<PAGE> 1
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
450PX 7/95
<PAGE> 2
JOHN HANCOCK GOVERNMENT SECURITIES TRUST
PROXY STATEMENT
JOHN HANCOCK GOVERNMENT INCOME FUND
PROSPECTUS
This Proxy Statement and Prospectus sets forth the information 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 a 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 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."
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The Reorganization is being structured as a tax-free reorganization 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
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 Prospectus, 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 which is available, upon oral or written request and
at no charge, from the Trust.
A Statement of Additional Information dated July 21, 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 statements, 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.
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.
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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.
The date of this Proxy Statement and Prospectus is July 21, 1995.
3
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION................................................ 1
SUMMARY..................................................... 2
RISK FACTORS AND SPECIAL CONSIDERATIONS..................... 15
INFORMATION CONCERNING THE MEETING.......................... 15
PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION.... 18
CAPITALIZATION.............................................. 26
COMPARATIVE PERFORMANCE INFORMATION......................... 27
BUSINESS OF GOVERNMENT INCOME FUND.......................... 29
General................................................ 29
Investment Objective and Policies...................... 29
Portfolio Management................................... 29
Directors.............................................. 29
Investment Adviser and Distributor..................... 29
Expenses............................................... 29
Custodian and Transfer Agent........................... 29
Government Income Fund Shares.......................... 29
Purchase of Government Income Fund Shares.............. 30
Redemption of Government Income Fund Shares............ 30
Dividends, Distributions and Taxes..................... 30
BUSINESS OF GOVERNMENT SECURITIES TRUST..................... 30
General................................................ 30
Investment Objective and Policies...................... 30
Portfolio Management................................... 30
Trustees............................................... 30
Investment Adviser and Distributor..................... 31
Expenses............................................... 31
Custodian and Transfer Agent........................... 31
Government Securities Trust Shares..................... 31
Purchase of Government Securities Trust Shares......... 31
Redemption of Government Securities Trust Shares....... 31
Dividends, Distributions and Taxes..................... 31
EXPERTS..................................................... 32
AVAILABLE INFORMATION....................................... 32
</TABLE>
i
<PAGE> 6
EXHIBITS
A -- Agreement and Plan of Reorganization by and between 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> 7
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 connection 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 (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, 62,908,706.23 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.
In addition to the mailing of these proxy materials, proxies may be
personally solicited by Trustees, officers and employees of Government
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<PAGE> 8
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 determination, 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 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
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<PAGE> 9
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 shareholder transaction and 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 sales charges.
Government Securities Trust
<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 net assets)
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%
====== ======
</TABLE>
- ---------------
* 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 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.
3
<PAGE> 10
Government Income Fund
<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 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%
====== ======
</TABLE>
- ---------------
* 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 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.
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.
4
<PAGE> 11
Government Income Fund (Pro Forma)
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
------- -------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
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%
====== ======
</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.
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.
All investment decisions for Government Securities Trust are made by the
Adviser's government fixed-income team. No single person is primarily
responsible for making recommendations to the team. The Adviser's government
fixed-income 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.
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<PAGE> 12
All investment decisions for Government Income Fund are made by the
Adviser's government fixed-income team. No single person is primarily
responsible for making recommendations to the team. The Adviser's government
fixed-income 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 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."
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<TABLE>
<CAPTION>
GOVERNMENT SECURITIES GOVERNMENT
TRUST INCOME FUND
---------------------------- ----------------------------
<S> <C> <C>
Investment Objective is to achieve a Objective is to achieve a
Objective 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 Government At least 80% of Government
Investments Securities Trust's assets Income Fund's assets are in-
are invested in U.S. vested in U.S. Government
Government Securities, with Securities, including
emphasis on GNMA mortgage- backed securities
certificates and other issued by U.S. Government
mortgage-backed securities agencies, and related
issued by U.S. Government repurchase agreements and
agencies. forward commitments.
Other Government Securities Trust Government Income Fund may
Investments may enter into repurchase invest up to 20% of its
agreements and reverse assets in (1) U.S. dollar
repurchase agreements, denominated foreign
purchase securities on a government securities, (2)
forward commitment or non-governmental asset-
when-issued basis and lend backed securities, and (3)
portfolio securities. high quality short-term debt
Government Securities Trust securities with remaining
may invest up to 10% of its maturities of one year or
assets in illiquid in- less. Government Income Fund
vestments, which include may also enter into
certain restricted repurchase agreements on
securities. Government debt securities other than
Securities Trust may invest U.S. Government Securities
up to 10% of its assets in and reverse repurchase
restricted securities. The agreements, purchase
10% limits described above securities on a forward
are fundamental policies and commitment or when-issued
therefore cannot be changed basis and lend portfolio
without shareholder securities. Government
approval. Income Fund may invest up to
10% of its assets in
illiquid investments. All
restricted securities are
deemed to be illiquid for
purposes of this limitation.
Government Income Fund may
also invest up to 10% of its
assets in lower rated debt
securities, commonly known
as "junk bonds".
</TABLE>
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<PAGE> 14
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES GOVERNMENT
TRUST INCOME FUND
---------------------------- ----------------------------
<S> <C> <C>
Permitted Asset-backed securities, Asset-backed securities,
Investments in mortgage dollar rolls, mortgage dollar rolls,
Derivative options on debt securities, options on debt securities,
Instruments interest rate futures, interest rate futures,
options on such futures and options on such futures and
mortgage-related mortgage-related
derivatives, including CMOs derivatives, including CMOs
and SMBSs. Up to 10% of and SMBSs. Government Income
Government Securities Fund currently does not
Trust's assets may be in- intend to invest in SMBSs.
vested in CMOs and SMBSs.
Diversification Government Securities Trust Government Income Fund is
and Industry is diversified and does not diversified and does not
Concentration concentrate more than 25% of concentrate more than 25% of
(No Change) its assets in any one its assets in any one
industry. industry.
Temporary None. In unusual market conditions
Defensive when the Adviser believes
Investments 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.
</TABLE>
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. After the Reorganization,
Government Securities Trust's shareholders will become shareholders of
Government Income Fund and therefore will become subject to Maryland law and the
Company's Charter. Although there are differences between the laws and
organizational document provisions applicable to each Fund with respect to the
rights of shareholders, such differences are not material.
