As filed with the Securities and Exchange Commission on February 29, 1996
File Nos. 2-7954
811-115
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 91 [x]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 91
(Check appropriate box or boxes.)
John Hancock Sovereign Investors Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code
(617) 375-1700
THOMAS H. DROHAN
Senior Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[x] On May 1, 1996 pursuant to paragraph (a) of Rule 485
An indefinite number of shares of Common Stock of the Registrant has been
registered under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrant's Rule 24-f Notice for its fiscal
year ended December 31, 1995 was filed with the Commission on February 26, 1996.
<PAGE>
JOHN HANCOCK SOVEREIGN INVESTORS FUNDS, INC.
JOHN HANCOCK SOVEREIGN BALANCED FUND
Cross Reference Sheet
Item Number Form N-1A, Prospectus Caption Statement of Additional
Part A Information Caption
- -------------------------------------------------------------------------------
1 Front Cover Page *
2 Expense Information; The *
Fund's Expenses; Share Price
3 The Fund's Financial *
Highlights; Performance
4 Investment Objectives and *
Policies; Organization and
Management of the Fund
5 Organization and Management *
of the Fund; The Fund's
Expenses; Back Cover
6 Organization and Management *
of the Fund; Dividends and
Taxes; How to Buy Shares;
How to Redeem Shares;
Additional Services and
Programs
7 How to Buy Shares; Share *
Price; Additional Services
and Programs; Alternative
Purchase Arrangements; The
Fund's Expenses; Back Cover
Page
8 How to Redeem Shares *
9 Not Applicable *
10 * Front Cover Page
11 * Table of Contents
12 * Organization of the Fund
13 * Investment Objectives
and Policies; Certain
Investment Practices;
Investment Restrictions
14 * Those Responsible for
Management
15 * Those Responsible for
Management
16 * Investment Advisory and
Other Services;
Distribution Contract;
Transfer Agent Services;
Custody of Portfolio;
Independent Auditors
17 * Brokerage Allocation
18 * Description of Fund's
Shares
19 * Net Asset Value;
Additional Services and
Programs
20 * Tax Status
21 * Distribution Contract
22 * Calculation of
Performance
23 * Financial Statements
<PAGE>
John Hancock
Sovereign
Balanced Fund
Class A and Class B Shares
Prospectus
May 1, 1996
TABLE OF CONTENTS
Page
-------
Expense Information 2
The Fund's Financial Highlights 3
Investment Objectives, Policies and Risk Considerations 4
Organization and Management of the Fund 9
Alternative Purchase Arrangements 10
The Fund's Expenses 12
Dividends and Taxes 12
Performance 13
How to Buy Shares 15
Share Price 16
How to Redeem Shares 22
Additional Services and Programs 23
This Prospectus sets forth information about John Hancock Sovereign Balanced
Fund (the "Fund"), a diversified series of John Hancock Sovereign Investors
Fund, Inc. (the "Company"), that you should know before investing.
Please read and retain it for future reference.
Additional information about the Fund 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 1, 1996, and incorporated by reference in
this Prospectus, free of charge, by writing to or by telephoning: John Hancock
Investor Services Corporation, Post Office 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 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>
EXPENSE INFORMATION
The purpose of the following information is to help you 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 Class A
and Class B shares of the Fund for the fiscal year ended December 31, 1995,
adjusted to reflect current fees and expenses. Actual fees and expenses 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) 5.00% 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 Operating Expenses (As a percentage
of average net assets)
Management fee 0.60% 0.60%
12b-1 fee** 0.30% 1.00%
Other Expenses % %
Total operating expenses % %
*No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a contingent deferred sales charge may be imposed on
these investments, as described below, 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 average net assets, and the remaining portion will be used to cover
distribution expenses.
+Redemption by wire fee of $4.00 not included.
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
Example Year Years Years Years
---- ---- ---- -----
<S> <C> <C> <C> <C>
You would pay the following expense for the indicated
period of years on a hypothetical $1,000 investment,
assuming 5% annual return.
Class A Shares $ $ $ $
Class B Shares--Assuming complete redemption at end
of period $ $ $ $
Class B Shares--Assuming no redemption $ $ $ $
</TABLE>
(This example should not be considered a representation of future expenses.
Actual expenses may be greater or less than those shown.)
Long-term shareholders should be advised that, as a result of the payment of
distribution fees they may pay more than the economic equivalent of the maximum
front-end sales charge permitted under applicable law.
The management fee and Rule 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 Contracts."
2
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following Financial Highlights for each of the three years in the period
ended December 31, 1995 has been audited by Ernst & Young LLP, the Fund's
independent auditors, whose unqualified report is included in the Fund's 1995
Annual Report and is included in the Statement of Additional Information. The
Financial Highlights for the period ended December 31, 1992 was audited by other
independent auditors. Further information about the performance of the Fund is
contained in the Fund's Annual Report to Shareholders that 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
indicated is as follows:
<TABLE>
<CAPTION>
FOR THE
PERIOD
OCTOBER
5, 1992
TO
DECEMBER
YEAR ENDED DECEMBER 31, 31, 1992
1995 1994 1993 (a)(d)
------ ------ ------ --------
CLASS A
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 10.74 $ 10.19 $ 10.00
---- ---- ---- ------
Net Investment Income 0.50 0.46 0.04(b)
Net Realized and Unrealized Gain (Loss) on Investments (0.88) 0.68 0.20
---- ---- ---- ------
Total from Investment Operations (0.38) 1.14 0.24
---- ---- ---- ------
Less Distributions:
Dividends from Net Investment Income (0.50) (0.45) (0.05)
Distributions from Net Realized Gain on Investments
Sold (0.02) (0.14) ......
---- ---- ---- ------
Total Distributions (0.52) (0.59) (0.05)
---- ---- ---- ------
Net Asset Value, End of Period $ 9.84 $ 10.74 $ 10.19
==== ==== ==== ======
Total Investment Return at Net Asset Value (3.51%) 11.38% 2.37%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $61,952 $62,218 $ 5,796
Ratio of Expenses to Average Net Assets 1.23% 1.45% 2.79%*(b)
Ratio of Net Investment Income to Average Net Assets 4.89% 4.44% 3.93%*(b)
Portfolio Turnover Rate 78% 85% 0%
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 10.75 $ 10.20 $ 10.00
---- ---- ---- ------
Net Investment Income 0.43 0.37 0.03(b)
Net Realized and Unrealized Gain (Loss) on Investments (0.89) 0.70 0.20
---- ---- ---- ------
Total from Investment Operations (0.46) 1.07 0.23
---- ---- ---- ------
Less Distributions:
Dividends from Net Investment Income (0.43) (0.38) (0.03)
Distributions from Net Realized Gain on Investments
Sold (0.02) (0.14) ......
---- ---- ---- ------
Total Distributions (0.45) (0.52) (0.03)
---- ---- ---- ------
Net Asset Value, End of Period $ 9.84 $ 10.75 $ 10.20
==== ==== ==== ======
Total Investment Return at Net Asset Value (4.22%) 10.63% 2.29%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $79,176 $78,775 $ 14,311
Ratio of Expenses to Average Net Assets 1.87% 2.10% 3.51%*(b)
Ratio of Net Investment Income to Average Net Assets 4.25% 4.01% 3.21%*(b)
Portfolio Turnover Rate 78% 85% 0%
</TABLE>
* On an annualized basis.
(a) Fund commenced operations on October 5, 1992.
(b) Reflects expense limitation in effect during the period indicated (see note
B). As a result of such limitation, expenses for the period from October 5,
1992 to December 31, 1992 for Class A and Class B reflect a reduction of
$0.0016 and $0.0012 per share, respectively. Absent of such limitation the
ratio of expenses to average net assets would have been 2.94% and 3.66%,
respectively, and the ratio of net investment income to average net assets
would have been 3.78% and 3.06%, respectively.
(c) Not annualized.
(d) Not covered by report of independent auditors included in the Statement of
Additional Information.
3
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The Fund's investment objective is to seek current income, growth of capital and
capital preservation.
The Fund's investment objectives are to provide current income, long-term growth
of capital and income, and preservation of capital. The Fund attempts to achieve
these objectives by allocating portfolio assets among various categories of
fixed income securities and equity securities. The Fund diversifies its
investments among a number of industry groups without concentrating more than
25% of its assets in any particular industry. The Fund's investments are subject
to market fluctuation and the risks inherent in all securities. There is no
assurance that the Fund will achieve its investment objectives.
The Fund intends to invest in both equity and fixed-income securities.
The Fund may invest in any type or class of security. At least 25% of the value
of the Fund's total assets will be invested in fixed income senior securities.
Fixed income securities may include both convertible and non-convertible debt
securities and preferred stock, and only that portion of their value attributed
to their fixed income characteristics, as determined by John Hancock Advisers,
Inc. (the "Adviser"), can be used in applying the 25% test. The balance of the
Fund's total assets may consist of cash or (i) equity securities of established
companies, (ii) equity and fixed income securities of foreign corporations,
governments or other issuers meeting applicable quality standards as determined
by the Fund's investment adviser, (iii) foreign currencies, (iv) securities that
are issued or guaranteed as to interest and principal by the U.S. Government,
its agencies, authorities or instrumentalities, (v) obligations and equity
securities of banks or savings and loan associations (including certificates of
deposit and bankers' acceptances); and (vi) to the extent available and
permissible, options and futures contracts on securities, currencies and
indices. Each of these investments is more fully described below. The Fund's
portfolio securities are selected mainly for their investment character based
upon generally accepted elements of intrinsic value, including industry
position, management, financial strength, earning power, marketability and
prospects for future growth. The distribution or mix of various types of
investments is based on general market conditions, the level of interest rates,
business and economic conditions and the availability of investments in the
equity or fixed income markets.
The Fund will use a strategy of investing only in those common stocks that have
a record of increasing their dividend payout in each of the preceding ten or
more years.
