fund.
The Fund has adopted certain investment restrictions which are enumerated in
detail in the Statement of Additional Information where they are classified as
fundamental or non-fundamental. The Fund's investment objective and fundamental
policies and restrictions may not be changed without the approval of the Fund's
shareholders. The Fund's non-fundamental policies and restrictions, however, may
be changed by a vote of the Trustees without shareholder approval.
Notwithstanding the Fund's fundamental investment restriction prohibiting
investments in other investment companies, the Fund may, pursuant to an order
granted by the SEC, invest in other investment companies in connection with a
deferred compensation plan for the non-interested Trustees of the John Hancock
funds. There can be no assurance that the Fund will achieve its investment
objective.
- -------------------------------------------------------------------------------
THE FUND FOLLOWS CERTAIN POLICIES WHICH
MAY HELP TO REDUCE INVESTMENT RISK.
- -------------------------------------------------------------------------------
The primary consideration in choosing brokerage firms to carry out the Fund's
transactions is execution at the most favorable prices, taking into account the
broker's professional ability and quality of service. Consideration may also be
given to the broker's sales of Fund shares. Pursuant to procedures determined by
the Trustees, the Fund's investment adviser, John Hancock Advisers, Inc. (the
"Adviser"), may place securities transactions with brokers affiliated with the
Adviser. The brokers include Tucker Anthony Incorporated, Sutro and Company,
Inc. and John Hancock Distributors, Inc., which are indirectly owned by the John
Hancock Mutual Life Insurance Company (the "Life Company"), which in turn
indirectly owns the Adviser.
- -------------------------------------------------------------------------------
BROKERS ARE CHOSEN ON BEST PRICE AND
EXECUTION.
- -------------------------------------------------------------------------------
5
<PAGE> 6
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a diversified series of the Trust, an open-end management investment
company organized as a Massachusetts business trust. The Trust has six series of
shares, one of which is the Fund. The Trust reserves the right to create and
issue a number of series of shares, or funds or classes thereof, which are
separately managed and have different investment objectives. The Trustees have
authorized the issuance of two classes of the Fund, designated Class A and Class
B. The shares of each class represent an interest in the same portfolio of
investments of the Fund. Each class has equal rights as to voting, redemption,
dividends and liquidation. However, each class bears different distribution and
transfer agent fees and other expenses. Also, Class A and Class B shareholders
have exclusive voting rights with respect to their distribution plans. The Trust
is not required to and does not intend to hold annual meetings of shareholders,
although special meetings may be held for such purposes as electing or removing
Trustees, changing fundamental policies or approving a management contract. The
Trust, under certain circumstances, will assist in shareholder communications
with other shareholders.
- -------------------------------------------------------------------------------
THE BOARD OF TRUSTEES ELECTS OFFICERS AND
RETAINS THE INVESTMENT ADVISER WHO IS
RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS
OF THE FUND, SUBJECT TO THE BOARD OF
TRUSTEES' POLICIES AND SUPERVISION.
- -------------------------------------------------------------------------------
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Fund,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds, Inc.
("John Hancock Funds") distributes shares for all of the John Hancock mutual
funds through brokers which have arrangements with John Hancock Funds ("Selling
Brokers"). Certain Trust officers are also officers of the Adviser and John
Hancock Funds.
- -------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES
INVESTMENT COMPANIES HAVING AN AGGREGATE
NET ASSET VALUE OF MORE THAN $13 BILLION.
- -------------------------------------------------------------------------------
All investment decisions are made by a committee and no single person is
primarily responsible for making recommendations to the committee.
In order to avoid any conflict with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities trading
by personnel of the Adviser and its affiliates. Some of these restrictions are:
preclearance for all personal trades and a ban on the purchase of initial public
offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
6
<PAGE> 7
ALTERNATIVE PURCHASE ARRANGEMENTS
You can purchase shares of the Fund at a price equal to their net asset value
per share plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge Alternative,"
Class A shares) or on a contingent deferred basis (the "Contingent Deferred
Sales Charge Alternative," Class B shares). If you do not specify on your
account application the class of shares you are purchasing, it will be assumed
that you are investing in Class A shares.
- -------------------------------------------------------------------------------
AN ALTERNATIVE PURCHASE PLAN ALLOWS YOU TO
CHOOSE THE METHOD OF PAYMENT THAT IS BEST
FOR YOU.
- -------------------------------------------------------------------------------
CLASS A SHARES. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount of your purchase is $1 million or more.
If you purchase $1 million or more of Class A shares, you will not be subject to
an initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Share Price -- Qualifying for a Reduced Sales Charge."
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS A SHARES ARE SUBJECT
TO AN INITIAL SALES CHARGE.
- -------------------------------------------------------------------------------
CLASS B SHARES. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
six years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class B shares. Investing in Class B shares permits all of
your dollars to work from the time you make your investment, but the higher
ongoing distribution fee will cause these shares to have higher expenses than
those of Class A shares. To the extent that any dividends are paid by the Fund,
these higher expenses will also result in lower dividends than those paid on
Class A shares.
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS B SHARES ARE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.
- -------------------------------------------------------------------------------
Class B shares are not available for full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares, given the amount of your purchase, the length of time you
expect to hold your shares and other circumstances. You should consider whether,
during the anticipated life of your Fund investment, the CDSC and accumulated
fees on Class B shares would be less than the initial sales charge and
accumulated fees on Class A shares purchased at the same time, and to what
extent this differential would be offset by the Class A shares' lower expenses.
To help you make this determination, the table under the caption "Expense
Information" on the inside cover page of this Prospectus shows examples of the
charges applicable to each class of shares. Class A shares will normally be more
beneficial if you qualify for reduced sales charges. See "Share
Price -- Qualifying for a Reduced Sales Charge."
- -------------------------------------------------------------------------------
YOU SHOULD CONSIDER WHICH CLASS OF SHARES
WOULD BE MORE BENEFICIAL TO YOU.
- -------------------------------------------------------------------------------
Class A shares are subject to lower distribution fees and, accordingly, pay
correspondingly higher dividends per share, to the extent any dividends are
paid.
7
<PAGE> 8
However, because initial sales charges are deducted at the time of purchase, you
would not have all of your funds invested initially and, therefore, would
initially own fewer shares. If you do not qualify for reduced initial sales
charges and expect to maintain your investment for an extended period of time,
you might consider purchasing Class A shares. This is because the accumulated
distribution and service charges on Class B shares may exceed the initial sales
charge and accumulated distribution and service charges on Class A shares during
the life of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you will
be subject to higher distribution and service fees and, for a six-year period, a
CDSC.
In the case of Class A shares, the distribution expenses that John Hancock Funds
incurs in connection with the sale of the shares will be paid from the proceeds
of the initial sales charge and ongoing distribution and service fees. In the
case of Class B shares, the expenses will be paid from the proceeds of the
ongoing distribution and service fees, as well as from the CDSC incurred upon
redemption within six years of purchase. The purpose and function of the Class B
shares' CDSC and ongoing distribution and service fees are the same as those of
the Class A shares' initial sales charge and ongoing distribution and service
fees. Sales personnel distributing the Fund's shares may receive different
compensation for selling each class of shares.