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
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<PAGE> 15
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 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.
Both Funds have authorized and outstanding Class A and Class B shares. 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 up to 0.75% is for distribution expenses.
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 as described above in the table under the caption "The Funds' Expenses".
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.
Class A shares of Government Income Fund acquired by Government Securities
Trust's Class A shareholders pursuant to the Reorganization will
9
<PAGE> 16
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.
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:
<TABLE>
<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.
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
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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 up to 0.75% will
be for distribution expenses. 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
shares will be reimbursable under Government Income Fund's Rule 12b-1 Plans. 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, after the Record Date, no new accounts may
be opened in Government Securities Trust. Existing shareholders of Government
Securities Trust may continue to purchase shares of the Fund after the Record
Date.
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.
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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 assumption 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"), 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.
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The Reorganization will become effective as of 5:00 p.m. on the closing
date, scheduled for September 15, 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 will not be materially 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 will not be materially 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 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;
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(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 in the 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.
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
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<PAGE> 21
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.
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
The presence (in person or by proxy) of a majority of Government Securities
Trust's outstanding shares that are entitled to vote at the Meeting will be a
quorum for the transaction of business. A Government Securities Trust
shareholder executing and returning a proxy has the power to revoke 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.
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<PAGE> 22
If a quorum is not present in person or by proxy at the time any session of
the Meeting is called to order, the persons named as proxies may vote those
proxies that have been received to adjourn the Meeting to a later date. If a
quorum is present but there are not sufficient votes in favor of the Proposal,
the persons named as proxies may propose one or more adjournments of the Meeting
to permit further solicitation of proxies with respect to the Proposal. Any
adjournment will require the affirmative vote of a majority of the shares of
Government Securities Trust represented 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.
In addition to the solicitation of proxies by mail or in person, the Trust
may also arrange to have votes recorded by telephone by officers and employees
of the Trust or by personnel of the Adviser or Investor Services. The telephone
voting procedure is designed to authenticate a shareholder's identity, to allow
a shareholder to authorize the voting of shares in accordance with the
shareholder's instructions and to confirm that the voting instructions have been
properly recorded. If these procedures were subject to a successful legal
challenge, such votes would not be counted at the Meeting. The Trust has not
sought to obtain an opinion of counsel on this matter and is unaware of any such
challenge at this time. A shareholder would be called on a recorded line at the
telephone number the Trust has in its records for the account and would be asked
the shareholder's Social Security number or other identifying information. The
shareholder would then be given an opportunity to authorize proxies to vote his
shares at the Meeting in accordance with the shareholder's instructions. To
ensure that the shareholder's instructions have been recorded correctly, the
shareholder will also receive a confirmation of the voting instructions in the
mail. A special toll-free number will be available in case the voting
information contained in the confirmation is incorrect. If the shareholder
decides after voting by telephone to attend the Meeting, the shareholder can
revoke the proxy at that time and vote the shares at the Meeting.
OUTSTANDING SHARES AND RECORD DATE
At the close of business on June 30, 1995, 62,634,037.355 Class A and
274,668.875 Class B 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. As of June 30,
1995, 58,168.919 Class A and 24,980,259.576 Class B shares of beneficial
interest of Government Income Fund were outstanding.
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<PAGE> 23
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, the following persons
owned of record or beneficially 5% or more of the outstanding Class B shares of
beneficial interest of Government Securities Trust: Daniel L. Brenner,
Charitable Remainder Annuity Trust, c/o Roger Klein, Overland Park, KS (22.26%);
Smith Barney Inc., New York, NY (9.21%); A.G. Edwards & Sons, Custodian f/b/o
John J. Nestor IRA Rollover, Santa Ana, CA (7.46%); Anesthesia Associates Ltd.,
Profit Sharing Plan & Trust, f/b/o Richard E. Pittman, Washington, D.C. (5.95%);
Ellen A. Dukes, Trustee, f/b/o Ellen A. Dukes Trust, Irvine, CA (5.76%); Thomas
J. Cooney, Palm Harbor, FL (5.21%); and Donaldson Lufkin Jenrette, Jersey City,
NJ (5.03%). On the basis of their present holdings, these shareholders will own
approximately .24%, .1%, .08%, .06%, .06%, .05%, and .05%, respectively, of
Government Income Fund's outstanding Class B shares immediately after the
Reorganization (if the Reorganization is consummated). 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 shares of beneficial interest of Government
Securities Trust.
To the knowledge of the Company, as of June 30, 1995, the following persons
owned of record or beneficially 5% or more of the outstanding Class A shares of
beneficial interest of Government Income Fund: JHMLICO, Custodian f/b/o Kathleen
L. Russell IRA R/O, Sacramento, CA (29.13%); Bruno Barelare and Helen D.
Barelare in joint tenancy, Birmingham, AL (14.64%); Max P. Clay, Jr. and Max P.
Clay, Sr. as joint tenants with right of survivorship, Pell City, AL (13.82%);
Russell L. Mitchell, IRA, Sutro & Co., Custodian, Cambria, CA (6.81%); Rauscher
Pierce, Refsnes, Custodian f/b/o Clara Yamaoka, Monterey Park, CA (6.60%); and
Richard W. Russell and Helen F. Russell in joint tenancy, Carpinteria, CA
(5.93%). On the basis of their present holdings, these shareholders will own
approximately .03%, .01%, .01%, .007%, .007%, and .006%, respectively, of
Government Income Fund's Class A shares immediately after the Reorganization (if
the Reorganization is consummated). To the knowledge of the Company, as of June
30, 1995, only the following person owned of record or beneficially 5% or more
of the outstanding Class B shares of beneficial interest of Government Income
Fund: Merrill Lynch Pierce Fenner & Smith Inc., Jacksonville, FL (12.34%). On
the basis of their present holdings, Merrill Lynch Pierce Fenner & Smith Inc.
will own approximately 12.2% of Government Income Fund's Class B shares
immediately after the Reorganization (if the Reorganization is consummated).
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,
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<PAGE> 24
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 shareholders of Government Securities Trust will become
Class B shareholders of Government Income Fund.