While there is considerable flexibility in the investment quality and type of
securities in which the Fund may invest, the Fund's investments in equity
securities are limited to securities of companies who have (or whose
predecessors have) been in business continuously for at least five years and
have total assets of at least $10 million. Equity securities, for purposes of
the Fund's investment policy, are limited to common stocks, preferred stocks,
investment grade convertible securities and warrants. In addition, the Fund
utilizes a strategy of investing only in those common stocks which have a record
of having increased their shareholder dividend in each of the preceding ten or
more years. This dividend performers strategy may be changed at any time.
The Fund's investments in fixed-income securities will primarily be investment
grade.
At least 75% of the Fund's total investments in fixed income securities (other
than commercial paper) will be rated within the four highest grades as
determined by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A or Baa) or
Standard & Poor's Ratings Group ("S&P") (AAA, AA, A or BBB). Fixed income
securities rated Baa or BBB are considered medium grade obligations with
speculative characteristics; and adverse economic conditions or changing
circumstances may weaken their issuers' capacity to pay interest and repay
principal.
4
<PAGE>
The Fund may invest in fixed income securities that are in the lower ratings
categories or are unrated.
Up to 25% of the Fund's total investments in fixed income securities may be
rated as low as C by S&P or Moody's. The Fund may invest in unrated securities
which, in the opinion of the Adviser, offer yields and risks comparable to those
of securities which are rated.
Risk Factors Associated with Lower Rated Securities. Fixed income securities
rated lower than Baa or BBB are high risk securities commonly known as "junk
bonds." See the Appendix attached to this Prospectus which describes the
characteristics of the securities in the various ratings categories. The Fund is
not obligated to dispose of securities whose issuers subsequently are in default
or which are downgraded below the above-stated ratings. The credit ratings of
the rating agencies, such as those ratings described here, may not be changed by
the rating agencies in a timely fashion to reflect subsequent economic events.
The credit ratings of securities do not reflect an evaluation of market risk.
Debt obligations rated in the lower ratings categories, or which are unrated,
involve greater price volatility and risk of principal and income loss. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the issuer's ability to make payments of interest
and principal. The market price and liquidity of lower rated fixed income
securities generally respond more to short-term corporate and market
developments than do those 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. The
market prices of zero coupon and payment-in-kind bonds are affected to a greater
extent by interest rate changes, and thereby tend to be more volatile than
securities that pay interest periodically and in cash. Increasing rate note
securities are typically refinanced by the issuers within a short period of
time.
Reduced volume and liquidity in the high yield market or the reduced
availability of market quotations will make it more difficult to dispose of the
securities and to value accurately the Fund's assets. The reduced availability
of reliable, objective data may increase the Fund's reliance on management's
judgment in valuing high yield securities. In addition, the Fund's investments
in lower-rated securities may be susceptible to adverse publicity and investor
perceptions, whether or not justified by fundamental factors. The Fund's
investments, and consequently its net asset value, will be subject to the market
fluctuations and risk inherent in all securities.
Investments in corporate fixed income securities may be in bonds, convertible
debentures and convertible or non-convertible preferred stock. The value of
convertible securities, while influenced by the level of interest rates, is also
affected by the changing value of the underlying common stock into which the
securities are convertible. The value of fixed income securities varies
inversely with interest rates.
5
<PAGE>
The Fund may also invest in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Certain U.S. Government securities, including U.S. Treasury bills, notes and
bonds and Government National Mortgage Association certificates ("Ginnie Maes"),
are supported by the full faith and credit of the United States. Certain other
U.S. Government securities, issued or guaranteed by Federal agencies or
government sponsored enterprises, are not supported by the full faith and credit
of the United States, but may be supported by the right of the issuer to borrow
from the U.S. Treasury. These securities include obligations of the Federal Home
Loan Mortgage Corporation ("Freddie Macs") and the Federal National Mortgage
Association ("Fannie Maes") and obligations supported by the credit of the
instrumentality, such as Student Loan Marketing Association Bonds ("Sallie
Maes"). No assurance can be given that the U.S. Government will provide
financial support to these federal agencies, authorities, instrumentalities and
government sponsored enterprises in the future.
Securities of Foreign Issuers. The Fund may purchase securities of foreign
issuers which may involve risks not present in domestic investments. It is
anticipated that under normal conditions, the Fund will not invest more than 35%
of its total assets in foreign securities. See "Global Risks" below.
Foreign Currency Transactions. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date
at a price set at the time of the contract. Although certain strategies could
minimize the risk of loss due to a decline in the value of the hedged foreign
currency, they could also limit any potential gain which might result from an
increase in the value of the currency.
Futures and Option Contracts. The Fund may buy and sell financial futures
contracts and options on futures contracts. The Fund's ability to hedge
successfully will depend on the ability of the Adviser to predict accurately the
future direction of interest rate changes and other market factors. There is no
assurance that a liquid market for futures and options will always exist. In
addition, the Fund could be prevented from opening, or realizing the benefits of
closing out, a futures or options position because of position limits or limits
on daily price fluctuations imposed by an exchange.
The Fund may engage in transactions in futures contracts and options on futures
contracts for hedging and speculative purposes. All of the Fund's futures
contracts and options on futures contracts will be traded on a U.S. or foreign
commodity exchange or board of trade. The Fund will not engage in a transaction
in futures or options on futures for speculative purposes if, immediately
thereafter, the sum of initial margin deposits and premiums required to
establish speculative positions in futures contracts and options on futures
would exceed 5% of the Fund's total assets.
Options Transactions. To earn income from the premiums received, the Fund may
write (sell) listed and over-the-counter covered call options and covered put
options on debt and equity securities and foreign currency. The Fund may write
listed and over-the-counter covered call and put options on up to 100% of its
net assets. In addition, the Fund may purchase listed and over-the-counter call
and put options on securities and currency with an aggregate value not exceeding
5% of the Fund's total assets. The Securities and Exchange Commission considers
over-the-counter options to be illiquid except under prescribed conditions,
which are discussed in detail in the Statement of Additional Information.
6
<PAGE>
While transactions in options and futures contracts may reduce certain risks,
they may entail other risks. Certain risks arise due to the imperfect
correlations between movements in the price of options and futures contracts and
movements in the prices of the securities or currency underlying the contracts.
The Fund's ability to use futures contracts and options to hedge or earn income
successfully will depend on the Adviser's ability to predict accurately the
future direction of interest rate changes, currency rate fluctuations and other
market factors. The success of hedging transactions will also depend on the
degree of correlation between the futures or options markets and the securities
markets. The risk of loss on futures and written options transactions is
potentially unlimited and may exceed the amount invested or of the premium
received. There is no assurance that a liquid market for futures and options
will always exist. In addition, the Fund could be prevented from opening, or
realizing the benefits of closing out, a futures or options position because of
position limits or limits on daily price fluctuations imposed by an exchange.
Restricted Securities. The Fund may purchase restricted securities, including
those eligible for resale to "qualified institutional buyers" pursuant to Rule
144A under the Securities Act of 1933 (the "Securities Act"). The Board of
Directors will monitor the Fund's investments in these securities, focusing on
certain factors, including valuation, liquidity and availability of information.
Purchases of restricted securities are subject to an investment restriction
limiting all the Fund's illiquid securities held by the Fund to not more than
15% of the Fund's net assets.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities. When the Fund
lends portfolio securities, there is a risk that the borrower may fail to return
the loaned securities. As a result, the Fund may incur a loss or in the event of
the borrower's bankruptcy may be delayed in or prevented from liquidating the
collateral. It is a fundamental policy of the Fund not to lend portfolio
securities having a total value in excess of 33-1/3% of its total assets.
Repurchase Agreements, Forward Commitments and When-Issued Securities. The Fund
may enter into repurchase agreements and may purchase securities on a forward
commitment or when-issued basis. In a repurchase agreement, the Fund buys a
security subject to the right and obligation to sell it back to the seller at a
higher price. These transactions must be fully collateralized at all times, but
involve some credit risk to the Fund if the other party defaults on its
obligation and the Fund is delayed in or prevented from liquidating the
collateral. The Fund will segregate, in a separate account, cash or liquid high
grade debt securities equal in value to its forward commitments and when-issued
securities. Purchasing securities for future delivery or on a when-issued basis
may increase the Fund's overall investment exposure and involves a risk of loss
if the value of the securities declines before the settlement date.
Defensive Investments. When the Adviser believes unfavorable investment
conditions exist requiring the Fund to assume a temporary defensive
investment posture, the Fund may hold cash or invest all or a portion of its
assets in short-term instru-
7
<PAGE>
ments, including: short-term U.S. Government securities and repurchase
agreements in respect thereof; bank certificates of deposit, bankers'
acceptances, time deposits and letters of credit; and commercial paper
(including so called Section 4(2) paper) rated at least A-2 by S&P or P-2 by
Moody's or if unrated, considered by the Adviser to be of comparable quality.
The Fund's temporary defensive investments may also include: debt obligations of
U.S. companies rated at least A by S&P or Moody's or, if unrated, of comparable
quality in the opinion of the Adviser; commercial paper and corporate debt
obligations not satisfying the above credit standards if they are (a) subject to
demand features or puts or (b) guaranteed as to principal and interest by a
domestic or foreign bank having total assets in excess of $1 billion, by a
company whose commercial paper may be purchased by the Fund, or by a foreign
government having an existing debt security rated at least A by S&P or Moody's;
and other short-term investments which the Adviser determines present minimal
credit risks and which are of "high quality" as determined by any major rating
service or, in the case of an instrument that is not rated, of comparable
quality as determined by the Adviser.
Investments in foreign securities may involve risks and considerations that are
not present in domestic investments.