Dividends, if any, on Class A and Class B shares will be calculated in the same
manner, at the same time and on the same day. They also will be in the same
amount, except for differences resulting from each class bearing only its own
distribution and service fees, shareholder meeting expenses and any incremental
transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a monthly fee to
the Adviser which is based on a stated percentage of the Fund's average daily
net assets as follows:
<TABLE>
<CAPTION>
NET ASSET VALUE ANNUAL RATE
----------------- ------------
<S> <C>
First $200,000,000..................................................... 0.650%
Next $300,000,000...................................................... 0.625%
Amount over $500,000,000............................................... 0.600%
</TABLE>
During the Fund's fiscal year ended March 31, 1994, the advisory fee paid by the
Fund to the Fund's former investment adviser was equal to 0.62% of the Fund's
average daily net assets.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). Under these Plans, the Fund will pay distribution and service fees
at an aggregate annual rate of up to 0.25% of the Class A shares' average daily
net assets and an aggregate annual rate of 1.00% of the Class B shares' average
daily net assets. In each case, up to 0.25% for Class A and Class B shares is
for service expenses and the remaining amount is for distribution expenses. The
distribution fees will be used to reimburse John Hancock Funds for its
distribution expenses,
- -------------------------------------------------------------------------------
THE FUND PAYS DISTRIBUTION AND SERVICE
FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
- -------------------------------------------------------------------------------
8
<PAGE> 9
including but not limited to: (i) initial and ongoing sales compensation
to Selling Brokers and others (including affiliates of John Hancock Funds)
engaged in the sale of Fund shares; (ii) marketing, promotional and
overhead expenses incurred in connection with the distribution of Fund
shares; (iii) unreimbursed distribution expenses under the Fund's prior
distribution plans; (iv) distribution expenses incurred by other investment
companies which sell all or substantially all of their assets to, merge with or
otherwise engage in a reorganization transaction with the Fund; and (v) with
respect to Class B shares only, interest expenses on unreimbursed distribution
expenses. The service fees will be used to compensate Selling Brokers for
providing personal and account maintenance services to shareholders.
In the event John Hancock Funds is not fully reimbursed for payments it makes or
expenses it incurs under the Class A Plan, these expenses will not be carried
beyond one year from the date they were incurred. Unreimbursed expenses under
the Class B Plan will be carried forward together with interest on the balance
of these unreimbursed expenses. No Class B shares of the Fund were outstanding
during the fiscal year ended March 31, 1994.
Information on the Fund's total expenses appears in the Financial Highlights
section of this Prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund generally declares daily and distributes monthly dividends
representing all or substantially all of its net investment income. The Fund
will distribute net realized long-term and short-term capital gains, if any, at
least annually.
- -------------------------------------------------------------------------------
THE FUND GENERALLY DECLARES DIVIDENDS
DAILY AND DISTRIBUTES THEM MONTHLY.
- -------------------------------------------------------------------------------
Dividends are reinvested in additional shares of your class unless you elect the
option to receive them in cash. If you elect the cash option and the U.S. Postal
Service cannot deliver your checks, your election will be converted to the
reinvestment option. Because of the higher expenses associated with Class B
shares, any dividends on these shares will be lower than those on the Class A
shares. See "Share Price."
TAXATION. Dividends from the Fund's net investment income and net short-term
capital gains are taxable to you as ordinary income and dividends from the
Fund's net long-term capital gains are taxable as long-term capital gains. These
dividends are taxable whether you take them in cash or reinvest in additional
shares. Certain dividends may be paid in January of a given year but may be
taxable as if you received them the previous December.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, the Fund will not be
subject to Federal income tax on any net investment income or net realized
capital gains that are distributed to its shareholders within the time period
prescribed by the Code. When you redeem (sell) or exchange shares, you may
realize a taxable gain or loss.
9
<PAGE> 10
On the account application, you must certify that the social security or other
taxpayer identification number you provide is your correct number and that you
are not subject to backup withholding of Federal income tax. If you do not
provide this information or are otherwise subject to this withholding, the Fund
may be required to withhold 31% of your dividends and the proceeds of
redemptions or exchanges.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes with respect to your investment in and distributions from the Fund.
Non-U.S. shareholders and tax-exempt shareholders are subject to different tax
treatment not described above. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent the
Fund's distributions are derived from interest on (or, in the case of
intangibles taxes, the value of its assets is attributable to) certain U.S.
Government obligations, provided in some states that certain thresholds for
holdings of such obligations and/or reporting requirements are satisfied. You
should consult your tax adviser for specific tax advice.
PERFORMANCE
Yield reflects the Fund's rate of income on portfolio investments as a
percentage of its share price. Yield is computed by annualizing the result of
dividing the net investment income per share over a 30 day period by the maximum
offering price per share on the last day of that period. Yield is also
calculated according to accounting methods that are standardized for all stock
and bond funds. Because yield accounting methods differ from the methods used
for other accounting purposes, the Fund's yield may not equal the income paid on
shares or the income reported in the Fund's financial statements.
- -------------------------------------------------------------------------------
THE FUND MAY ADVERTISE ITS YIELD AND TOTAL
RETURN.
- -------------------------------------------------------------------------------
The Fund's total return shows the overall dollar or percentage change in value
of a hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period of
time. Average annual total return shows the cumulative return divided over the
number of years included in the period. Because average annual total return
tends to smooth out variations in the Fund's performance, you should recognize
that it is not the same as actual year-to-year results.
Both total return and yield calculations for Class A shares generally include
the effect of paying the maximum sales charge (except as shown in "The Fund's
Financial Highlights"). Investments at a lower sales charge would result in
higher performance figures. Total return and yield calculations for Class B
shares reflect the deduction of the applicable CDSC imposed on a redemption of
shares held for the applicable period. All calculations assume that all
dividends are reinvested at net asset value on the reinvestment dates during the
periods. Total return and yield of Class A and Class B shares will be calculated
separately and, because each class is subject to different expenses, the total
return and yield may differ with respect to each class for the same period. The
relative performance of the Class A and Class B shares will be affected by a
variety of factors, including the higher operating expenses attributable to the
Class B shares, whether the Fund's investment performance is better in the
earlier or later portions of the period measured and the level of net assets of
the classes during the period. The Fund
10
<PAGE> 11
will include the total return of Class A and Class B shares in any advertisement
or promotional materials including Fund performance data. The value of Fund
shares, when redeemed, may be more or less than their original cost. Both yield
and total return are historical calculations and are not an indication of future
performance. See "Factors to Consider in Choosing an Alternative."
<TABLE>
HOW TO BUY SHARES
- ------------------------------------------------------------------------------------------
<S> <C> <C>
The minimum initial investment in Class A and Class B shares is $1,000 ($250 for
group investments and retirement plans). Complete the Account Application attached
to this Prospectus. Indicate whether you are purchasing Class A or Class B shares.
If you do not specify which class of shares you are purchasing, Investor Services
will assume that you are investing in Class A shares.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
BY CHECK 1. Make your check payable to John Hancock Investor Services
Corporation ("Investor Services"), P.O. Box 9115, Boston, MA
02205-9115.