The Agreement and the Reorganization were unanimously approved by the
Trust's Board of Trustees on behalf of Government Securities Trust at a
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<PAGE> 25
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 advantageous to
operate and market Government Securities Trust separately from Government Income
Fund because their investment objectives 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 existing 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 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 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
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<PAGE> 26
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 any 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 any 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 Reorganization 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 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
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<PAGE> 27
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 payments 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 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 factors, 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
materially 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
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<PAGE> 28
Company Act) of the Funds, determined that the Reorganization is in the best
interests of Government Income Fund and that the interests of Government Income
Fund's shareholders will not be materially 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).
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 certificates which have
not been
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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 less than a majority of the
shares of beneficial interest of Government Securities Trust represented in
person or by proxy and 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 shareholders 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 Agreement,
whether or not the Reorganization is consummated.
23
<PAGE> 30
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 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;
24
<PAGE> 31
(vii) 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
(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 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.
25
<PAGE> 32
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of March
31, 1995, and the pro forma combined capitalization of both Funds as if the
Reorganization had occurred on that date. The table reflects pro forma exchange
ratios of approximately 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.
MARCH 31, 1995
<TABLE>
<CAPTION>
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 26,063,461(1)
</TABLE>
- ---------------
(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.
26
<PAGE> 33
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 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 average annual total return on Government Income Fund's Class B shares 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 hypothetical 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.
27
<PAGE> 34
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK GOVERNMENT SECURITIES TRUST
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE OF
INVESTMENT
ON TOTAL RETURN TOTAL RETURN
AMOUNT MARCH 31, 1995 INCLUDING SALES CHARGE EXCLUDING SALES CHARGE
INVESTMENT OF INCLUDING ------------------------ ------------------------
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>
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK GOVERNMENT INCOME FUND
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE OF
INVESTMENT
ON TOTAL RETURN TOTAL RETURN
AMOUNT MARCH 31, 1995 INCLUDING SALES CHARGE EXCLUDING SALES CHARGE
INVESTMENT OF INCLUDING ------------------------ ------------------------
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> 35
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 government fixed-income 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 John Hancock Investor Services
Corporation.
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.
29
<PAGE> 36
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 respect 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 government fixed-income team. No 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.
30
<PAGE> 37
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 expenses, 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 Reorganization), see "How to Redeem
Shares" in the Government Securities Trust Prospectus. Government Securities
Trust shareholders 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 Securities Trust's policy with respect to
dividends, distributions and taxes, see "Distributions and Taxes" in the
Government Securities Trust Prospectus.
31
<PAGE> 38
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> 39
EXHIBIT A
AGREEMENT AND
PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this
14th day of July, 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
A-1
<PAGE> 40
and Liabilities (the "Acquired Fund Liabilities"), which shall be assigned and
transferred to the Acquiring Fund by the Acquired Fund and assumed by the
Acquiring Fund, and (ii) delivery by the Acquiring Fund to the Acquired Fund,
for distribution pro rata by the Acquired Fund to its 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, in the case of each class of
Acquiring Fund Shares, equal to the value of the assets, less such liabilities
(herein referred to as the "net value of the assets"), attributable to the
corresponding class 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
A-2
<PAGE> 41
Acquired Fund shareholders who own Class B shares of the Acquired Fund will
receive Class B Acquiring Fund Shares. The Acquiring Fund shall not issue
certificates representing Acquiring Fund Shares in connection with such
exchange.
1.5 The Acquired Fund shareholders holding certificates representing their
ownership of shares of beneficial interest of the Acquired Fund shall surrender
such certificates or deliver an affidavit with respect to lost certificates in
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 Acquired Fund shares on the books
of the Acquired Fund as of that time shall, as a condition of such issuance and
transfer, be paid by the person to whom such Acquiring Fund Shares are to be
issued and transferred.
1.7 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Trust 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 Company's
A-3
<PAGE> 42
Charter or By-laws and the Acquiring Fund's then-current prospectus and
statement of additional information and shall be computed in each case to not
fewer than four decimal places. The net values of the assets of the Acquired
Fund attributable to its Class A and Class B shares to be transferred shall be
computed by the Custodian by calculating the value of the assets of each class
transferred by the Acquired Fund and by subtracting therefrom the amount of the
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 15, 1995 or such other date on or
before December 31, 1995, as the parties may agree. 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.
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 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.
A-4
<PAGE> 43
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 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
A-5
<PAGE> 44
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 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;
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(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 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;
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(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 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;
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<PAGE> 47
(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;
(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
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<PAGE> 48
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;
(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
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<PAGE> 49
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.
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
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<PAGE> 50
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.
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
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<PAGE> 51
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 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 Company 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.
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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 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
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<PAGE> 53
behalf of the Acquiring Fund, substantially to the effect that for federal
income tax purposes:
(a) The acquisition by the Acquiring Fund of all of the assets of the
Acquired Fund solely in exchange for the issuance of Acquiring Fund Shares
to the Acquired Fund and the assumption of all of the Acquired Fund
Liabilities by the Acquiring Fund, followed by the distribution by the
Acquired Fund, in liquidation of the Acquired Fund, of Acquiring Fund
Shares to the shareholders of the Acquired Fund in exchange for their
shares of beneficial interest of the Acquired Fund and the termination of
the Acquired Fund, will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and the Acquired Fund and the Acquiring Fund
will each be "a party to a reorganization" within the meaning of Section
368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund upon (i)
the transfer of all of its assets to the Acquiring Fund solely in exchange
for the issuance of Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring Fund
and (ii) the distribution by the Acquired Fund of such Acquiring Fund
Shares to the shareholders of the Acquired Fund;
(c) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
issuance of the Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring Fund;
(d) The basis of the assets of the Acquired Fund acquired by the
Acquiring Fund will be, in each instance, the same as the basis of those
assets in the hands of the Acquired Fund immediately prior to the transfer;
(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
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<PAGE> 54
(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 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;
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(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.
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.
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<PAGE> 56
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 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.
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<PAGE> 57
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and has caused its corporate seal
to be affixed hereto.