Global Risks. Investments in foreign securities may involve risks not present 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 companies are not subject to the same uniform
financial reporting requirements, accounting standards and government
supervision as domestic companies, and foreign exchange markets are regulated
differently from the U.S. stock market. Security trading practices abroad may
offer less protection to investors such as the Fund. In addition, foreign
securities may be denominated in the currency of the country in which the issuer
is located. Consequently, changes in the foreign exchange rate will affect the
value of the Fund's shares and dividends.
These risks may be intensified in the case of investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. The Funds may be required to establish special custodial or
other arrangements before
8
<PAGE>
making certain investments in those countries. Securities of issuers located in
these countries may have limited marketability and may be subject to more abrupt
or erratic price movements.
The Fund follows certain policies which may help to reduce investment risk.
Investment Restrictions. The Fund has adopted certain investment restrictions
that are detailed in the Statement of Additional Information, where they are
designated as fundamental or non-fundamental. The Fund's investment restrictions
designated as fundamental may not be changed without shareholder approval. The
Fund's non-fundamental investment objective, policies and restrictions, however,
may be changed by a vote of the Directors without shareholder approval. These
changes may result in the Fund having an investment objective different from the
objective which you considered appropriate at the tiime of your investment. The
Fund's portfolio turnover rates for recent periods are shown in the section "The
Fund's Financial Highlights."
Brokers are chosen based on best price and execution.
When choosing brokerage firms to carry out the Fund's transactions, the Adviser
gives primary consideration to execution at the most favorable price, 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 established by the Board of Directors, the Adviser may place
securities transactions with brokers affiliated with the Adviser. These brokers
include Interstate/Johnson Lane, Tucker Anthony Incorporated, John Hancock
Distributors, Inc. and Sutro & Company, Inc. Tucker Anthony Incorporated, John
Hancock Distributors, Inc. and Sutro & Company, Inc. are indirectly owned by
John Hancock Mutual Life Insurance Company, which in turn indirectly owns the
Adviser.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Directors elect officers and retain the investment adviser, who is
responsible for the day-to-day operations of the Fund, subject to the Directors'
policies and supervision.
The Fund is a separate, diversified portfolio of the Company, an open-end
management investment company. The Company was organized as a corporation in the
State of Delaware in January 1936 and reincorporated in Maryland in 1990. The
Company currently has 345,000,000 shares of capital stock. The Company's
Articles of Incorporation permit the Directors to create and reclassify the
capital stock into separate series, without shareholder approval. As of the date
of this Prospectus, the Directors have authorized shares of the Fund and one
other series. Additional series may be added in the future. The Company's
Articles of Organization also permit the Directors to classify and reclassify
any series or portfolio of shares into one or more classes. As of the date of
this Prospectus the Directors 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
as to voting, redemption, dividends, and liquidation except that each class of
shares bears different distribution and transfer agent fees and has exclusive
voting rights with respect to its Rule 12b-1 distribution plan. The Company is
not required and does not intend to hold annual shareholder meetings, although
special meetings may be held for such purposes as electing or removing
Directors, changing fundamental investment restrictions and policies or
approving a management contract. Shareholders have certain rights to remove
Directors.
9
<PAGE>
John Hancock Advisers, Inc. advises investment companies having a total asset
value of more than $16 billion.
The Adviser was organized in 1968 and is a wholly owned indirect subsidiary of
John Hancock Mutual Life Insurance Company, a financial services company. It
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 funds through selected broker-dealers ("Selling Brokers"). Certain
officers of the Company are also officers of the Adviser and John Hancock Funds.
Pursuant to an order granted by the Securities and Exchange Commission, the Fund
has adopted a deferred compensation plan for its independent Directors which
allows Directors' fees to be invested by the Fund in other John Hancock funds.
Pursuant to a service agreement between the Adviser and its affiliate, Sovereign
Asset Management Corporation ("SAMCorp"), SAMCorp furnishes to the Adviser
certain portfolio management services with respect to the equity securities held
in the portfolio of the Fund. The Adviser supervises SAMCorp's performance of
such services and is responsible for all services required to be provided under
the Adviser's investment management contract with the Fund. The Adviser pays to
SAMCorp 40% of the fee received from the Fund by the Adviser with respect to
equity securities in the Fund's portfolio.
John F. Snyder III is primarily responsible for management of the Fund. He is
assisted by a team of co-portfolio managers and analysts in the day-to-day
management of the Fund. Mr. Snyder is Executive Vice President of SAMCorp. He
has been a co-portfolio manager of the Fund since its inception in 1992. He
has been associated with the Adviser since 1991. He is also co-portfolio
manager of John Hancock Sovereign Achievers Fund and John Hancock Sovereign
Investors Fund.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser and
the Fund have adopted extensive restrictions on personal securities trading by
personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
ALTERNATIVE PURCHASE ARRANGEMENTS
An alternative purchase plan allows you to choose the method of purchase 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 (See "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 you 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 pur-
10
<PAGE>
chase. Class A shares are subject to ongoing distribution and service fees at
a combined annual rate of up to 0.30% 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
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 to full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
Factors to Consider in Choosing an Alternative
You should consider which class of the shares would be more beneficial for 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 that 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 page 2 of this Prospectus gives examples of the charges
applicable to each class of shares. Class A shares will normally be more
beneficial if you qualify for a reduced sales charge. See "Share
Price-Qualifying for a Reduced Sales Charge."
Class A shares are subject to lower distribution and service 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 fees and, for a six-year period, a CDSC.
In the case of Class A shares, distribution expenses that John Hancock Funds
incurs in connection with the sale of the shares will be paid from the proceeds
of the initial
11
<PAGE>
sales charge and the ongoing distribution and service fees. In the case of Class
B shares, 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.
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 will also be in the same
amount, except for differences resulting from each class bearing its own
distribution and service fees, and shareholder meeting expenses and incremental
transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
The Fund pays a monthly fee equal (on an annual basis) to .60% of its average
daily net asset value to the Adviser for managing the Fund's investment and
business affairs. The Adviser pays to SAMCorp 40% of the fee received by the
Adviser with respect to the equity securities held in the portfolio of the Fund
during such month.
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 (the
"Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under
these Plans, the Fund will pay distribution and service fees at an aggregate
annual rate of up to 0.30% of the Class A shares' average daily net assets and
an aggregate annual rate of up to 1.00% of the Class B shares' average daily net
assets. In each case, up to 0.25% is for service expenses and the remaining
amount is for distribution expenses. Distribution fees are 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, and (iii) with respect to Class B shares only,
interest expenses on unreimbursed distribution expenses. The service fees will
be used to compensate Selling Brokers and others 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. These unreimbursed expenses under the Class B Plan will be
carried forward together with interest on the balance of these unreimbursed
expenses. For the year ended December 31, 1995 an aggregate of $3,097,061 of
distribution expenses or 3.6% of the average net assets of Class B shares were
not reimbursed or recovered by the John Hancock Funds through the receipt of
deferred sales charges or 12b-1 fees.
Information on the Fund's total expenses is in the Fund's Financial Highlights
section of this Prospectus.
DIVIDENDS AND TAXES
Dividends. Income dividends are paid quarterly from net investment income.
Capital gains, if any, are generally distributed annually. Dividends are
reinvested in additional shares of your class unless you elect the option to
receive cash. If you elect the cash
12
<PAGE>
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 dividend on these shares will be lower
than on the Class A shares. See "Share Price."
Taxation. Dividends from the Fund's net investment income, certain net foreign
currency gains, and net short-term capital gains are taxable to you as ordinary
income. Dividends from the Fund's net long-term capital gains are taxable as
long-term capital gain. These dividends are taxable whether you received cash or
reinvested in additional shares. Certain dividends paid in January of a given
year, may be taxable as if you received them the previous December. Corporate
shareholders may be entitled to take the corporate dividends received deduction
for dividends received by the Fund from U.S. domestic corporations, subject to
certain restrictions under the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund will send you a statement by January 31 showing the tax status
of the dividends you received for the prior year.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of 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 at least annually. When you redeem (sell) or exchange shares, you
may realize a taxable gain or loss.
On the account application, you must certify that your social security or other
taxpayer identification number 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 backup withholding, the Fund may be required to
withhold 31% of your dividends and the proceeds of redemptions and 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. In
some states, a portion of the Fund's dividends that represent investment
received by the Fund on direct U.S. Government Obligations may be exempt from
tax. Non-U.S. shareholders and tax-exempt shareholders are subject to different
tax treatment not described above. 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
Fund 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 of the Fund shares
divided over the number of years
13
<PAGE>
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 lower sales charges would result in
higher performance figures. Yield and total return for the Class B shares
reflect 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. The
yield and total return of Class A and Class B shares will be calculated
separately and, because each class is subject to different expenses, the yield
and total return 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 and yield
of Class A and Class B shares in any advertisement or promotional materials
including Fund performance data. The value of Fund's shares, when redeemed, may
be more or less than their original cost. Both yield and total return are
historical calculations and are not an indication of future performance. See
"Factors to Consider in Choosing an Alternative."
14
<PAGE>
HOW TO BUY SHARES
Opening an account.
Buying additional Class A and Class B shares.
The minimum initial investment 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.
<TABLE>
- ---------------------------------------------------------------------------------------------------------
<S> <C>
By Check 1. Make your check payable to John Hancock Investor Services Corporation
("Investor Services").
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 Sovereign Balanced Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered.
3. Deliver the completed application to your registered representative or Selling
Broker or mail it directly to Investor Services.
- ---------------------------------------------------------------------------------------------------------
Monthly Automatic 1. Complete the "Automatic Investing" and "Bank Information" sections on the
Accumulation Account Privileges Application, designating a bank account from which your funds
Program (MAAP) may be drawn.
2. The amount you elect to invest will be withdrawn
automatically 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 and Class B shares by calling Investor Services toll-free at
1-800-225-5291.
3. Give the Investor Services representative the name(s) in which the 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.