2. Deliver the completed application and check to your registered
representative or Selling Broker or mail it directly to
Investor Services.
- ------------------------------------------------------------------------------------------
BY WIRE 1. Obtain an account number by contacting your registered
representative or Selling Broker, or by calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Government Securities Trust
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative or Selling Broker or mail it directly to
Investor Services.
- ------------------------------------------------------------------------------------------
MONTHLY 1. Complete the "Automatic Investing" and "Bank Information"
AUTOMATIC sections on the Account Privileges Application designating a
ACCUMULATION bank account from which funds may be drawn.
PROGRAM
(MAAP) 2. The amount you elect to invest will be automatically withdrawn
from your bank or credit union account.
- ------------------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B
SHARES
- ------------------------------------------------------------------------------------------
BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information" sections
on the Account Privileges Application designating a bank
account from which your funds may be drawn. Note that in order
to invest by phone, your account must be in a bank or credit
union that is a member of the Automated Clearing House system
(ACH).
2. After your authorization form has been processed, you may
purchase additional Class A or Class B shares by calling
Investor Services toll-free 1-800-225-5291.
3. Give the Investor Services representative the name(s) in which
your account is registered, the Fund name, the class of shares
you own, your account number, and the amount you wish to
invest.
4. Your investment normally will be credited to your account the
business day following your phone request.
- ------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
<TABLE>
- ------------------------------------------------------------------------------------------
<S> <C> <C>
BY CHECK 1. Either complete the detachable stub included on your account
statement or include a note with your investment listing the
name of the Fund, the class of share you own, your account
number and the name(s) in which the account is registered.
- ------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B SHARES (CONTINUED)
- -------------------------------------------------------------------------------
2. Make your check payable to John Hancock Investor Services
Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling
Broker.
- ------------------------------------------------------------------------------------------
BY WIRE Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Government Securities Trust
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
- ------------------------------------------------------------------------------------------
Other Requirements: All purchases must be made in U.S. dollars. Checks written on
foreign banks will delay purchases until U.S. funds are received, and a collection
charge may be imposed. Shares of the Fund are priced at the offering price based
on the net asset value computed after Investor Services receives notification of
the dollar equivalent from the Fund's custodian bank. Wire purchases normally take
two or more hours to complete and, to be accepted the same day, must be received
by 4:00 P.M., New York time. Your bank may charge a fee to wire funds. Telephone
transactions are recorded to verify information. Certificates are not issued
unless a request is made in writing to Investor Services.
- ------------------------------------------------------------------------------------------
</TABLE>
You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
- -------------------------------------------------------------------------------
YOU WILL RECEIVE ACCOUNT STATEMENTS THAT
YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL
RECORDKEEPING.
- -------------------------------------------------------------------------------
SHARE PRICE
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of outstanding
shares of that class. The NAV of each class can differ. Securities in the Fund's
portfolio are valued on the basis of market quotations, valuations provided by
independent pricing services or at fair value as determined in good faith
according to procedures approved by the Trustees. Short-term debt investments
maturing within 60 days are valued at amortized cost, which the Trustees have
determined approximates market value. The NAV is calculated once daily as of the
close of regular trading on the New York Stock Exchange (generally at 4:00 p.m.,
New York time) on each day that the Exchange is open.
- -------------------------------------------------------------------------------
THE OFFERING PRICE OF YOUR SHARES IS THEIR
NET ASSET VALUE PLUS A SALES CHARGE, IF
APPLICABLE, WHICH WILL VARY WITH THE
PURCHASE ALTERNATIVE YOU CHOOSE.
- -------------------------------------------------------------------------------
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock Funds.
If you buy shares of the Fund through a Selling Broker, the Selling Broker must
receive your investment before the close of regular trading on the New York
Stock
12
<PAGE> 13
Exchange and transmit it to John Hancock Funds before its close of business to
receive that day's offering price.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The offering price you pay
for Class A shares of the Fund equals the NAV plus a sales charge as follows:
<TABLE>
<CAPTION>
COMBINED
SALES CHARGE AS REALLOWANCE REALLOWANCE TO
SALES CHARGE AS A PERCENTAGE OF AND SERVICE FEE AS SELLING BROKERS AS
AMOUNT INVESTED A PERCENTAGE OF THE AMOUNT A PERCENTAGE OF A PERCENTAGE OF
(INCLUDING SALES OFFERING PRICE INVESTED OFFERING PRICE(+) THE OFFERING PRICE(*)
CHARGE)
--------------- ---------------- --------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Less than $100,000...... 4.50% 4.71% 4.00% 3.76%
$100,000 to $249,999.... 3.75% 3.90% 3.25% 3.01%
$250,000 to $499,999.... 2.75% 2.83% 2.30% 2.06%
$500,000 to $999,999.... 2.00% 2.04% 1.75% 1.51%
$1,000,000 and over..... 0.00%(**) 0.00%(**) (***) 0.00%(***)
<FN>
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales
charge. In addition to the reallowance allowed to all Selling Brokers,
John Hancock Funds will pay the following: round trip airfare to a resort
will be offered to each registered representative of a Selling Broker (if
the Selling Broker has agreed to participate) who sells certain amounts of
shares of John Hancock Funds. John Hancock Funds will make these incentive
payments out of its own resources. A Selling Broker to whom substantially
the entire sales charge is reallowed or who receives these incentives may
be deemed to be an underwriter under the Securities Act of 1933. Other
than distribution and service fees, the Fund does not bear distribution
expenses.
(**) No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions within one year of purchase.
(***) John Hancock Funds may pay a commission and the first year's service fee
(as described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of Class A shares of $1 million or more in
aggregate as follows: 1% on sales to $4,999,999, 0.50% on the next $5
million and 0.25% on $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance in an amount equal to 0.25% of the net
assets invested in the Fund at the time of the sale. Thereafter, it pays
the service fee periodically in arrears in an amount up to 0.25% of the
Fund's average annual net assets. Selling Brokers receive the fee as
compensation for providing personal and account maintenance services to
shareholders.
</TABLE>
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional
Class A shares of the Fund.
In addition, John Hancock Funds will pay certain affiliated Selling Brokers at
an annual rate of up to 0.05% of the daily net assets of accounts attributable
to these brokers.
13
<PAGE> 14
Under certain circumstances described below, investors in Class A shares may be
entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales
Charge."
CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS A
SHARES. Purchases of $1 million or more of Class A shares will be made at net
asset value with no initial sales charge, but if the shares are redeemed within
12 months after the end of the calendar month in which the purchase was made
(the CDSC period), a CDSC will be imposed. The rate of the CDSC will depend on
the amount invested as follows:
<TABLE>
<CAPTION>
AMOUNT INVESTED CDSC RATE
--------------- ----------
<S> <C>
$1 million to $4,999,999................................................ 1.00%
Next $5 million to $9,999,999........................................... 0.50%
Amounts of $10 million and over......................................... 0.25%
</TABLE>
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of the
Fund account may purchase Class A shares with no initial sales charge. However,
if the shares are redeemed within 12 months after the end of the calendar year
in which the purchase was made, a CDSC will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the redeemed Class A shares. Accordingly,
no CDSC will be imposed on increases in account value above the initial purchase
price, including any distributions which have been reinvested in additional
shares.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
Therefore, it will be assumed that the redemption is first made from any shares
in your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver of Contingent Deferred Sales
Charges" below.
QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $100,000 in
Class A shares of the Fund or a combination of funds within the John Hancock
family of funds (except money market funds), you may qualify for a reduced sales
charge on your investments in Class A shares through a LETTER OF INTENTION. You
may also be able to use the ACCUMULATION PRIVILEGE and the COMBINATION PRIVILEGE
to take advantage of the value of your previous investments in Class A shares of
the John Hancock funds in meeting the breakpoints for a reduced sales charge.
For the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE, the applicable sales
charge will be based on the total of:
- -------------------------------------------------------------------------------
YOU MAY QUALIFY FOR A REDUCED SALES CHARGE
ON YOUR INVESTMENT IN CLASS A SHARES.
- -------------------------------------------------------------------------------
1. Your current purchase of Class A shares of the Fund.
2. The net asset value (at the close of business on the previous day) of (a) all
Class A shares of the Fund you hold, and (b) all Class A shares of any other
John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
14
<PAGE> 15
EXAMPLE:
If you hold Class A shares of a John Hancock fund with a net asset value of
$20,000 and, subsequently, invest $80,000 in Class A shares of the Fund, the
sales charge on this subsequent investment would be 3.75% and not 4.50%, (the
rate that would otherwise be applicable to investments of less than $100,000.
See "Initial Sales Charge Alternative -- Class A Shares.")
If you are in one of the following categories, you may purchase Class A shares
of the Fund without paying a sales charge:
- - A Trustee or officer of the Fund; a Director or officer of the Adviser and its
affiliates or Selling Brokers; employees or sales representatives of any of
the foregoing; retired officers, employees or Directors of any of the
foregoing; a member of the immediate family of any of the foregoing; or any
fund, pension, profit sharing or other benefit plan for the individuals
described above.
- -------------------------------------------------------------------------------
CLASS A SHARES MAY BE AVAILABLE WITHOUT A
SALES CHARGE TO CERTAIN INDIVIDUALS AND
ORGANIZATIONS.
- -------------------------------------------------------------------------------
- - Any state, county, city or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any registered
investment management company.*
- - A bank, trust company, credit union, savings institution or other type of
depository institution, its trust departments or common trust funds if it is
purchasing $1 million or more for non-discretionary customers or accounts.*
- - A broker, dealer or registered investment adviser that has entered into an
agreement with John Hancock Funds providing specifically for the use of Fund
shares in fee-based investment products made available to its clients.
- - A former participant in an employee benefit plan with John Hancock Funds, when
he/she withdraws from his/her plan and transfers any or all of his/her plan
distributions directly to the Fund.
- ------------------
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Fund may be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares
are offered at net asset value per share without a sales charge so that your
entire initial investment will go to work at the time of purchase. However,
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the rates set forth below. This charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
shares being redeemed. Accordingly, you will not be assessed a CDSC on increases
in account value above the initial purchase price, including shares derived from
dividend reinvestment.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will
15
<PAGE> 16
be assumed that your redemption comes first from shares you have held beyond the
six-year CDSC redemption period or those you acquired through reinvestment of
dividends, and next from the shares you have held the longest during the
six-year period. The CDSC is waived on redemptions in certain circumstances. See
the discussion "Waiver of Contingent Deferred Sales Charges" below.
EXAMPLE:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time, your CDSC will be calculated as follows:
<TABLE>
<S> <C>
- - Proceeds of 50 shares redeemed at $12 per share........................ $ 600
- - Minus proceeds of 10 shares not subject to CDSC because they were
acquired through dividend reinvestment (10 X $12)...................... -120
- - Minus appreciation on remaining shares, also not subject to CDSC (40 X
$2).................................................................... - 80
------
+ Amount subject to CDSC................................................. $ 400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses
part of them to defray its expenses related to providing the Fund with
distribution services connected to the sale of Class B shares, such as
compensating Selling Brokers for selling these shares. The combination of the
CDSC and the distribution and service fees makes it possible for the Fund to
sell Class B shares without deducting a sales charge at the time of the
purchase.
The amount of the CDSC, if any, will vary depending on the number of years from
the time you purchase your Class B shares until the time you redeem them. Solely
for the purposes of determining this holding period, any payments you make
during the month will be aggregated and deemed to have been made on the last day
of the month.
<TABLE>
<CAPTION>
YEAR IN WHICH
CLASS B SHARES CONTINGENT DEFERRED SALES
REDEEMED FOLLOWING CHARGE AS A PERCENTAGE OF
PURCHASE DOLLAR AMOUNT SUBJECT TO CDSC
------------------ ------------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision of
personal and account maintenance services to shareholders during the twelve
months following the sale, and thereafter the service fee is paid in arrears.
16
<PAGE> 17
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in these circumstances:
- - Redemptions of Class B shares made under a Systematic Withdrawal Plan (see
"How to Redeem Shares"), as long as your annual redemptions do not exceed 10%
of your account value at the time you establish your Systematic Withdrawal
Plan and 10% of the value of your subsequent investments (less redemptions) in
that account at the time you notify Investor Services. This waiver does not
apply to Systematic Withdrawal Plan redemptions of Class A shares that are
subject to a CDSC.
- -------------------------------------------------------------------------------
UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON
CLASS B AND CERTAIN CLASS A SHARE
REDEMPTIONS WILL BE WAIVED.
- -------------------------------------------------------------------------------
- - Redemptions made to effect distributions from an Individual Retirement Account
either before or after age 59 1/2, as long as the distributions are based on
the life expectancy or the joint-and-last survivor life expectancy of you and
your beneficiary. These distributions must be free from penalty under the
Code.
- - Redemptions made to effect mandatory distributions under the Code after age
70 1/2 from a tax-deferred retirement plan.
- - Redemptions made to effect distributions to participants or beneficiaries from
certain employer-sponsored retirement plans including those qualified under
Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the
Code and deferred compensation plans under Section 457 of the Code. The waiver
also applies to certain returns of excess contributions made to these plans.
In all cases, the distributions must be free from penalty under the Code.
- - Redemptions due to death or disability.
- - Redemptions made under the Reinvestment Privilege, as described in "Additional
Services and Programs" of this Prospectus.
- - Redemptions made pursuant to the Fund's right to liquidate your account if you
have less than $100 invested in the Fund.
- - Redemptions made in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
- - Redemptions from certain IRA and retirement plans that purchased shares prior
to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services either directly or through your Selling Broker at the time you
make your redemption. The waiver will be granted once Investor Services has
confirmed that you are entitled to the waiver.
CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of
reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following eight years
after the shares were purchased and will result in lower annual distribution
fees.