JOHN HANCOCK SERIES, INC., on behalf
of JOHN HANCOCK GOVERNMENT INCOME
FUND
By: /s/Anne C. Hodsdon
----------------------------------
Anne C. Hodsdon
President
JOHN HANCOCK BOND FUND, on behalf of
JOHN HANCOCK GOVERNMENT SECURITIES
TRUST
By: /s/Thomas H. Drohan
----------------------------------
Thomas H. Drohan
Senior Vice President
and Secretary
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<PAGE> 58
EXHIBIT B
JOHN HANCOCK
GOVERNMENT
INCOME FUND
CLASS A AND CLASS B SHARES
PROSPECTUS
MAY 15, 1995
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<S> <C>
Expense Information........................................ B-2
The Fund's Financial Highlights............................ B-3
Investment Objective and Policies.......................... B-5
Organization and Management of the Fund.................... B-9
Alternative Purchase Arrangements.......................... B-10
The Fund's Expenses........................................ B-12
Dividends and Taxes........................................ B-13
Performance................................................ B-14
How to Buy Shares.......................................... B-15
Share Price................................................ B-16
How to Redeem Shares....................................... B-23
Additional Services and Programs........................... B-25
Investments, Techniques and Risk Factors................... B-29
</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.
B-1
<PAGE> 59
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%
</TABLE>
- ---------------
* 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>
<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
</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 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."
B-2
<PAGE> 60
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%
</TABLE>
B-3
<PAGE> 61
THE FUND'S FINANCIAL HIGHLIGHTS -- Continued
<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 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 -- -- -- --
</TABLE>
- ---------------
(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.
B-4
<PAGE> 62
INVESTMENT OBJECTIVE AND POLICIES
THE FUND SEEKS TO EARN A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH
PRESERVATION OF CAPITAL BY INVESTING IN U.S. GOVERNMENT SECURITIES.
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:
(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.
B-5
<PAGE> 63
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; 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
B-6
<PAGE> 64
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.
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 FOLLOWS CERTAIN POLICIES WHICH MAY HELP TO REDUCE INVESTMENT RISK.
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.
B-7
<PAGE> 65
BROKERS ARE CHOSEN ON BEST PRICE AND EXECUTION.
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.
B-8
<PAGE> 66
ORGANIZATION AND MANAGEMENT OF THE FUND
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.
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.
JOHN HANCOCK ADVISERS, INC. ADVISES INVESTMENT COMPANIES HAVING A TOTAL
ASSET VALUE OF MORE THAN $13 BILLION.
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.
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.
B-9
<PAGE> 67
ALTERNATIVE PURCHASE ARRANGEMENTS
AN ALTERNATIVE PURCHASE PLAN ALLOWS YOU TO CHOOSE THE METHOD OF PAYMENT
THAT IS BEST FOR YOU.
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.
INVESTMENTS IN CLASS A SHARES ARE SUBJECT TO AN INITIAL SALES CHARGE.
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 B SHARES ARE SUBJECT TO A CONTINGENT DEFERRED 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.
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.
B-10
<PAGE> 68
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE
YOU SHOULD CONSIDER WHICH CLASS OF SHARES WOULD BE MORE BENEFICIAL TO YOU.
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."
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 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
B-11
<PAGE> 69
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 FUND PAYS DISTRIBUTION AND SERVICE FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
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.
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. For the fiscal year ended October 31,
1994, an aggregate of $10,485,386 of distribution expenses or 4.35% of the
average net
B-12
<PAGE> 70
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
THE FUND GENERALLY DECLARES DAILY AND DISTRIBUTES DIVIDENDS MONTHLY.
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.
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
B-13
<PAGE> 71
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 advice.
PERFORMANCE
THE FUND MAY ADVERTISE ITS YIELD AND TOTAL RETURN.
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'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."
B-14
<PAGE> 72
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
OPENING AN ACCOUNT
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.
- ---------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B SHARES
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
(MAAP) withdrawn from your bank or credit union account.
- ---------------------------------------------------------------------------------
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>
B-15
<PAGE> 73
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <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 ACCOUNT STATEMENTS THAT YOU SHOULD KEEP TO HELP WITH YOUR
PERSONAL RECORDKEEPING.
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.
SHARE PRICE
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.
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
B-16
<PAGE> 74
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.
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 REALLOWANCE
REALLOWANCE TO SELLING
AND SERVICE BROKERS AS A
FEE AS A PERCENTAGE
SALES CHARGE AS SALES CHARGE AS PERCENTAGE OF THE
AMOUNT INVESTED A PERCENTAGE OF A PERCENTAGE OF OF OFFERING OFFERING
(INCLUDING SALES CHARGE) OFFERING PRICE THE AMOUNT INVESTED PRICE(+) PRICE(*)
- ------------------------------------------- ------------------- ----------- ------------
<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%(***) 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.
B-17
<PAGE> 75
(+) 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.
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.
B-18
<PAGE> 76
YOU MAY QUALIFY FOR A REDUCED SALES CHARGE ON YOUR INVESTMENT IN CLASS A
SHARES.
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:
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:
CLASS A SHARES MAY BE AVAILABLE WITHOUT A SALES CHARGE TO CERTAIN
INDIVIDUALS AND ORGANIZATIONS.
- - 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.
- - 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.*
B-19
<PAGE> 77
- - 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.
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,
B-20
<PAGE> 78
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>
CONTINGENT DEFERRED SALES
YEAR IN WHICH CLASS B SHARES CHARGE AS A PERCENTAGE OF
REDEEMED FOLLOWING 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.
UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON CLASS B AND CERTAIN CLASS A SHARE
REDEMPTIONS WILL BE WAIVED.
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 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
B-21
<PAGE> 79
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.
- 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.
B-22
<PAGE> 80
HOW TO REDEEM SHARES
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION REQUEST, PLEASE FOLLOW THESE
PROCEDURES.
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).
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> <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>
B-23
<PAGE> 81
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <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> <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.
- ---------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR SIGNATURE.
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.
- ---------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption.
Contact your broker for instructions.
- ---------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------
</TABLE>
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<PAGE> 82
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
YOU MAY EXCHANGE SHARES OF THE FUND ONLY FOR SHARES OF THE SAME CLASS OF
ANOTHER JOHN HANCOCK FUND.
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.
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.
B-25
<PAGE> 83
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
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.
B-26
<PAGE> 84
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
REINVESTMENT PRIVILEGE
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.