- ---------------------------------------------------------------------------------------------------------
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
shares 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.
15
<PAGE>
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 Sovereign Balanced 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 John Hancock Funds 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 every 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 fair value as determined in good faith according
to procedures approved by the Board of Directors. Short-term debt investments
maturing within 60 days are valued at amortized cost which the Board of
Directors has determined to approximate 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 Directors believe accurately
reflects their 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 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
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 next computed after your investment is
received in good order by John Hancock Funds plus a sales charge, as follows:
16
<PAGE>
<TABLE>
<CAPTION>
Combined
Reallowance
Sales Sales and Reallowance
Charge Charge Service to Selling
as a as a Fee as a Brokers
Percentage Percentage Percentage as a
Amount Invested of of the of Percentage
(including Sales Offering Amount Offering of Offering
Charge) Price Invested Price(+) Price(*)
- --------------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Less than $50,000 5.00% 5.26% 4.25% 4.01%
$50,000 to $99,999 4.50% 4.71% 3.75% 3.51%
$100,000 to $249,999 3.50% 3.63% 2.85% 2.61%
$250,000 to $499,999 2.50% 2.56% 2.10% 1.86%
$500,000 to $999,999 2.00% 2.04% 1.60% 1.36%
$1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
</TABLE>
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales charge.
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.
(**) 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 made 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 $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 sale. Thereafter 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.
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 as described below, investors in Class A shares
may be entitled to pay reduced sales charges. See "Qualifying For a Reduced
Sales Charge" below.
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:
17
<PAGE>
<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 John Hancock Mutual Life Insurance 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 dividends which have been reinvested in additional Class A
shares.
In determining whether a CDSC is applicable 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 redemption is first made from any
shares in your account that are not subject to the CDSC. The CDSC is waived on
redemption in certain circumstances. See the discussion under "Waiver of
Contingent Deferred Sales Charge" below.
You may qualify for a reduced sales charge on your investments in Class A
shares.
Qualifying for a Reduced Sales Charge. If you invest more than $50,000 in Class
A shares of the Fund or a combination of John Hancock 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 COMBINATION PRIVILEGE to take advantage of the value
of your previous investments in 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 $30,000 in Class A shares of the Fund, the
sales charge on this subsequent investment would be 4.50% and not 5.00%. This
is the rate that would otherwise be applicable to investments of less than
$50,000. See "Initial Sales Charge Alternative--Class A Shares."
18
<PAGE>
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.
(bullet) A Director or officer of the Company; 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.
(bullet) 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.*
(bullet) A bank, trust company, credit union, savings institution or other type
of depository institution, its trust departments or common trust funds (an
"eligible depository institution") if it is purchasing $1 million or more for
non-discretionary customers or accounts.*
(bullet) A broker, dealer, financial planner, consultant 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 or services made available to their clients.
(bullet) A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any or all
of his/her plan distributions directly to the Fund.
(bullet) A Member of an approved affinity group financial services plan.*
* 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 also 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 an initial sales charge, so that
your 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. The 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
dividend reinvest-
19
<PAGE>
ment, and next from the shares you have held the longest during the six-year
period. The CDSC is waived on redemptions in certain circumstances. See the
discussion "Waiver of Contingent Deferred Sales Charges" below.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time, your CDSC will be calculated as follows:
(bullet) Proceeds of 50 shares redeemed at $12 per share $ 600
(bullet) Minus proceeds of 10 shares not subject to CDSC
because they were acquired through dividend
reinvestment (10 X $12) -120
(bullet) Minus appreciation on remaining shares, also not
subject to CDSC (40 X $2) - 80
---
(bullet) Amount subject to CDSC $ 400
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses
them to defray its expenses related to providing the Fund with distribution
services connected to the sale of the Class B shares, such as compensating
selected 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 an initial a sales charge.
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 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 Contingent Deferred Sales
Shares Redeemed Charge As a Percentage of
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.
If you purchased Class B shares prior to January 1, 1994, the applicable CDSC as
a percentage of the amount redeemed will be: 4% for redemptions during the first
year after purchase, 3.5% for redemptions during the second year, 3% for
redemptions during the third year, 2.5% for redemptions during the fourth year,
2% for redemptions during the fifth year, 1% for redemptions during the sixth
year, and no CDSC for the seventh year and thereafter.
20
<PAGE>
Under certain circumstances, the CDSC on Class B and 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 Class A shares that are subject to a CDSC,
unless indicated otherwise, in the circumstances:
(bullet) 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 established 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.
(bullet) 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 your 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.
(bullet) Redemptions made to effect mandatory distributions under the Code after
age 70-1/2 from a tax-deferred retirement plan.
(bullet) 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.
(bullet) Redemptions due to death or disability.
(bullet) Redemptions made under the Reinvestment Privilege, as described in
"Additional Services and Programs" of this Prospectus.
(bullet) Redemptions made pursuant to the Fund's right to liquidate your account
if you own fewer than 50 shares.
(bullet) Redemptions made in connection with certain liquidation, merger or
acquisition transactions involving other investment companies or
personal holding companies.
(bullet) 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 this 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
21
<PAGE>
that the conversion of Class B shares to Class A shares should not be taxable
for Federal income tax purposes, nor should it change your tax basis or tax
holding period for the converted shares.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services, less any applicable CDSC. The Fund
may hold payment until it is reasonably satisfied that investments that were
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 received for them, subject to certain tax rules. Under unusual
circumstances, the Fund may suspend redemptions or postpone payment for up to
three business days or longer, as permitted by Federal securities laws.
To assure acceptance of your redemption request, please follow these procedures.
<TABLE>
<S> <C>
By Telephone All Fund shareholders are eligible automatically for the telephone redemption
privilege. Call 1-800-225-5291, from 8:00 A.M. to 4:00 P.M. (Eastern Time), Monday
through Friday, excluding days on which the New York Stock 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, but the address on the account must not have changed for
the last 30 days. A check will be mailed to the exact name(s) and address 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 according to the telephone
transactions 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 using 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 collectible after two
business days. Your bank may or may not charge 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 that is 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>
22
<PAGE>
<TABLE>
<S> <C>
Type of Registration Requirements
Individual, Joint Tenants, Sole Letter of instruction signed (with titles where applicable)
Proprietorship, Custodial by all persons authorized to sign for the account, exactly
(Uniform Gifts or Transfer to as it is registered accompanied by signature(s)
Minors Act), General Partners. guarantee(s).
Corporation, Association Letter of instruction and a corporate resolution, signed by person(s)
authorized to act on the account, accompanied by signature(s) guarantee(s).
Trusts A letter of instruction by the Trustee(s) with a signature guarantee. (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.)
</TABLE>
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 instruction. 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 smaller accounts, the Fund
reserves the right to redeem at net asset value all shares in an account which
holds fewer than 50 shares (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 nor additional fee imposed,
if the value of the account is in excess of the Fund's minimum initial
investment. 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 additional purchases and dividend reinvestments, if any, exceeds the
number of shares redeemed, repeated redemptions from a smaller account may
eventually trigger this policy.
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.
23
<PAGE>
Exchanges between funds 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
exchanges into John Hancock Short-Term Strategic Income Fund, John Hancock
Intermediate Maturity Government Fund and John Hancock Limited-Term Government
Fund 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
continue to be subject to the CDSC schedule that was in effect at your initial
purchase date.
The Fund reserves the right to require that you keep previously exchanged shares
(and reinvested dividends) in the Fund for 90 days before you are permitted 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 of another for Federal income tax purposes. An
exchange may result in a taxable gain or loss.
When you may 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
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 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.
24
<PAGE>
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 have the telephone exchange privilege.
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
Reinvestment Privilege
If you redeem shares of the Fund, you may be able to reinvest 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 that you reinvest
in a 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. The holding period of the shares
acquired through reinvestment will for the purpose of computing the CDSC
payment upon a subsequent redemption 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, account number and class from which your shares were originally
redeemed.
25
<PAGE>
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 the application from 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 an initial sales charge on your purchases of Class A shares or 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 on
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 investing through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program 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 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 payment 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.
26
<PAGE>
Retirement Plans
1. You may use the Fund for various types of retirement plans, including
Individual Retirement Accounts, Keogh Plans (H.R. 10), Pension and Profit
Sharing Plans (including 401(k) plans), Tax Sheltered Annuity Retirement
Plans (403(b) or TSA Plans) and Section 457 Plans.
2. The initial investment minimum or aggregate minimum for any of these plans
is $250. However, accounts being established as Group IRA, SEP, SARSEP, TSA
and 401(k) and Section 457 Plans will be accepted without an initial minimum
investment.
27
<PAGE>
APPENDIX
Moody's describes its ratings for fixed income securities as follows:
Fixed income securities which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Fixed income securities which are rated "Aa" are judged to be of high quality by
all standards. Together with the Aaa group they are generally referred to as
"high grade" obligations. They are rated lower than the best fixed income
securities because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities.
Fixed income securities which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Fixed income securities which are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such fixed income securities lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Fixed income securities which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes fixed income securities in this class.
Fixed income securities which are rated "B" generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Fixed income securities which are rated "Caa" are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
Fixed income securities which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
Fixed income securities which are rated "C" are the lowest rated class of fixed
income securities and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
28
<PAGE>
S&P describes its ratings for fixed income securities as follows:
Fixed income securities rated "AAA" have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
Fixed income securities rated "AA" have a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only in small
degree.
Fixed income securities rated "A" have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than fixed income
securities in higher rated categories.
Fixed income securities rated "BBB" are regarded as having an adequate capacity
to pay interest and repay principal. Whereas such securities normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for fixed income securities in this category than in higher
rated categories.