17
<PAGE> 18
If you exchanged Class B shares into the Fund from another John Hancock fund,
the calculation will be based on the time you purchased the shares in the
original fund. The Fund has been advised that the conversion of Class B shares
to Class A shares should not be taxable for Federal income tax purposes and
should not change a shareholder's tax basis or tax holding period for the
converted shares.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services, less any applicable CDSC. The Fund
may hold payment until it is reasonably satisfied that investments recently made
by check or Invest-by-Phone have been collected (which may take up to 10
calendar days).
- -------------------------------------------------------------------------------
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION
REQUEST, PLEASE FOLLOW THESE PROCEDURES.
- -------------------------------------------------------------------------------
Once your shares are redeemed, the Fund generally sends you payment on the next
business day. When you redeem your shares, you may realize a taxable gain or
loss depending usually on the difference between what you paid for them and what
you receive for them, subject to certain tax rules. Under unusual circumstances,
the Fund may suspend redemptions or postpone payment for up to seven days or
longer, as permitted by Federal securities laws.
<TABLE>
- ------------------------------------------------------------------------------------------
<S> <C>
BY CHECK You may elect the checkwriting privilege which allows you
to write checks in amounts from a minimum of $100. Checks
may not be written against shares in your account which
have been purchased within the last 10 days, except for
shares purchased by wire transfer (which are immediately
available).
- ------------------------------------------------------------------------------------------
BY TELEPHONE All Fund shareholders are automatically eligible for the
telephone redemption privilege. Call 1-800-225-5291, from
8:00 A.M. to 4:00 P.M. (New York time), Monday through
Friday, excluding days on which the Exchange is closed.
Investor Services employs the following procedures to
confirm that instructions received by telephone are
genuine. Your name, the account number, taxpayer
identification number applicable to the account and other
relevant information may be requested. In addition,
telephone instructions are recorded.
You may redeem up to $100,000 by telephone, but the address
on the account must not have changed for the last thirty
days. A check will be mailed to the exact name(s) and
address shown on the account.
If reasonable procedures, such as those described above,
are not followed, the Fund may be liable for any loss due
to unauthorized or fraudulent telephone instructions. In
all other cases, neither the Fund nor Investor Services
will be liable for any loss or expense for acting upon
telephone instructions made in accordance with the
telephone transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or shares of the Fund that
are in certificated form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement
due to a large volume of calls. During these times, you
should consider placing redemption requests in writing or
use EASI-Line. EASI-Line's telephone number is
1-800-338-8080.
- ------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
<TABLE>
- -------------------------------------------------------------------------------------------
<S> <C>
BY WIRE If you have a telephone redemption form on file with the
Fund, redemption proceeds of $1,000 or more can be wired on
the next business day to your designated bank account, and
a fee (currently $4.00) will be deducted. You may also use
electronic funds transfer to your assigned bank account,
and the funds are usually collectible after two business
days. Your bank may or may not charge a fee for this
service. Redemptions of less than $1,000 will be sent by
check or electronic funds transfer.
This feature may be elected by completing the "Telephone
Redemption" section on the Account Privileges Application
included with this Prospectus.
- -------------------------------------------------------------------------------------------
IN WRITING Send a stock power or "letter of instruction" specifying
the name of the Fund, the dollar amount or the number of
shares to be redeemed, your name, class of shares, your
account number and the additional requirements listed below
that apply to your particular account.
- -------------------------------------------------------------------------------------------
TYPE OF REGISTRATION REQUIREMENTS
--------------------------------- --------------------------------------------
Individual, Joint Tenants, Sole A letter of instruction signed (with titles
Proprietorship, Custodial where applicable) by all persons authorized
(Uniform Gifts or Transfer to to sign for the account, exactly as it is
Minors Act), General Partners registered with the signature(s) guaran-
teed.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s) authorized
to act on the account with the signature(s)
guaranteed.
Trusts A letter of instruction signed by the
Trustee(s) with the signature(s) guaranteed.
(If the Trustee's name is not registered on
your account, also provide a copy of the
trust document, certified within the last 60
days.)
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
- -------------------------------------------------------------------------------------------
A signature guarantee is a widely accepted way to protect you and the Fund by
verifying the signature on your request. It may not be provided by a notary
public. If the net asset value of the shares redeemed is $100,000 or less, John
Hancock Funds may guarantee the signature. The following institutions may
provide you with a signature guarantee, provided that the institution meets
credit standards established by Investor Services: (i) a bank; (ii) a securities
broker or dealer, including a government or municipal securities broker or
dealer, that is a member of a clearing corporation or meets certain net capital
requirements; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association; or (v) a
national securities exchange, a registered securities exchange or a clearing
agency.
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR SIGNATURE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption.
Contact your broker for instructions.
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
If you have certificates for your shares, you must submit them with your stock
power or a letter of instructions. Unless you specify to the contrary, any
outstanding Class A shares will be redeemed before Class B shares. You may not
redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining small accounts, the Fund
reserves the right to redeem at net asset value all shares in an account which
holds less than $100 (except accounts under retirement plans) and to mail the
proceeds to the shareholder, or the transfer agent may impose an annual fee of
$10.00. No account will be involuntarily redeemed or additional fee imposed, if
the value of the account is in excess of the Fund's minimum initial investment
or if the value of the account falls below the required minimum as a result of
market action. No CDSC will be imposed on involuntary redemptions of shares.
Shareholders will be notified before these redemptions are to be made or this
fee is imposed and will have 30 days to purchase additional shares to bring
their account balance up to the required minimum. Unless the number of shares
acquired by further purchases and dividend reinvestments, if any, exceeds the
number of shares redeemed, repeated redemptions from a smaller account may
eventually trigger this policy.
- -------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of investment
goals. Contact your registered representative or Selling Broker and request a
prospectus for the John Hancock funds that interest you. Read the prospectus
carefully before exchanging your shares. You can exchange shares of each class
of the Fund only for shares of the same class of another John Hancock fund. For
this purpose, John Hancock funds with only one class of shares will be treated
as Class A, whether or not they have been so designated.
- -------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES OF THE FUND ONLY
FOR SHARES OF THE SAME CLASS OF ANOTHER
JOHN HANCOCK FUND.
- -------------------------------------------------------------------------------
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Class B shares of the Fund that are subject to a CDSC may be exchanged
into Class B shares of another John Hancock fund without incurring the CDSC;
however, these shares will be subject to the CDSC schedule of the shares
acquired (except that exchanges into John Hancock Short-Term Strategic Income
Fund, John Hancock Limited-Term Government Fund and John Hancock Adjustable U.S.
Government Trust will be subject to the initial fund's CDSC). For purposes of
computing the CDSC payable upon redemption of shares acquired in an exchange,
the holding period of the original shares is added to the holding period of the
shares acquired in an exchange.
However, if you exchange Class B shares purchased prior to January 1, 1994 for
Class B shares of any other John Hancock fund, you will be subject to the CDSC
schedule in effect on your initial purchase date.
You may exchange Class B shares of the Fund into shares of a John Hancock money
market fund net asset value. However, you will continue to be subject to the
same CDSC upon redemption.