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.
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
YOU CAN PAY ROUTINE BILLS FROM YOUR ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS
OF FUNDS FROM YOUR RETIREMENT ACCOUNT TO COMPLY WITH IRS REGULATIONS.
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.
B-27
<PAGE> 85
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)
YOU CAN MAKE AUTOMATIC INVESTMENTS AND SIMPLIFY YOUR INVESTING.
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.
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
ORGANIZED GROUPS OF AT LEAST FOUR PERSONS MAY ESTABLISH ACCOUNTS.
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.
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.
B-28
<PAGE> 86
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 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
B-29
<PAGE> 87
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
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
B-30
<PAGE> 88
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 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
B-31
<PAGE> 89
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
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
B-32
<PAGE> 90
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 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
B-33
<PAGE> 91
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.
B-34
<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.
B-35
<PAGE> 93
JOHN HANCOCK
JOHN HANCOCK GOVERNMENT
GOVERNMENT INCOME FUND
INCOME FUND
INVESTMENT ADVISOR
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 PROSPECTUS
Boston, Massachusetts 02199-7603 MAY 15, 1995
CUSTODIAN
Investors Bank and Trust Company A MUTUAL FUND SEEKING TO EARN AS
24 Federal Street HIGH A LEVEL OF CURRENT INCOME
Boston, Massachusetts 02110 CONSISTENT WITH PRESERVATION OF
CAPITAL BY INVESTING IN U.S.
TRANSFER AGENT GOVERNMENT SECURITIES.
John Hancock Investor Services
Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
HOW TO OBTAIN INFORMATION TELEPHONE 1-800-225-5291
ABOUT THE FUND
For Service Information
For Telephone Exchange
For Investment-by-Phone call 1-800-225-5291
For Telephone Redemption
For TDD call 1-800-554-6713
T430P 5/95 (LOGO) Printed on Recycled Paper
<PAGE> 94
JOHN HANCOCK
GOVERNMENT
SECURITIES TRUST
CLASS A AND CLASS B SHARES
PROSPECTUS
JULY 17, 1995
<TABLE>
- ---------------------------------------------------------------------------------------------
TABLE OF CONTENTS
<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 July 17, 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> 95
<TABLE>
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, 1995, 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.
<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...................................................................................... 0.63% 0.63%
12b-1 fee**......................................................................................... 0.25% 1.00%
Other expenses***................................................................................... 0.32% 0.32%
Total Fund operating expenses....................................................................... 1.20% 1.95%
<FN>
* 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............................................................... $ 57 $81 $ 108 $184
Class B Shares
-- Assuming complete redemption at end of period......................... $ 70 $91 $ 125 $208
-- Assuming no redemption................................................ $ 20 $61 $ 105 $208
<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 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> 96
THE FUND'S FINANCIAL HIGHLIGHTS
The information in the following table of financial highlights for each of the
periods ended March 31, 1995, 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. 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.
<TABLE>
Selected data for each class of shares outstanding throughout each period is as follows:
<CAPTION>
CLASS A SHARES
----------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...... $7.89 $8.41 $8.04 $8.03 $7.87 $8.17 $8.82 $9.52
Net investment income..................... 0.61 0.64 0.66 0.87 0.89 0.88 0.85 0.76
Net realized and unrealized gain (loss) on
investment and financial futures
contracts................................ 0.36 (0.52) 0.40 (0.09) 0.14 (0.27) (0.51) (0.45)
-------- -------- -------- -------- ------- -------- ---------- ----------
Total from Investment Operations.......... 0.25 0.12 1.06 0.78 1.03 0.61 0.34 0.31
-------- -------- -------- -------- -------- -------- ---------- ----------
Less Distributions
Dividends from net investment income...... (0.59) (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....................... (0.59) (0.64) (0.69) (0.77) (0.87) (0.91) (0.99) (1.01)
-------- -------- -------- -------- -------- -------- ---------- ----------
Net asset value, end of period............ $7.55 $7.89 $8.41 $8.04 $8.03 $7.87 $8.17 $8.82
======== ======== ======== ======== ======== ======== ========== ==========
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE.................................... 3.49% 1.26% 13.68% 10.09% 13.87% 7.54% 4.02% 3.62%
======== ======== ======== ======== ======== ======== ========== ==========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, end of period (000's
omitted)................................. $489,090 $611,865 $718,426 $725,645 $771,826 $871,636 $1,140,455 $1,492,491
Ratio of operating expenses to average
net assets............................... 1.20% 1.14% 1.17% 1.21% 1.11% 1.09% 1.09% 1.07%
Ratio of net investment income to average
net assets............................... 8.10% 7.60% 7.93% 10.63% 11.13% 10.58% 9.89% 8.43%
Portfolio turnover........................ 337% 453% 322% 199% 117% 292% 164% 83%
<CAPTION>
CLASS B
SHARES
---------------
FOR THE PERIOD
CLASS A SHARES SEPTEMBER 30,
---------------------- 1994
YEAR ENDED (COMMENCEMENT
MARCH 31, OF OPERATIONS)
---------------------- TO MARCH 31,
1987 1986 1995(E)
---------- ---------- ---------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...... $10.11 $10.06 $7.51(a)
Net investment income..................... 0.71 0.95 0.28
Net realized and unrealized gain (loss) on
investment and financial futures
contracts................................ (0.15) 0.48 0.03(d)
---------- ---------- ----------
Total from Investment Operations.......... 0.56 1.43 0.31
---------- ---------- ----------
Less Distributions
Dividends from net investment income...... (0.71) (0.95) (0.27)
---------- ---------- ----------
Distributions from realized gains......... (0.44) (0.43) --
Returns of capital........................ -- -- --
---------- ---------- ----------
Total Distributions....................... (1.15) (1.38) (0.27)
---------- ---------- ----------
Net asset value, end of period............ $9.52 $10.11 $7.55
========== ========== ==========
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE.................................... 5.82% 15.35% 4.20%(b)
========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, end of period (000's
omitted)................................. $2,290,368 $1,641,364 $ 1,419
Ratio of operating expenses to average
net assets............................... 1.03% 1.13% 1.95%*
Ratio of net investment income to average
net assets............................... 7.12% 8.57% 7.35%*
Portfolio turnover........................ 295% 1328% 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>
3
<PAGE> 97
INVESTMENT OBJECTIVE AND POLICIES
- -------------------------------------------------------------------------------
THE FUND SEEKS TO PROVIDE A HIGH LEVEL OF
CURRENT INCOME CONSISTENT WITH SAFETY OF
PRINCIPAL.