Fixed income securities rated "BB," "B," "CCC," "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. "BB" indicates the lowest degree of speculation and "C" the highest
degree of speculation. While such fixed income securities will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Moody's describes its three highest ratings for commercial paper as follows:
Issuers rated "P-1" (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. "P-1" repayment
capacity will normally be evidenced by the following characteristics: (1)
leading market positions in well- established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structures with
moderate reliance on debt and ample asset protections; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and (5) well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated "P-2" (or related supporting institutions) have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated "P-3" (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
29
<PAGE>
S&P describes its three highest ratings for commercial paper as follows:
"A-1." This designation indicate that the degree of safety regarding timely
payment is very strong.
"A-2." Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated "A-1."
"A-3." Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Quality Distribution
The average quality distribution of the portfolio for the fiscal year ended
December 31, 1995 was as follows:
<TABLE>
<CAPTION>
Rating Rating
Y-T-D Assigned Assigned
Average % of by % of by % of
Security Rating Value Portfolio Adviser Portfolio Service Portfolio
- ------------------------ ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
AAA
AA
A
BAA
BA
B
CAA
CA
C
D
Debt Securities
Equity Securities
Short-Term Securities
Total Portfolio
Other Assets--Net
Net Assets
</TABLE>
30
<PAGE>
JOHN HANCOCK SOVEREIGN BALANCED FUND
Investment Adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Principal Distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Custodian
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
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
TDD call 1-800-554-6713
JHD-3600P 5/96
JOHN HANCOCK
SOVEREIGN
BALANCED FUND
Class A and Class B Shares
Prospectus
May 1, 1996
A mutual fund seeking current income, long-term growth of capital and of
income and preservation of capital without assuming undue market risks.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Telephone 1-800-225-5291
[Recycled Logo] Printed on recycled paper
<PAGE>
JOHN HANCOCK
SOVEREIGN BALANCED FUND
CLASS A AND CLASS B SHARES
Statement of
Additional Information
May 1, 1996
This Statement of Additional Information provides information about John
Hancock Sovereign Balanced Fund (the "Fund") in addition to the information that
is contained in the Fund's Class A and Class B Prospectus, dated May 1, 1996
(the "Prospectus").
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus, a copy of which can be obtained free
of charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-(800)-225-5291
TABLE OF CONTENTS
Statement of
Additional
Information Page
Organization of the Fund 2
Investment Objectives, Policies and Risk 2
Considerations
Certain Investment Practices 3
Investment Restrictions 11
Ratings 14
Those Responsible for Management 14
Investment Advisory and Other Services 21
Net Asset Value 24
Distribution Contracts 24
Initial Sales Charge on Class A Shares 26
Deferred Sales Charge on Class B Shares 28
Additional Services and Programs for Class A and 28
Class B Shares
Tax Status 30
Description of Fund Shares 34
Calculation of Performance 35
Brokerage Allocation 37
Transfer Agent Services 39
Custody of Portfolio 39
Independent Auditors 39
1
<PAGE>
ORGANIZATION OF THE FUND
John Hancock Sovereign Balanced Fund (the "Fund") is a separate
diversified portfolio of John Hancock Sovereign Investors Fund, Inc. (the
"Company"), an open-end investment management company.
The Company was organized as a corporation in the State of Delaware in
1936 and reincorporated in Maryland in 1990. The Board of Directors of the
Company has authority under the Company's charter to create and classify shares
into separate series and to classify and reclassify any series or portfolio of
shares into one or more classes without further action by shareholders. Pursuant
thereto, the Board of Directors has created the Fund and one additional series
of the Company known as John Hancock Sovereign Investors Fund ("Investors
Fund"). Additional series may be added in the future from time to time. As of
the date of this Statement of Additional Information, the Board of Directors
have authorized the issuance of three classes of shares of the Fund: Class A,
Class B and Class C, although to date, the Fund has issued only Class A shares
and Class B shares. The Fund has no present intention of issuing Class C shares.
See "Description of Fund Shares."
The Fund is managed by John Hancock Advisers, Inc. (the "Adviser"). The
Adviser is an indirect wholly-owned subsidiary of the John Hancock Mutual Life
Insurance Company (the "Life Insurance Company"), chartered in 1862, with
national headquarters at John Hancock Place, Boston, Massachusetts. Prior to
October 23, 1991, the Company was known as "Sovereign Investors, Inc."
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The Fund's investment objective and policies are set forth in the
Prospectus, which is incorporated herein by reference. The following information
augments the Prospectus. The investment objectives of the Fund are to provide
current income, long-term growth of capital and income and preservation of
capital without assuming what the Adviser believes to be undue market risks. At
times, however, because of market conditions, the Fund may invest primarily for
current income. There is no assurance that the Fund's objectives will be
achieved. The Fund will allocate its investments among different types and
classes of securities in accordance with the Adviser's appraisal of economic and
market conditions. Shareholder approval is not required to effect changes in the
Fund's investment objectives.
As described in the Prospectus, the Fund may invest in all types of
equity and debt securities of both domestic and foreign issuers.
Assuming relatively stable economic conditions, it is anticipated that
the annual portfolio turnover rate will not usually exceed 100%. However, under
certain economic conditions, a higher turnover may be advisable to achieve the
Fund's objectives.
Foreign Securities. The Fund may invest up to 35% of its total assets in
securities of foreign companies. The actual percentage that will be allocated to
foreign securities will vary depending on the relative yields of foreign and
U.S. securities, the economies of foreign countries, the condition of such
countries' financial markets, the interest rate climate of such countries and
2
<PAGE>
the relationship of such countries' currency to the U.S. dollar. These factors
are judged on the basis of fundamental economic criteria (e.g., relative
inflation levels and trends, growth rate forecasts, balance of payments status
and economic policies) as well as technical and political data.
CERTAIN INVESTMENT PRACTICES
When-Issued Securities. "When-issued" refers to securities whose terms
are available and for which a market exists, but which have not been issued. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase.
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. When the Fund
engages in when-issued transactions, it relies on the seller to consummate the
transaction. The failure of the issuer or seller to consummate the transaction
may result in the Fund's losing the opportunity to obtain a price and yield
considered to be advantageous. On the date the Fund enters into an agreement to
purchase securities on a when-issued basis, the Fund will segregate in a
separate account cash or liquid high grade debt securities equal in value to the
when-issued 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.
Repurchase Agreements. A repurchase agreement is a contract under which
the Fund would acquire a security for a relatively short period (usually not
more than 7 days) subject to the obligation of the seller to repurchase and the
Fund to resell such security at a fixed time and price (representing the Fund's
cost plus interest). The Fund will enter into repurchase agreements only with
member banks of the Federal Reserve System and with "primary dealers" in U.S.
Government securities. The Adviser will continuously monitor the
creditworthiness of the parties with whom it 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
while the Fund seeks to enforce its rights thereto, possible subnormal levels of
income and lack of access to income during this period, and expense of enforcing
its rights.
Financial Futures Contracts. The Fund may hedge its portfolio by selling
financial futures contracts as an offset against the effect of expected
increases in interest rates or declines in security or foreign currency values
and by purchasing such futures contracts as an offset against the effect of
expected declines in interest rates or increases in security or foreign currency
values. Although other techniques could be used to reduce the Fund's exposure to
interest rate, securities market and currency fluctuations, the Fund may be able
to hedge its exposure more effectively and perhaps at a lower cost by using
financial futures contracts. The Fund will enter into financial futures
contracts for hedging and non-hedging purposes.
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Financial futures contracts have been designed by boards of trade which
have been designated "contract markets" by the Commodity Futures Trading
Commission ("CFTC"). Futures contracts are traded on these markets in a manner
that is similar to the way a stock is traded on a stock exchange. The boards of
trade, through their clearing corporations, guarantee that the contracts will be
performed. It is expected that if new types of financial futures contracts are
developed and traded the Fund may engage in transactions in such contracts.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts are
closed out prior to delivery by offsetting purchases or sales of matching
financial futures contracts (same exchange, underlying security or currency and
delivery month). Other financial futures contracts, such as futures contracts on
securities indices, by their terms call for cash settlements. If the offsetting
purchase price is less than the Fund's original sale price, the Fund realizes a
gain, or if it is more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than the Fund's original purchase price, the Fund realizes a
gain, or if it is less, the Fund realizes a loss. The transaction costs must
also be included in these calculations. The Fund will pay a commission in
connection with each purchase or sale of financial futures contracts, including
a closing transaction. For a discussion of the Federal income tax considerations
of trading in financial futures contracts, see the information under the caption
"Tax Status" below.
At the time the Fund enters into a financial futures contract, it is
required to deposit with its custodian a specified amount of cash or U.S.
Government securities, known as "initial margin." The margin required for a
financial futures contract is set by the board of trade or exchange on which the
contract is traded and may be modified during the term of the contract. The
initial margin is in the nature of a performance bond or good faith deposit on
the financial futures contract which is returned to the Fund upon termination of
the contract, assuming all contractual obligations have been satisfied. The Fund
expects to earn interest income on its initial margin deposits. Each day, the
futures contract is valued at the official settlement price of the board of
trade or exchange on which it is traded. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. This process is known
as "mark to market." Variation margin does not represent a borrowing or lending
by the Fund but is instead a settlement between the Fund and the broker of the
amount one would owe the other if the financial futures contract expired. In
computing net asset value, the Fund will mark to the market its open financial
futures positions
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Successful hedging depends on the extent of correlation between the
market for the underlying securities and the futures contract market for those
securities or currency. There are several factors that will probably prevent
this correlation from being perfect, and even a correct forecast of general
interest rate, securities market or currency trends may not result in a
successful hedging transaction. There are significant differences between the
securities or currency markets and the futures markets which could create an
imperfect correlation between the markets and which could affect the success of
a given hedge. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand for financial
futures and debt and equity securities, including technical influences in
futures trading and differences between the financial instruments being hedged
and the instruments underlying the standard financial futures contracts
available for trading in such respects as interest rate levels, maturities and
creditworthiness of issuers. The degree of imperfection may be increased where
the underlying debt securities are lower-rated, and, thus, subject to greater
fluctuation in price than higher-rated securities.