The Fund reserves the right to require you to keep previously exchanged shares
(and reinvested dividends) in the Fund for 90 days before you are permitted to
execute a new exchange. The Fund may also terminate or alter the terms of the
exchange privilege, upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares in another for Federal income tax purposes. An exchange may
result in a taxable gain or loss.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers and
investment advisers may exchange their clients' Fund shares, subject to the
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and other
20
<PAGE> 21
restrictions that do not apply to exchanges requested by shareholders directly,
as described above.
Because Fund performance and shareholders can be hurt by excessive trading, the
Fund reserves the right to terminate the exchange privilege for any person or
group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely. The
Fund may also temporarily or permanently terminate the exchange privilege for
any person who makes seven or more exchanges out of the Fund per calendar year.
Accounts under common control or ownership will be aggregated for this purpose.
Although the Fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time.
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable to
the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
IN WRITING
1. In a letter, request an exchange and list the following:
-- the name and class of the Fund whose shares you currently own
-- your account number
-- the name(s) in which the account is registered
-- the name of the fund in which you wish your exchange to be invested
-- the number of shares, all shares or dollar amount you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
21
<PAGE> 22
REINVESTMENT PRIVILEGE
1. You will not be subject to a sales charge on Class A shares reinvested in
shares of any John Hancock fund that is otherwise subject to a sales charge
as long as you reinvest within 120 days from the redemption date. If you paid
a CDSC upon a redemption, you may reinvest at net asset value in the same
class of shares from which you redeemed within 120 days. Your account will be
credited with the amount of the CDSC previously charged, and the reinvested
shares will continue to be subject to a CDSC. For purposes of computing the
CDSC payable upon a subsequent redemption, the holding period of the shares
acquired through reinvestment will include the holding period of the redeemed
shares.
- -------------------------------------------------------------------------------
IF YOU REDEEM SHARES OF THE FUND, YOU MAY
BE ABLE TO REINVEST ALL OR PART OF THE
PROCEEDS IN THE FUND OR ANOTHER JOHN
HANCOCK FUND WITHOUT PAYING AN ADDITIONAL
SALES CHARGE.
- -------------------------------------------------------------------------------
2. Any portion of your redemption may be reinvested in Fund shares or in shares
of any of the other John Hancock funds, subject to the minimum investment
limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the Fund's
name, the account number and class from which your shares were originally
redeemed.
SYSTEMATIC WITHDRAWAL PLAN
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You can
also obtain this application by calling your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
- -------------------------------------------------------------------------------
YOU CAN PAY ROUTINE BILLS FROM YOUR
ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF
FUNDS FROM YOUR RETIREMENT ACCOUNT TO
COMPLY WITH IRS REGULATIONS.
- -------------------------------------------------------------------------------
3. Payments from your account can be made monthly, quarterly, semi-annually or
annually or on a selected monthly basis to yourself or any other designated
payee.
4. There is no limit on the number of payees you may authorize, but all payments
must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently
with purchases of additional Class A or Class B shares, because you may be
subject to initial sales charges on your purchases of Class A shares or to a
CDSC on your redemptions of Class B shares. In addition, your redemptions are
taxable events.
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks or if deposits to a bank account are returned for any reason.
22
<PAGE> 23
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
1. You can authorize an investment to be automatically withdrawn each month from
your bank for investment in Fund shares under the "Automatic Investing" and
"Bank Information" sections of the Account Privileges Application.
- -------------------------------------------------------------------------------
YOU CAN MAKE AUTOMATIC INVESTMENTS AND
SIMPLIFY YOUR INVESTING.
- -------------------------------------------------------------------------------
2. You can also authorize automatic investment through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program plan at any
time.
4. There is no charge to you for this program, and there is no cost to the Fund.
5. If you have payments being withdrawn from a bank account and we are notified
that the account has been closed, your withdrawals will be discontinued.
GROUP INVESTMENT PROGRAM
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate dollar
amount of all participants' investments. To determine how to qualify for this
program, contact your registered representative or call 1-800-225-5291.
- -------------------------------------------------------------------------------
ORGANIZED GROUPS OF AT LEAST FOUR PERSONS
MAY ESTABLISH ACCOUNTS.
- -------------------------------------------------------------------------------
2. The initial aggregate investment of all participants in the group must be at
least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at any
time.
RETIREMENT PLANS
1. You may use the Fund as a funding medium for various types of qualified
retirement plans, including Individual Retirement Accounts, Keough Plans
(H.R. 10), Pension and Profit Sharing Plans (including 401(k) Plans), Tax
Sheltered Annuity Retirement Plans (403(b) Plans) and 457 Plans.
2. The initial investment minimum or aggregate minimum for any of the above
plans is $250. However, accounts being established as group IRA, SEP, SARSEP,
TSA, 401(k) and 457 Plans will be accepted without an initial minimum
investment.
INVESTMENTS, TECHNIQUES AND RISK FACTORS
Unless otherwise specified, each of the Fund's investment practices described in
this section is a non-fundamental policy and may be changed by the Trustees
without shareholder approval.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its total
assets in illiquid investments, which include repurchase agreements maturing in
more than seven days, certain over-the-counter options, certain stripped mort-
23
<PAGE> 24
gage-backed securities, certain restricted securities and securities that are
not readily marketable. The Fund may also invest up to 10% of its total assets
in restricted securities, including restricted securities eligible for resale to
certain institutional investors pursuant to Rule 144A under the Securities Act
of 1933. The Fund's limitations regarding restricted and illiquid securities are
fundamental policies.
SHORT-TERM TRADING AND PORTFOLIO TURNOVER. Short-term trading means the
purchase and subsequent sale of a security after it has been held for a
relatively brief period of time. Short-term trading may have the effect of
increasing portfolio turnover rate. Short-term trading of fixed-income
securities should not increase direct transaction costs since fixed-income
securities are normally traded on a principal basis without commissions. The
Fund may engage in short-term trading in response to changes in interest rates
or other economic trends and developments, or to take advantage of yield
disparities between various securities in which the Fund may invest in order to
improve income. Short-term trading may increase portfolio turnover. A rate of
turnover of 100% would occur if the value of the lesser of purchases and sales
of portfolio securities for a particular year equaled the average monthly value
of portfolio securities owned during the year (excluding short-term securities).
A high rate of portfolio turnover (100% or more) may, under certain
circumstances, make it more difficult for the Fund to qualify as a regulated
investment company under the Code. The Fund's portfolio turnover rate is set
forth in the table under "Financial Highlights."
OPTIONS AND FUTURES TRANSACTIONS. The Fund may buy options contracts on debt
securities and buy and sell financial futures contracts and options on futures
contracts. Options and futures contracts are bought and sold to manage the
Fund's exposure to changing interest rates and security prices. Some options and
futures strategies, including selling futures and buying puts, tend to hedge the
Fund's investment against price fluctuations. Buying futures and calls tends to
increase market exposure. However, as a fundamental policy, the Fund may buy and
sell futures contracts and related options only for hedging purposes. In
addition, as a non-fundamental policy, the Fund will not invest in put and call
options if, as a result, the amount of premiums paid for such options then
outstanding would exceed 10% of the Fund's total assets. Options and futures may
be combined with each other or with forward contracts in order to adjust the
risk and return characteristics of the overall strategy. The Fund may invest in
options on debt securities and futures based on securities or indices, including
options and futures traded on an exchange or board of trade and options not
traded on exchanges.