- -------------------------------------------------------------------------------
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:
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> 98
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 FOLLOWS CERTAIN POLICIES WHICH
MAY HELP TO REDUCE INVESTMENT RISK.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
BROKERS ARE CHOSEN ON BEST PRICE AND
EXECUTION.
- -------------------------------------------------------------------------------
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.
5
<PAGE> 99
ORGANIZATION AND MANAGEMENT OF THE FUND
- -------------------------------------------------------------------------------
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 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.
- -------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES
INVESTMENT COMPANIES HAVING AN AGGREGATE
NET ASSET VALUE OF MORE THAN $13 BILLION.
- -------------------------------------------------------------------------------
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.
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> 100
ALTERNATIVE PURCHASE ARRANGEMENTS
- -------------------------------------------------------------------------------
AN ALTERNATIVE PURCHASE PLAN ALLOWS YOU TO
CHOOSE THE METHOD OF PAYMENT THAT IS BEST
FOR YOU.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS A SHARES ARE SUBJECT
TO AN INITIAL SALES CHARGE.
- -------------------------------------------------------------------------------
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 B SHARES ARE SUBJECT
TO A CONTINGENT DEFERRED 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.
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
- -------------------------------------------------------------------------------
YOU SHOULD CONSIDER WHICH CLASS OF SHARES
WOULD BE MORE BENEFICIAL TO YOU.
- -------------------------------------------------------------------------------
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."
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> 101
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."
<TABLE>
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:
<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, 1995, the advisory fee paid by the
Fund to the Fund's former investment adviser was equal to 0.47% of the Fund's
average daily net assets.
- -------------------------------------------------------------------------------
THE FUND PAYS DISTRIBUTION AND SERVICE
FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
- -------------------------------------------------------------------------------
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, 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.
8
<PAGE> 102
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.
Information on the Fund's total expenses appears in the Financial Highlights
section of this Prospectus.
DIVIDENDS AND TAXES
- -------------------------------------------------------------------------------
THE FUND GENERALLY DECLARES DIVIDENDS
DAILY AND DISTRIBUTES THEM MONTHLY.
- -------------------------------------------------------------------------------
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.
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.
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
9
<PAGE> 103
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
- -------------------------------------------------------------------------------
THE FUND MAY ADVERTISE ITS YIELD AND TOTAL
RETURN.
- -------------------------------------------------------------------------------
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'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 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,
10
<PAGE> 104
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
- ---------------------------------------------------------------------------------------
OPENING AN ACCOUNT
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
<S> <C> <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.
- ---------------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B SHARES
- ---------------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
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> 105
<TABLE>
- --------------------------------------------------------------------------------------
BUYING ADDITIONAL
CLASS A AND CLASS B
SHARES (CONTINUED)
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <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 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 ACCOUNT STATEMENTS THAT
YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL
RECORDKEEPING.
- -------------------------------------------------------------------------------
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.
SHARE PRICE
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
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.
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> 106
Exchange and transmit it to John Hancock Funds before its close of business to
receive that day's offering price.
<TABLE>
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:
<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 CHARGE) OFFERING PRICE INVESTED OFFERING PRICE(+) THE OFFERING PRICE(*)
- ------------------------ ---------------- --------------- ------------------ ---------------------
<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. 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.
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."
13
<PAGE> 107
<TABLE>
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:
<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.
- -------------------------------------------------------------------------------
YOU MAY QUALIFY FOR A REDUCED SALES CHARGE
ON YOUR INVESTMENT IN CLASS A SHARES.
- -------------------------------------------------------------------------------
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:
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> 108
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.")
- -------------------------------------------------------------------------------
CLASS A SHARES MAY BE AVAILABLE WITHOUT A
SALES CHARGE TO CERTAIN INDIVIDUALS AND
ORGANIZATIONS.
- -------------------------------------------------------------------------------
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.
- - 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> 109
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.
<TABLE>
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:
<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> 110
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 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.
- - 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.
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
17
<PAGE> 111
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
- -------------------------------------------------------------------------------
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION
REQUEST, PLEASE FOLLOW THESE PROCEDURES.
- -------------------------------------------------------------------------------
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).
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 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> 112
<TABLE>
<S> <C> <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.
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TYPE OF REGISTRATION REQUIREMENTS
--------------------------------- --------------------------------------------
<S> <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.
- ---------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR SIGNATURE.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
- -------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption.
Contact your broker for instructions.
- ---------------------------------------------------------------------------------
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> 113
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
- -------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES OF THE FUND ONLY
FOR SHARES OF THE SAME CLASS OF ANOTHER
JOHN HANCOCK FUND.
- -------------------------------------------------------------------------------
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.
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> 114
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
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<PAGE> 115
REINVESTMENT PRIVILEGE
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
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.
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
- -------------------------------------------------------------------------------
YOU CAN PAY ROUTINE BILLS FROM YOUR
ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF
FUNDS FROM YOUR RETIREMENT ACCOUNT TO
COMPLY WITH IRS REGULATIONS.
- -------------------------------------------------------------------------------
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.
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)
- -------------------------------------------------------------------------------
YOU CAN MAKE AUTOMATIC INVESTMENTS AND
SIMPLIFY YOUR INVESTING.
- -------------------------------------------------------------------------------
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.
22
<PAGE> 116
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
- -------------------------------------------------------------------------------
ORGANIZED GROUPS OF AT LEAST FOUR PERSONS
MAY ESTABLISH ACCOUNTS.
- -------------------------------------------------------------------------------
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.
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
mortgage-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
23
<PAGE> 117
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.
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
24
<PAGE> 118
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 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
25
<PAGE> 119
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 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
26
<PAGE> 120
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."
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
27
<PAGE> 121
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."
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
28
<PAGE> 122
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 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.
29
<PAGE> 123
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.