A decision as to whether, when and how to hedge involves the exercise of
skill and judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected interest rate, securities market
or currency trends. The Fund will bear the risk that the price of the securities
being hedged will not move in complete correlation with the price of the futures
contracts used as a hedging instrument. Although the Adviser believes that the
use of financial futures contracts will benefit the Fund, an incorrect
prediction could result in a loss on both the hedged securities or currency in
the Fund's portfolio and the futures position so that the Fund's return might
have been better had hedging not been attempted. However, in the absence of the
ability to hedge, the Adviser might have taken portfolio actions in anticipation
of the same market movements with similar investment results but, presumably, at
greater transaction costs. The low margin deposits required for futures
transactions permit an extremely high degree of leverage. A relatively small
movement in the price of instruments underlying a futures contract may result in
losses or gains in excess of the amount invested.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount the price of a futures contract may vary either
up or down from the previous day's settlement price, at the end of the current
trading session. Once the daily limit has been reached in a futures contract
subject to the limit, no more trades may be made on that day at a price beyond
that limit. The daily limit governs only price movements during a particular
trading day and, therefore, does not limit potential losses because the limit
may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
Finally, although the Fund engages in financial futures transactions
only on boards of trade or exchanges where there appears to be an adequate
secondary market, there is no assurance that a liquid market will exist for a
particular futures contract at any given time. The liquidity of the market
depends on participants closing out contracts rather than making or taking
delivery. In the event participants decide to make or take delivery, liquidity
in the market could be reduced. In
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addition, the Fund could be prevented from executing a buy or sell order at a
specified price or closing out a position due to limits on open positions or
daily price fluctuation limits imposed by the exchanges or boards of trade. If
the Fund cannot close out a position, it will be required to continue to meet
margin requirements until the position is closed.
Options on Financial Futures Contracts. The Fund may purchase and write
call and put options on financial futures contracts. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract at a specified exercise price at any
time during the period of the option. Upon exercise, the writer of the option
delivers the futures contract to the holder at the exercise price. The Fund
would be required to deposit with its custodian initial and variation margin
with respect to put and call options on futures contracts written by it.
Options on futures contracts involve risks similar to the risks relating
to transactions in financial futures contracts. Also, an option purchased by the
Fund may expire worthless, in which case the Fund would lose the premium paid
therefor.
Restrictions on Use of Futures Transactions and Options. The Fund
intends to comply with CFTC Regulation 4.5 and thereby avoid the status of
"commodity pool operator."
When futures contracts or options thereon are purchased to protect
against a price increase in securities intended to be purchased later, it is
anticipated that at least 75% of such intended purchases will be completed. As
an alternative to this test of bona fine hedging intent, a CFTC regulation
permits the Fund to elect to comply with a different test, under which the Fund
will not enter into a futures contract or purchase an option thereon for
non-hedging purposes if immediately thereafter the initial margin deposits and
premiums required to establish non-hedging positions in futures contracts and
options on futures would exceed 5% of the Fund's total assets.
When the Fund purchases a futures contract, writes a put option thereon
or purchases a call option thereon, an amount of cash or high grade liquid debt
securities (i.e., securities rated in one of the top three ratings categories by
Moody's Investor Services, Inc. ("Moody's), Standard & Poor's Ratings Group
("S&P") will be deposited in a segregated account with the Fund's custodian
which is equal to the underlying value of the futures contract reduced by the
amount of initial and variation margin held in the account of its broker.
Options Transactions. The Fund may write listed and over-the-counter
covered call options and covered put options on securities in order to earn
additional income from the premiums received. In addition, the Fund may purchase
listed and over-the-counter call and put options written by the Fund. The extent
to which covered options will be used by the Fund will depend upon market
conditions and the availability of alternative strategies. The Fund may write
listed covered and over-the-counter call and put options on up to 100% of its
net assets.
The Fund will write listed and over-the-counter call options only if
they are "covered," which means that the Fund owns or has the immediate right to
acquire the securities underlying the options without additional cash
consideration upon conversion or exchange of other securities held in its
portfolio. A call option written by the Fund will also be "covered" if the Fund
holds on a share-for-share basis a covering call on the same securities where
(i) the exercise price of the covering call held is equal to or less than the
exercise price of the call written if the difference is
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maintained by the Fund in cash, U.S. Treasury bills or high grade liquid debt
obligations in a segregated account with the Fund's custodian, and (ii) the
covering call expires at the same time as the call written. If a covered call
option is not exercised, the Fund would keep both the option premium and the
underlying security. If the covered call option written by the Fund is exercised
and the exercise price, less the transaction costs, exceeds the cost of the
underlying security, the Fund would realize a gain in addition to the amount of
the option premium it received. If the exercise price, less transaction costs,
is less than the cost of the underlying security, the Fund's loss would be
reduced by the amount of the option premium.
As writer of a covered put option, the Fund will write a put option only
with respect to securities it intends to acquire for the Fund's portfolio and
will maintain in a segregated account with its custodian bank cash, U.S.
Government securities, or high-grade liquid debt securities with a value equal
to the price at which the underlying security may be sold to the Fund in the
event the put option is exercised by the purchaser. The Fund can also write a
"covered" put option by purchasing on a share-for-share basis a put on the same
security as the put written by the Fund if the exercise price of the covering
put held is equal to or greater than the exercise price of the put written and
the covering put expires at the same time or later than the put written.
In writing listed and over-the-counter covered put options on
securities, the Fund would earn income from the premiums received. If a covered
put option is not exercised, the Fund would keep the option premium and the
assets maintained to cover the option. If the option is exercised and the
exercise price, including transaction costs, exceeds the market price of the
underlying security, the Fund would realize a loss, but the amount of the loss
would be reduced by the amount of the option premium.
If the writer of an exchange-traded option wishes to terminate his
obligation prior to its exercise, it may effect a "closing purchase
transaction." This is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that the Fund's
position will be offset by the Options Clearing Corporation. The Fund may not
effect a closing purchase transaction after it has been notified of the exercise
of an option. There is no guarantee that a closing purchase transaction can be
effected. Although the Fund will generally write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade will exist for any
particular option or at any particular time, and for some options no secondary
market on an exchange may exist.
In the case of a written call option, effecting a closing transaction
will permit the Fund to write another call option on the underlying security
with either a different exercise price, expiration date or both. In the case of
a written put option, it will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a gain from a closing transaction if the cost of
the closing transaction is less than the premium received from writing the
option. The Fund will realize a loss from a closing transaction if the cost of
the closing transaction is more than the premium received for
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writing the option. However, because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying security owned
by the Fund.
Over-the-Counter Options. The Fund may engage in options transactions on
exchanges and in the over-the-counter markets. In general, exchange-traded
options are third-party contracts (i.e., performance of the parties' obligations
is guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. Over-the-counter ("OTC") transactions are two-party
contracts with price and terms negotiated by the buyer and seller. The Fund will
acquire only those OTC options for which management believes the Fund can
receive on each business day at least two separate bids or offers (one of which
will be from an entity other than a party to the option) or those OTC options
valued by an independent pricing service. The Fund will write and purchase OTC
options only with member banks of the Federal Reserve System and primary dealers
in U.S. Government securities or their affiliates which have capital of at least
$50 million or whose obligations are guaranteed by an entity having capital of
at least $50 million. The SEC has taken the position that OTC options are
illiquid securities subject to the restriction that illiquid securities are
limited to not more than 15% of the Fund's assets. The SEC, however, has a
partial exemption from the above restrictions on transactions in OTC options.
The SEC allows the Fund to exclude from 15% limitation on illiquid securities a
portion of the value of the OTC options written by the Fund, provided that
certain conditions are met. First, the other party to the OTC options has to be
a primary U.S. Government securities dealer designated as such by the Federal
Reserve Bank. Second, the Fund would have an absolute contractual right to
repurchase the OTC options at a formula price. If the above conditions are met,
a Fund must treat as illiquid only that portion of the OTC option's value (and
the value of its underlying securities) which is equal to the formula price for
repurchasing the OTC option, less the OTC option's intrinsic value.
Restricted Securities. Although the Fund has authority to purchase to a
limited extent "restricted securities" (i.e., securities that would be required
to be registered prior to distribution to the public), the Fund has no current
intention of doing so. However, the Fund may in the future invest in restricted
securities eligible for resale to certain institutional investors pursuant to
Rule 144A under the Securities Act of 1933 and foreign securities acquired in
accordance with Regulation S under the Securities Act of 1933. The Fund will not
invest more than 15% of its net assets in illiquid investments, which includes
repurchase agreements maturing in more than seven days, securities that are not
readily marketable and restricted securities. However, if the Board of Directors
determines, based upon a continuing review of the trading markets for specific
Rule 144A securities, that they are liquid then such securities may be purchased
without regard to the 15% limit. The Board of Directors may adopt guidelines and
delegate to the Adviser the daily function of determining and monitoring the
liquidity of restricted securities. The Board, however, will retain sufficient
oversight and be ultimately responsible for the determinations. Since it is not
possible to predict with assurance exactly how this market for restricted
securities sold and offered under Rule 144A will develop, the Board will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
The Fund does not intend to invest more than 5% of its net assets in Rule 144A
securities in the coming year.