Options and futures can be volatile investments and involve certain risks. If
the Adviser applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures strategies may lower the Fund's return. The
Fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments or if it could not
close out its positions because of an illiquid secondary market. Options and
futures do not pay interest but may produce capital gains or losses.
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The Fund is authorized to, but presently does not intend to, engage in certain
investment techniques involving the sale of covered call and secured put options
for the purpose of generating additional income. (See the Statement of
Additional Information for a discussion of these techniques.) In addition, the
Fund will not engage in such transactions without first having given
shareholders written notice at least 60 days in advance thereof.
The Fund will not engage in a transaction in futures or options on futures if,
immediately thereafter, the sum of initial margin deposits and premiums required
to establish positions in futures contracts and options on futures would exceed
5% of the Fund's net assets. The loss incurred by the Fund investing in futures
contracts and writing options on futures is potentially unlimited. The Fund's
transactions in options and futures contracts may be limited by the requirements
of the Code for qualification as a regulated investment company. See "Derivative
Investments" below and the Statement of Additional Information for a further
discussion of options and futures transactions, including tax effects and
investment risks.
LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing
additional income, the Fund may lend to broker-dealers portfolio securities
amounting to not more than 33 1/3% of its total assets taken at current value.
The Fund may also enter into repurchase agreements. In a repurchase agreement,
the Fund buys a security subject to the right and obligation to sell it back to
the issuer at the same price plus accrued interest. Repurchase agreements
maturing in more than seven (7) days will be subject to the Fund's restriction
regarding illiquid securities.
These transactions must be fully collateralized at all times. The Fund may
reinvest any cash collateral in short-term liquid debt securities. However,
these transactions may involve some credit risk to the Fund if the other party
should default on its obligation and the Fund is delayed in or prevented from
recovering the collateral. Securities loaned by the Fund will remain subject to
fluctuations of market value.
SECURITIES TRANSACTIONS SUBJECT TO DELAYED SETTLEMENT. The Fund may from time
to time commit to purchase securities for which the normal settlement date
occurs later than the settlement date which is normal for U.S. Treasury
obligations. The payment and interest rate received on such securities are fixed
at the time the buyer enters into the commitment. Although the Fund will enter
into commitments to purchase such securities only with the intention of actually
acquiring the securities, the Fund may sell these securities before the
settlement date. Securities purchased on a when-issued basis can involve a risk
that the yields available in the market when delivery takes place may be higher
than those obtained in the transaction itself. There are no limitations on the
percentage of the Fund's assets which may be invested in such securities.
However, it is not expected that more than 10% of the Fund's assets would be so
invested at any time.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS. The Fund may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which the
Fund sells mortgage-backed securities and simultaneously contracts to
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repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. The Fund will only enter into covered rolls. A "covered
roll" is a specific type of dollar roll for which there is an offsetting cash
position or a cash equivalent security position which matures on or before the
forward settlement date of the dollar roll transaction.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements which involve the sale of a security by the Fund to a bank or
securities firm and its agreement to repurchase the instrument at a specified
time and price plus an agreed amount of interest. The Fund will use the proceeds
to purchase other investments. Reverse repurchase agreements are considered to
be borrowings by the Fund and, as an investment practice, may be considered
speculative.
Thus, the Fund will enter into a reverse repurchase agreement only when the
Adviser determines that the interest income to be earned from the investment of
the proceeds is greater than the interest expense and associated risks of the
transaction. To minimize various risks associated with reverse repurchase
agreements, the Fund will establish and maintain with the Custodian a separate
account consisting of cash or liquid, high grade debt securities in an amount at
least equal to the repurchase prices of the securities (plus any accrued
interest thereon) under such agreements. Although the Fund's investment
restrictions provide that the Fund would not enter into reverse repurchase
agreements exceeding in the aggregate 33 1/3 of the value of its net assets
(including, for this purpose, other borrowings of the Fund), this limitation
shall not exceed 20% of the Fund's total assets. The Fund will enter into
reverse repurchase agreements only with selected registered broker/dealers or
with federally insured banks or savings and loan associations which are approved
in advance as being creditworthy by the Trustees. Under procedures established
by the Trustees, the Adviser will monitor the creditworthiness of the firms
involved.
ZERO COUPON BONDS. The Fund may invest in zero coupon U.S. Treasury securities,
such as (i) U.S. Treasury bills, and both notes and bonds which have been
stripped of their unmatured interest coupons and receipts or (ii) certificates
representing interests in such stripped obligations. A zero coupon security pays
no interest in cash to its holder during its life although interest is accrued
currently for federal income tax purposes. Its value to an investor consists of
the difference between its face value at the time of maturity and the price for
which it was acquired, which is generally an amount significantly less than its
face value (sometimes referred to as a "deep discount" price). Investing in
"zero coupon" U.S. Treasury securities may help to preserve capital during
periods of declining interest rates. For example, if interest rates decline,
GNMA Certificates owned by the Fund which were purchased at greater than par are
more likely to be prepaid, which would cause a loss of principal. In
anticipation of this, the Fund might purchase zero coupon U.S. Treasury
securities, the value of which would be expected to increase when interest rates
decline. Zero coupon U.S. Treasury securities do not entitle the holder to any
periodic payments of interest prior to maturity. Accordingly, such securities
usually trade at a deep discount from their face or par value and will be
subject to greater fluctuations of market value in response to changing interest
rates than debt
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obligations of comparable maturities which make periodic distributions of
interest. On the other hand, because there are no periodic interest payments to
be reinvested prior to maturity, zero coupon securities eliminate the
reinvestment risk and lock in a rate of return to maturity. Current federal tax
law requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payment in cash on the security during
the year. In order to satisfy the income distribution requirements applicable to
regulated investment companies under the Code, the Fund may therefore be
required to obtain cash for distribution corresponding to such accrued income by
selling portfolio securities, possibly under disadvantageous circumstances, or
through borrowing.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent participation
interests in pools of adjustable and fixed mortgage loans. Unlike conventional
debt obligations, mortgage-backed securities provide monthly payments derived
from the monthly interest and principal payments (including any prepayments)
made by the individual borrowers on the pooled mortgage loans. The mortgage
loans underlying mortgage-backed securities are generally subject to a greater
rate of principal prepayments in a declining interest rate environment and to a
lesser rate of principal prepayments in an increasing interest rate environment.
Under certain interest and prepayment rate scenarios, the Fund may fail to
recover the full amount of its investment in mortgage-backed securities
notwithstanding any direct or indirect governmental or agency guarantee. Since
faster than expected prepayments must usually be invested in lower yielding
securities, mortgage-backed securities are less effective than conventional
bonds in "locking in" a specified interest rate. Conversely, in a rising
interest rate environment, a declining prepayment rate will extend the average
life of many mortgage-backed securities. This possibility is often referred to
as extension risk. Extending the average life of a mortgage-backed security
increases the risk of depreciation due to future increases in market interest
rates.