30
<PAGE> 124
(NOTES)
<PAGE> 125
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 02199-7603 PROSPECTUS
JULY 17, 1995
CUSTODIAN A MUTUAL FUND SEEKING
Investors Bank & Trust Company TO OBTAIN A HIGH LEVEL OF
24 Federal Street CURRENT INCOME CONSISTENT WITH
Boston, Massachusetts 02110 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
4500P 7/95 [RECYCLE LOGO] Printed on Recycled Paper
<PAGE> 126
JOHN HANCOCK GOVERNMENT
SECURITIES TRUST
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
JULY 17, 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 July 17, 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>
TABLE OF CONTENTS
<CAPTION>
Cross-
Referenced
SAI to Prospectus
Page Page
---- ----
<S> <C> <C>
Organization of the Trust . . . . . . . . . . . 2 6
Investment Objective and Policies . . . . . . . 2 4
Certain Investment Practices . . . . . . . . . 3 4
Investment Restrictions . . . . . . . . . . . . 13 6
Those Responsible for Management . . . . . . . 15 6
Investment Advisory and Other Services . . . . 25 6
Distribution Contract . . . . . . . . . . . . . 28 7
Net Asset Value . . . . . . . . . . . . . . . . 31 12
Initial Sales Charge on Class A Shares . . . . 31 7
Deferred Sales Charge on Class B Shares . . . . 33 7
Special Redemptions . . . . . . . . . . . . . . 33 18
Additional Services and Programs . . . . . . . 34 20
Description of the Trust's Shares . . . . . . . 35 6
Tax Status . . . . . . . . . . . . . . . . . . 37 9
</TABLE>
<PAGE> 127
<TABLE>
<S> <C> <C>
Calculation of Performance . . . . . . . . . . 40 10
Brokerage Allocation . . . . . . . . . . . . . 44 N/A
Transfer Agent Services . . . . . . . . . . . . 46 Back Cover
Custody of Portfolio . . . . . . . . . . . . . 47 Back Cover
Independent Auditors . . . . . . . . . . . . . 47 Back Cover
Financial Statements . . . . . . . . . . . . . F-1 3
</TABLE>
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
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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%.
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.
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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 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.
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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.
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.
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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 (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
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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
support tranches of PAC and TAC CMOs assume the extra prepayment, extension
and interest rate risk associated with the underlying mortgage assets.
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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
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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 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.
<TABLE>
The matrix set forth below relates to the use of the certain major
strategies involving options to different interest rate outlooks by the Fund.
<CAPTION>
INTEREST RATE OUTLOOK
-----------------------------------
DECLINING STABLE RISING
INTEREST INTEREST INTEREST
FUND STRATEGIES RATES RATES RATES
- --------------- --------- -------- --------
<S> <C> <C> <C>
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
</TABLE>
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.
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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 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.
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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.
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.
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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 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
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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.
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
13
<PAGE> 139
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 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.
14
<PAGE> 140
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.
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.
15
<PAGE> 141
<TABLE>
<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 Adviser and
Boston, MA 02199 Chief Executive The Berkeley Financial Group ("The
Officer(1)(2) 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 "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
</TABLE>
16
<PAGE> 142
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
---------------- -------------- -----------------------
<S> <C> <C>
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
company);
</TABLE>
17
<PAGE> 143
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
---------------- -------------- -----------------------
<S> <C> <C>
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 company);
460 North Gulph Road 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 Director,
Houston, TX 77027 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,
</TABLE>
18
<PAGE> 144
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
---------------- -------------- -----------------------
<S> <C> <C> <C>
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.
Patricia P. McCarter Trustee(3) Director and Secretary, the
Swedesford Road McCarter Corp. (machine
RD #3, Box 121 manufacturer); and Trustee
Malvern, PA 19355 or 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.
</TABLE>
19
<PAGE> 145
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
---------------- -------------- -----------------------
<S> <C> <C>
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 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 and Chief Investment President and Chief
101 Huntington Avenue Officer(2) Investment Officer, the
Boston, MA 02199 Adviser.
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
</TABLE>
20
<PAGE> 146
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
---------------- -------------- -----------------------
<S> <C> <C>
Thomas H. Drohan* Senior Vice President and Senior Vice President and
101 Huntington Avenue Secretary Secretary, the Adviser.
Boston, MA 02199
Michael P. DiCarlo* Senior Vice President(2) Senior Vice President, the
101 Huntington Avenue Adviser.
Boston, MA 02199
Edgar Larsen* Senior Vice President Senior Vice President, the
101 Huntington Avenue Adviser.
Boston, MA 02199
B.J. Willingham* Senior Vice President Senior Vice President, the
101 Huntington Avenue Adviser. Formerly, Director
Boston, MA 02199 and Chief Investment
Officer of Transamerica
Fund Management Company.
James J. Stokowski* Vice President and Treasurer Vice President, the Investment
101 Huntington Avenue Adviser.
Boston, MA 02199
Susan S. Newton* Vice President and Compliance Vice President and Assistant
101 Huntington Avenue Officer Secretary, the Investment
Boston, MA 02199 Adviser.
John A. Morin* Vice President Vice President, the Investment
101 Huntington Avenue Adviser.
Boston, MA 02199
- -------------------
<FN>
* 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>
21
<PAGE> 147
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.
<TABLE>
As of June 30, 1995, there were 62,634,037 Class A shares and 274,669
Class B 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, the following shareholders held, as record owner, 5% or more of the
shares of the Fund.
<CAPTION>
Percentage Ownership
--------------------
Government Securities Fund, Class B of Outstanding Shares
- ----------------------------------- ---------------------
<S> <C>
Daniel L. Brenner 22.26%
Charitable Remainder Annuity TR
DTD 9/3/93
c/o Roger Klein
5665 W. 95 Ste. 275
Overland Park, KS 66207-2966
Smith Barney, Inc. 9.21%
00139720004
388 Greenwich Street
New York, NY 10013-2375
A.G. Edwards & Sons Cust. 7.46%
FBO John J. Nestor IRA Rollover
11832 Gladstone Dr.
Santa Ana, CA 92705-2938
Anesthesia Associates, Ltd. 5.95%
Profit Sharing Pl & Tr
FBO Richard E. Pittman
2127 California St. N.W. #705
Washington, DC 20008-1814
Ellen A. Dukes TTEE 5.76%
FBO Ellen A. Dukes Trust
U/D/T DTD 5/23/89
19191 Harvard Ave. #263D
Irvine, CA 92715-4656
</TABLE>
22
<PAGE> 148
<TABLE>
<S> <C>
Thomas J. Cooney 5.21%
4038 Diamond Leaf Ct.
Palm Harbor, FL 34684-3610
Donaldson Lufkin Jenrette Securities Corporation, Inc. 5.03%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>
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.