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Government Securities. Certain U.S. Government securities, including
U.S. Treasury bills, notes and bonds, and Government National Mortgage
Association certificates ("Ginnie Maes"), are supported by the full faith and
credit of the United States. Certain other U.S. Government securities, issued or
guaranteed by Federal agencies or government sponsored enterprises, are not
supported by the full faith and credit of the United States, but may be
supported by the right of the issuer to borrow from the U.S. Treasury. These
securities include obligations of the Federal Home Loan Mortgage Corporation
("Freddie Macs"), and obligations supported by the credit of the
instrumentality, such as Federal National Mortgage Association Bonds ("Fannie
Maes"). No assurance can be given that the U.S. Government will provide
financial support to such Federal agencies, authorities, instrumentalities and
government sponsored enterprises in the future.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities
which provide monthly payments which are, in effect, a "pass-through" of the
monthly interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans. Collateralized mortgage
obligations ("CMOs") in which the Fund may invest are securities issued by a
U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities may be less
effective than traditional debt obligations of similar maturity at maintaining
yields during periods of declining interest rates. The Fund will not invest more
than 50% of its assets in mortgage-backed securities.
Forward Foreign Currency Transactions. The foreign currency exchange
transactions of the Fund may be conducted on a spot (i.e., cash) basis at the
spot rate for purchasing or selling currency prevailing in the foreign exchange
market. The Fund may also deal in forward foreign currency exchange contracts
involving currencies of the different countries in which it will invest as a
hedge against possible variations in the foreign exchange rate between these
currencies. This is accomplished through contractual agreements to purchase or
sell a specified currency at a specified future date and price set at the time
of the contract. The Fund's dealings in forward foreign currency exchange
contracts will be limited to hedging either specified transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward foreign
currency contracts with respect to specific receivables or payables of the Fund
accruing in connection with the purchase and sale of its portfolio securities
denominated in foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in such foreign currencies. The Fund will not attempt to hedge all of its
foreign portfolio positions and will enter into such transactions only to the
extent, if any, deemed appropriate by the Adviser. The Fund will not engage in
speculative forward foreign currency exchange transactions.
If the Fund purchases a forward contract, its custodian bank will
segregate cash or high grade liquid debt securities in a separate account of the
Fund in an amount equal to the value of the Fund's total assets committed to the
consummation of such forward contract. Those assets will be valued at market
daily and if the value of the securities in the separate account declines,
additional cash or securities will be placed in the account so that the value of
the account will be equal to the amount of the Fund's commitment with respect to
such contracts.
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Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency exchange
transactions varies with such factors as the currency involved, the length of
the contract period and the market conditions then prevailing. Since
transactions in foreign currency are usually conducted on a principal basis, no
fees or commissions are involved.
Lower Rated High Yield Securities. As discussed in the Fund's
Prospectus, the Fund may invest in high yielding, fixed income securities rated
as low as C by Moody's or S&P. These lower rated securities are speculative to a
high degree and often have very poor prospects of attaining real investment
standing. Lower rated securities are generally referred to as junk bonds.
Ratings are based largely on the historical financial condition of the issuer.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better or
worse than the rating would indicate.
The values of lower-rated securities generally fluctuate more than those
of high-rated securities. In addition, the lower rating reflects a greater
possibility of an adverse change in financial condition affecting the ability of
the issuer to make payments of interest and principal. The Adviser seeks to
minimize these risks through diversification, investment analysis and attention
to current developments in interest rates and economic conditions. Because the
Fund invests in securities in the lower rated categories, the achievement of the
Fund's goals is more dependent on the Adviser's ability than would be the case
if the Fund were investing exclusively in securities in the higher rated
categories. See the Appendix attached to this Statement of Additional
Information which describes the characteristics of the securities in the various
ratings categories. The Fund may invest in unrated securities which, in the
opinion of the Adviser, are of comparable quality and offer yields and risks
which are comparable to those of rated securities.
The Fund may invest in pay-in-kind (PIK) securities, which pay interest
in either cash or additional securities, at the issuer's option, for a specified
period. The Fund also may invest in zero coupon bonds, which have a determined
interest rate, but payment of the interest is deferred until maturity of the
bonds. Both kinds of bonds may be more speculative and subject to greater
fluctuations in value than securities which pay interest periodically and in
cash, due to changes in interest rates.
The market value of high yield securities which carry no equity
participation usually reflects yields generally available on securities of
similar quality and type. When such yields decline, the market value of a
portfolio already invested at higher yields can be expected to rise if such
securities are protected against early call. In general, in selecting securities
for its portfolio, the Fund intends to seek protection against early call.
Similarly, when such yields increase, the market value of a portfolio already
invested at lower yields can be expected to decline. The Fund's portfolio may
include debt securities which sell at substantial discounts from par. These
securities are low coupon bonds which, during periods of high interest rates,
because of their lower acquisition cost tend to sell on a yield basis
approximating current interest rates.
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INVESTMENT RESTRICTIONS
The following investment restrictions will not be changed without the
approval of a majority of the outstanding voting securities of the Fund, voting
as a single class, which, as used in the Prospectus and this Statement of
Additional Information, means approval of the lesser of (i) the holders of 67%
or more of the shares of the Fund represented at a meeting if the holders of
more than 50% of outstanding shares are present in person or by proxy or (ii)
the holders of more than 50% of the outstanding shares of the Fund.
The Fund observes the fundamental restrictions listed in items (1) through (9)
below.
(1) Issue senior securities, except as permitted by paragraph (2) below.
For purposes of this restriction, the issuance of shares in multiple
classes or series, the purchase or sale of options, futures contracts
and options on futures contracts, forward foreign currency exchange
contracts, forward commitments and repurchase agreements entered into in
accordance with the Fund's investment policies, and the pledge, mortgage
or hypothecation of the Fund's assets within the meaning of paragraph
(3) below, are not deemed to be senior securities.
(2) Borrow money in amounts exceeding 33% of the Fund's total assets
(including the amount borrowed) taken at market value. Interest paid on
borrowings will reduce income available to shareholders.
(3) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if such
pledging, mortgaging or hypothecation does not exceed 33% of the Fund's
total assets taken at market value.
(4) Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate or any interest therein, including real
estate limited partnerships, except that the Fund may invest in
securities of corporate or governmental entities secured by real estate
or marketable interests therein or securities issued by companies that
invest in real estate or interests therein.
(6) Make loans, except for collateralized loans of portfolio securities
in accordance with the Fund's investment policies. The Fund does not,
for this purpose, consider the purchase of all or a portion of an issue
of bonds, bank certificates of deposit, bankers' acceptances, debentures
or other securities, whether or not the purchase is made upon the
original issuance of the securities, to be the making of a loan.
(7) Buy or sell commodities, commodity contracts, puts, calls or
combinations thereof, except futures contracts and options on
securities, securities indices, currency and other financial
instruments, options on such futures contracts, forward foreign currency
exchange contracts, forward commitments, interest rate or currency
swaps, securities index put or call warrants and repurchase agreements
entered into in accordance with the Fund's investment policies.
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(8) Purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after such
purchase, the value of its investments in such industry would exceed 25%
of its total assets taken at market value at the time of each
investment. This limitation does not apply to investments in obligations
of the U.S. Government or any of its agencies or instrumentalities.
(9) Purchase securities of an issuer (other than the U.S. Government,
its agencies or instrumentalities), if, with respect to 75% of the
Fund's total assets,
(i) more than 5% of the Fund's total assets taken at market value would
be invested in the securities of such issuer, or,
(ii) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the
Fund.
In connection with the lending of portfolio securities under item (6)
above, such loans must at all times be fully collateralized and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Securities used as collateral must be marked to market daily.
Nonfundamental Investment Restrictions. The following investment
restrictions are designated as nonfundamental and may be changed by the Board of
Directors without shareholders' approval.
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management
of the Adviser to save commissions or to average prices among them is
not deemed to result in a joint securities trading account.
(b) Purchase securities on margin (except that it may obtain such
short-term credits as may be necessary for the clearance of transactions
in securities and forward foreign currency exchange contracts and may
make margin payments in connection with transactions in futures
contracts and options on futures) or make short sales of securities
unless by virtue of its ownership of other securities, the Fund has the
right to obtain, without the payment of any additional consideration,
securities equivalent in kind and amount to the securities sold and, if
the right is conditional, the sale is made upon the same conditions.
(c) Purchase securities of an issuer if, to the Fund's knowledge, one or
more of the Directors or officers of the Company or the directors or
officers of the Adviser individually owns beneficially more than 0.5%
and together own beneficially more than 5% of the securities of such
issuer.
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(d) Purchase a security if, as a result, (a) more than 10% of the Fund's
assets would be invested in securities of other investment companies,
(b) more than 3% of the total outstanding voting securities of any one
such investment company would be held by the Fund, or (c) more than 5%
of the Fund's assets would be invested in any one investment company.
The Fund may not purchase securities of any open-end investment company
except when such purchase is part of a plan of merger, consolidation,
reorganization or purchase of substantially all of the assets of any
other investment company. Because investments in securities of other
investment companies may result in duplication of certain fees and
expenses, the Fund will invest in such securities only when, in the
Adviser's opinion, the anticipated return on such securities justifies
any such additional expense.
(e) Purchase securities of any issuer which, together with any
predecessor, has a record of less than three years' continuous
operations if such purchase would cause investments of the Fund in all
such issuers to exceed 5% of the value of the total assets of the Fund.
(f) Invest for the purpose of exercising control over or management of
any company.
(g) Purchase warrants of any issuer, if, as a result of such purchases,
more than 2% of the value of the Fund's total assets would be invested
in warrants which are not listed on the New York Stock Exchange or the
American Stock Exchange or more than 5% of the value of the total assets
of the Fund would be invested in warrants generally, whether or not so
listed. For these purposes, warrants are to be valued at the lesser of
cost or market, but warrants acquired by the Fund in units with or
attached to debt securities shall be deemed to be without value.
(h) Purchase any security, including any repurchase agreement maturing
in more than 7 days, which is not readily marketable, if more than 15%
of the net assets of the Fund, taken at market value, would be invested
in such securities. (The staff of the Securities and Exchange Commission
may consider over-the-counter options to be illiquid securities subject
to the 15% limit.)