The Fund's investments in mortgage-backed securities may include conventional
mortgage pass-through securities, stripped mortgage-backed securities ("SMBS")
and certain classes of multiple class collateralized mortgage obligations
("CMOs" and "REMICs"). REMICs own mortgages and elect REMIC status under the
Code and are similar to CMOs in that they are generally divided into several
classes; however, they represent interests in the pool of mortgages typically
held in a trust. The Fund may acquire "regular" interests in REMICs but does not
intend to acquire "residual" interests in REMICs. Examples of SMBS include
interest only and principal only securities. Senior CMO classes will typically
have priority over residual CMO classes as to the receipt of principal and/or
interest payments on the underlying mortgages.
The CMO classes in which the Fund may invest include sequential and parallel pay
CMOs, including planned amortization class ("PAC") and target amortization class
("TAC") securities. The Fund may also invest in the floating rate mortgage-
backed securities listed under "Indexed Securities."
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STRIPPED MORTGAGE-BACKED SECURITIES. The Fund may invest up to 10% of its total
assets in stripped mortgage-related and mortgage-backed securities ("Stripped
Mortgage Securities"). Stripped Mortgage Securities are derivative multiclass
mortgage securities that are issued by agencies or instrumentalities of the U.S.
Government, or by private originators of, or investors in, mortgage loans,
including mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. Stripped Mortgage Securities are usually
structured with two classes that receive different proportions of the interest
and principal distributions on a pool of mortgage assets. A common type of
Stripped Mortgage Securities will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on the securities' yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Fund may fail to recoup fully its initial investment in an IO.
Furthermore, if the underlying mortgage assets experience slower than
anticipated prepayments of principal, the yield of a PO will be affected more
severely than would be the case with a traditional mortgage-backed security. IOs
and POs have exhibited large price changes in response to changes in interest
rates and are considered to be volatile in nature.
INDEXED SECURITIES. The Fund may invest in indexed securities. The interest
rate or, in some cases, the principal payable at the maturity of an indexed
security may change positively or inversely in relation to one or more interest
rates, financial indices or other financial indicators ("reference prices"). An
indexed security may be leveraged to the extent that the magnitude of any change
in the interest rate or principal payable on an indexed security is a multiple
of the change in the reference price. Thus, indexed securities may decline in
value due to adverse market changes in reference prices.
The indexed securities purchased by the Fund may include IO and PO securities,
floating rate securities linked to the Cost of Funds Index ("COFI floaters"),
other "lagging rate" floating rate securities, floating rate securities that are
subject to a maximum interest rate ("capped floaters"), leveraged floating rate
securities ("super floaters"), leveraged inverse floating rate securities
("inverse floaters"), dual index floaters and range floaters.
RISKS OF MORTGAGE-BACKED AND INDEXED SECURITIES. Different types of derivative
debt securities are subject to different combinations of prepayment, extension,
interest rate and/or other market risks. Conventional mortgage pass-through
securities and sequential pay CMOs are subject to all of these risks, but are
typically not leveraged. PACs, TACs and other senior classes of sequential and
parallel pay CMOs involve less exposure to prepayment, extension and interest
rate risk than other mortgage-backed securities, provided that prepayment rates
remain within expected prepayment ranges or "collars."
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The risk of early prepayments is the primary risk associated with mortgage IOs,
super floaters and other leveraged floating rate mortgage-backed securities. The
primary risks associated with COFI floaters, other "lagging rate" floaters,
capped floaters, inverse floaters, POs and leveraged inverse IOs are the
potential extension of average life and/or depreciation due to rising interest
rates. The residual classes of CMOs are subject to both prepayment and extension
risk.
Other types of floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced to below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to depreciation in the event of an
unfavorable change in the spread between two designated interest rates.
RISKS ASSOCIATED WITH OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS. The
risks associated with the Fund's transactions in options, futures and other
derivative instruments may include some or all of the following:
Market Risks. Options and futures transactions, as well as other derivative
instruments, involve the risk that the applicable market will move against the
Fund's derivative position and that the Fund will incur a loss. For derivative
contracts other than purchased options, this loss may exceed the amount of the
initial investment made or the premium received by the Fund. Investments in
mortgage-backed and indexed securities are subject to the prepayment, extension,
interest rate and other market risks described above.
Leverage and Volatility Risk. Derivative instruments may increase or leverage
the Fund's exposure to a particular market risk, which may increase the
volatility of the Fund's net asset value. The Fund may partially offset the
leverage inherent in derivative instruments by maintaining a segregated account
consisting of cash and liquid, high grade debt securities, by holding offsetting
portfolio securities or currency positions or by covering written options.
Correlation Risk. A Fund's success in using derivative instruments to hedge
portfolio assets depends on the degree of price correlation between the
derivative instrument and the hedged asset. Imperfect correlation may be caused
by several factors, including temporary price disparities among the trading
markets for the derivative instruments, the assets underlying the derivative
instrument and the Fund's portfolio assets.
Credit Risk. Over-the-counter instruments involve a risk that the issuer or
counterparty will fail to perform its contractual obligations.
Liquidity and Valuation Risk. Some derivative instruments are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, and exchange may suspend or limit
trading in an exchange-traded derivative instrument, which may make the contract
temporarily illiquid and difficult to price. The staff of the SEC takes the
position that certain over-the-counter options are subject to the Fund's 10%
limit on illiquid investments. The Fund's ability to terminate over-the-counter
derivative instruments may
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depend on the cooperation of the counterparties to these instruments. For
derivative instruments that are not heavily traded, the only source of price
quotations may be the selling dealer or counterparty.
LEVERAGE. The use of reverse repurchase agreements and mortgage dollar rolls
involves leverage. Leverage allows any investment gains made with the additional
monies received (in excess of the costs of the mortgage dollar roll or the
reverse repurchase agreement) to increase the net asset value of the Fund's
shares faster than would otherwise be the case. On the other hand, if the
additional monies received are invested in ways that do not fully recover the
costs of such transactions to the Fund, the net asset value of the Fund would
fall faster than would otherwise be the case.
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(NOTES)
<PAGE> 32
JOHN HANCOCK
JOHN HANCOCK GOVERNMENT
GOVERNMENT SECURITIES TRUST SECURITIES
TRUST
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts
02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue CLASS A AND CLASS B SHARES
Boston, Massachusetts PROSPECTUS
02199-7603 MAY 15, 1995
CUSTODIAN A MUTUAL FUND SEEKING TO
Investors Bank & Trust Company OBTAIN A HIGH LEVEL OF
24 Federal Street CURRENT INCOME CONSISTENT
Boston, Massachusetts 02110 WITH SAFETY OF PRINCIPAL.
TRANSFER AGENT
John Hancock Investor Services
Corporation
P.O. Box 9116
Boston, Massachusetts
02205-9116
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For Service Information
For Telephone Exchange call 1-800-225-5291
For Investment-by-Phone
For Telephone Redemption
101 HUNTINGTON AVENUE
For TDD call 1-800-554-6713 BOSTON, MASSACHUSETTS 02199-7603
TELEPHONE 1-800-225-5291
T100P 5/95 (LOGO) Printed on Recycled Paper