COMPENSATION OF THE BOARD OF TRUSTEES AND ADVISORY BOARD
The following table provides information regarding the compensation paid by
the Fund and the other investment companies in the John Hancock Fund Complex
to the Independent Trustees and the Advisory Board members for their services.
Mr. Boudreau, a non-Independent Trustee, 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.
23
<PAGE> 149
<TABLE>
<CAPTION>
Total Compensation
Pension or Retirement from all Funds in John
Aggregate Benefits Accrued as Hancock Fund
Compensation Part of the Fund's Complex to
Trustees from the Fund Expenses Trustees**
- -------- ------------- -------- ----------
<S> <C> <C> <C>
James F. Carlin $ 3,981 $ 0 $ 60,450
William H. Cunningham 4,334 8,007 0
Charles L. Ladner 4,337 0 60,450
Leo E. Linbeck, Jr. 13,540 0 0
Patricia P. McCarter 4,337 0 60,200
Steven R. Pruchansky 4,516 0 62,450
Norman H. Smith 4,516 4,337 62,450
John P. Toolan 0 0 60,450
------- ------- --------
$39,561 $12,344 $366,450
<FN>
** The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is $366,450 as of the calendar year ended December 31,
1994. All Trustee\Directors except Messrs. Cunningham and Linbeck are
Trustees\Directors of 39 funds in the John Hancock Fund Complex. Messrs.
Cunningham and Linbeck are Trustees\Directors of 21 funds. (The Fund was 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>
<TABLE>
<CAPTION>
Total Compensation
Pension or Retirement from all Funds in John
Aggregate Benefits Accrued as Hancock Fund
Compensation Part of the Fund's Complex to
Advisory Board from the Fund Expenses Trustees
- -------------- ------------- -------- ----------
<S> <C> <C> <C>
R. Trent Campbell $ 9,769 $ 0 $ 54,000
Mrs. Lloyd Bentsen 9,769 0 54,000
Thomas R. Powers 9,769 0 54,000
Thomas B. McDade 9,769 0 54,000
------- --- --------
$39,076 $ 0 $216,000
</TABLE>
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.
24
<PAGE> 150
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.
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 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 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 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.
25
<PAGE> 151
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 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
26
<PAGE> 152
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, 1993, 1994 and 1995 advisory fees payable
by the Fund to TFMC, the Fund's former investment adviser, amounted to
$4,592,951 $4,328,830 and $2,576,039 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 March 31, 1993, 1994 and 1995 the Fund paid to TFMC
(pursuant to the Services Agreement) $413,900, $329,407 and $209,911 of which
$351,165, $278,168 and
27
<PAGE> 153
$181,384 respectively, was paid to TFMC and $62,735, $51,239 and $28,527
respectively, was paid for certain data processing and pricing information
services.
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, 1993, 1994 and 1995 respectively, were
$3,075,865, $1,521,866 and $422,993 respectively. Of such amounts $234,687,
$173,929 and $41,343, respectively, was retained by the Fund's former
distributor, Transamerica Fund Distributors, Inc. $6,228 was retained by John
Hancock Funds in 1995 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
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<PAGE> 154
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.
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.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which such expenditures were made. The Directors review such reports on a
quarterly basis. During the fiscal year ended March 31, 1995 the Funds paid
Investor Services the following amounts of expenses with respect to the Class
A shares and Class B shares of each of the Funds:
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<TABLE>
<CAPTION>
Printing and Interest,
Mailing of Expenses of Carrying or
Prospectuses Compensation John Other
to New to Selling Hancock Finance
Advertising Shareholders Brokers Funds Charges
----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A Shares $77,694 $1,718 $3,792 $219,353 $ 0
Class B Shares $ 135 $ 9 $1,723 $ 760 $28
</TABLE>
During the fiscal year ended March 31, 1995, total payments made by the Fund
under the former Class A and Class B Rule 12b-1 plan to the former distributor
amounted to $1,050,940 and $214, respectively, and of such amount 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.
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 regardingthe services renderedunder the Plansand 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 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
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<PAGE> 156
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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<PAGE> 157
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.
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<PAGE> 158
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 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.
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<PAGE> 159
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 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
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<PAGE> 160
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 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
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<PAGE> 161
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 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.
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<PAGE> 162
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 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
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<PAGE> 163
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 year of the loss. To the extent
subsequent net capital gains are offset by such losses, they would not
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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
$374,800,000 of capital loss carry forwards available to offset future net
capital gains, which carryforwards expire as follows: $231,900,000 in 1996,
$50,300,000 in 1997, $19,100,000 in 1998, $6,900,000 in 1999 and $66,000,000
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, certain 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
39
<PAGE> 165
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.
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 March 31, 1995, the annualized yield of the Fund's
Class A and Class B shares were 5.92% and 5.55%, respectively. 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 March 31, 1995 were 1.39%, 7.31% and 7.25%, respectively. Total return
(not annualized) since inception on September 30, 1994 for Class B shares was
(0.79%).
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.
40
<PAGE> 166
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:
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.
41
<PAGE> 167
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.
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
42
<PAGE> 168
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.
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.
43
<PAGE> 169
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.
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
44
<PAGE> 170
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, 1995, 1994 and
1993, brokerage commissions paid by the Fund on portfolio transactions were
$223,500, $269,642, and $414,512 respectively.
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
45
<PAGE> 171
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, 1994 and 1995 were 322% and 453% and 337% 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.
46
<PAGE> 172
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.
47
<PAGE> 173
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> 174
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> 175
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> 176
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> 177
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> 178
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> 179
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> 180
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> 181
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> 182
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> 183
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/ Ernest & Young LLP
----------------------
Boston, Massachusetts
May 15, 1995
17