(i) Purchase interests in oil, gas or other mineral leases or
exploration programs or leases; however, this policy will not prohibit
the acquisition of securities of companies engaged in the production or
transmission of oil, gas or other minerals.
(j) Purchase a security if, as a result, more than 15% of the Fund's
assets would be invested in securities which are restricted as to
disposition; however, this policy will not restrict the acquisition of
restricted securities offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act of 1933 or to foreign
securities purchased in accordance with Regulation S under the
Securities Act of 1933.
(k) 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
13
<PAGE>
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.
In order to permit the sale of shares of the Fund in certain states, the
Board of Directors may, in its sole discretion, adopt restrictions or investment
policies more restrictive than those described above. Should the Board of
Directors determine that any such more restrictive policy is no longer in the
best interest of the Fund and its shareholders, the Fund may cease offering
shares in the state involved and the Board may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such restrictive
policy, the Board of Directors may, at its sole discretion, revoke such policy.
The Fund has agreed with state securities administrators that it will not
purchase the following securities:
The Fund agrees that, in accordance with the Ohio Securities Division
and until such regulations are no longer required, it will comply with rule
1301:6-3-09(E)(9) by not investing in the securities of other open-end and
closed-end investment companies except by purchase in the open market where no
commission or profit to a sponsor or dealer results from the purchase other than
the customary broker's commission, or except when the purchase is part of a plan
of merger, consolidation, reorganization or acquisition.
If a percentage restriction on investment or utilization of assets as
set forth above is adhered to at the time an investment is made, a later change
in percentage resulting from changes in the value of the Fund's assets will not
be considered a violation of the restriction.
RATINGS
As described in the Fund's Prospectus, at least 75% of the Fund's
investments in fixed income securities will be comprised of securities in the
four highest applicable ratings of S&P and Moody's or their equivalent or
unrated securities deemed of comparable quality by the Adviser. See the Appendix
attached to the Prospectus, which describes the characteristics of the
securities in the various categories.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Board of Directors who elect
officers who are responsible for the day-to-day operations of the Fund and who
execute policies formulated by the Board of Directors. Several of the officers
and Directors of the Company are also officers or directors of the Adviser or
officers or directors of John Hancock Funds, Inc., ("John Hancock Funds") the
Fund's principal distributor.
The following table sets forth the principal occupation or employment of
the Directors of the Company and principal officers of the Company during the
past five years
14
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
<S> <C> <C>
Edward J. Boudreau, Jr.* Chairman (1,2) Chairman and Chief Executive Officer,
101 Huntington Avenue the Adviser and The Berkeley Financial
Boston, MA 02199 Group ("Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited ("Advisers
International"); John Hancock
Funds, Inc., ("John Hancock
Funds"), John Hancock Investor
Services Corporation ("Investor
Services") and Sovereign Asset
Management Corporation ("SAMCorp")
(herein after the Adviser, The
Berkeley Group, NM Capital,
Advisers International, John
Hancock Funds, Investor Services
and SAMCorp collectively referred
to as the "Affiliated Companies");
Chairman, First Signature Bank &
Trust; Director, John Hancock
Freedom Securities Corp., John
Hancock Capital Corp., New
England/Canada Business Council;
Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; President, the Adviser
(until July 1992); Chairman, John
Hancock Distributors, Inc.
("Distributors") (until April
1994).
Thomas W.L. Cameron Director Chairman and Director, Sovereign
Interstate/Johnson Lane Advisers, Inc.; Senior Vice President,
1892 Andell Bluff Blvd. Interstate/Johnson Lane Corp.
Johns Island, SC 29455 (securities dealer).
</TABLE>
- -------------------
* An "interested person" of the Company as such term is defined in the
Investment Company Act of 1940, as amended ("The Investment Company Act").
(1) Member of the Executive Committee. Under the Company's charter, 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.
15
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
<S> <C> <C>
James F. Carlin Trustee(3) Chairman and CEO, Carlin Consolidated,
233 West Central Street Inc. (insurance); Chairman,
Natick, MA 01760 Massachusetts Higher Education
Coordinating Council (since 1995);
Trustee, Massachusetts Health and
Education Tax-Exempt Trust (Financial);
Director, Rizzo Associates, Inc.
(Engineering), Arbella Mutual Insurance
Company (insurance), Consolidated Group
Trust (group health plan), Carlin
Insurance Agency, Inc., West Insurance
Agency, Inc., Allied American Agency,
Inc. (insurance); Treasurer, Alpha
Analytical, Inc. (Chemistry Lab);
Receiver, the City of Chelsea (until
August 1992).
Charles F. Fretz Director (3) Consultant, self employed; Vice
RD #5, Box 300B President and Director, Towers, Perrin,
Clothier Springs Road Foster & Crosby, Inc. (international
Malvern, PA 19355 management consultants) (until 1985).
Harold R. Hiser, Jr. Director Executive Vice President,
123 Highland Avenue Schering-Plough Corporation
Short Hill, NJ 07078 (pharmaceuticals) (until 1995);
Director, ReCapital
Corporation (reinsurance).
Charles L. Ladner Director (3) Director, Energy North, Inc. (public
UGI Corporation utility holding company) (until 1992);
P.O. Box 858 Senior Vice President and Chief Financial
Valley Forge, PA 19482 Officer of UGI Corp. (public utility
holding company).
Patricia P. McCarter Director (3) Director and Secretary of the McCarter
1230 Brentford Road Corp. (machine manufacturer).
Malvern, PA 19355
Steven R. Pruchansky Director (1,3) Director and President, Mast Holdings,
6920 Daniel Road Inc.; Director, First Signature Bank &
Naples, FL 33942 Trust Company (until August
1991);Trustee, Mast Realty Trust (until
1994); President, Maxwell Building Corp.
(until 1991).
16
<PAGE>
Name and Address Positions Held Principal Occupation(s)
With the Company During the Past Five Years
Norman H. Smith Director (3) Retired. Lieutenant General, United
243 Mt. Oriole Lane States Marine Corps; Deputy Chief of
Linden, VA 22642 Staff for Manpower and Reserve Affairs,
Headquarters Marine Corps;
Commanding General, III
Marine Expeditionary
Force/3rd Marine Division
(retired 1991).
John P. Toolan Director (3) Director, The Muni Bond Funds, National
13 Chadwell Place Liquid Reserves, Inc., The Tax Free Money
Morristown, NJ 07960 Fund, Inc. and Vantage Money Market Funds
(mutual funds), and The
Inefficient-Market Fund, Inc. (closed-end
investment company; Chairman, Smith
Barney Trust Company (retired December,
1991); Director, Smith Barney, Inc.,
Mutual Management Company and Smith
Barney Advisers, Inc. (investment
advisers) (until December 1991).
Robert G. Freedman* Vice Chairman and Vice Chairman and Chief Investment
101 Huntington Avenue Chief Investment Officer, the Adviser; President, the
Boston, MA 02199 Officer (2) Adviser (until December 1994).
Anne C. Hodsdon* President(2) President and Chief Operating Officer,
101 Huntington Avenue the Adviser; Executive Vice President,
Boston, MA 02199 the Adviser (until December 1994); Senior
Vice President; the Adviser (until
December 1993); Vice President, the
Adviser, 1991.
</TABLE>
* An "interested person" of the Company as such term is defined in the 1940 Act.
(1) Member of the Executive Committee. Under the Company's charter, 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.
17
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
<S> <C> <C>
Thomas H. Drohan* Senior Vice President Senior Vice President and Secretary of
101 Huntington Avenue and Secretary the Adviser.
Boston, MA 02199
James B. Little* Senior Vice President Senior Vice President, the Adviser.
101 Huntington Avenue and Chief Financial
Boston, MA 02199 Officer
Susan S. Newton* Vice President, Vice President and Assistant Secretary,
101 Huntington Avenue Assistant Secretary the Adviser.
Boston, MA 02199 and Compliance Officer
John A. Morin* Vice President Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
James J. Stokowski* Vice President and Vice President, the Adviser.
101 Huntington Avenue Treasurer
Boston, MA 02199
</TABLE>
- ----------------
* An "interested person" of the Company as such term is defined in the
Investment Company Act of 1940, as amended ("The Investment Company
Act").
(1) Member of the Executive Committee. Under the Company's charter, 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.
- ----------------
18
<PAGE>
As of January 31, 1996, 5,895,570 shares of the Fund outstanding and
officers and Trustees of the Fund as a group beneficially owned less than 1% of
these outstanding shares. As of such date, no person owned of record or was
known by the Fund to own beneficially as much as 5% of the outstanding shares of
the Fund.
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Directors and officers may also be officers
and/or directors and/or Trustees of one or more other funds for which the
Adviser serves as investment adviser.
During the fiscal year ended December 31, 1995, fees paid to the
Independent Directors were $_______.
<TABLE>
<CAPTION>
Total
Pension or Compensation From
Retirement the Fund and John
Aggregate Benefits Estimated Annual Hancock Fund
Compensation Accrued as Part Benefits Upon Complex to
From the Fund of the Fund's Retirement Directors(1)(2)
Independent Directors Expenses
<S> <C> <C> <C> <C>
James F. Carlin $ 3,262 - - $
Charles F. Fretz 3,252 - -
Harold R. Hiser, Jr. 3,051 - -
Charles L. Ladner 3,262 - -
Patricia P. McCarter 3,262 - -
Steven R. Pruchansky 3,371 - -
Norman H. Smith 3,371 - -
John P. Toolan 3,262 - -
$ 29,155 $
</TABLE>
(1)The total compensation paid by the John Hancock Fund Complex to the
Independent Directors is as of the calendar year ended December 31, 1995.
(2)All Directors are Directors of 33 funds in the John Hancock Complex.
INVESTMENT ADVISORY AND OTHER SERVICES
Each of the Directors and principal officers affiliated with the Company
who is also an affiliated person of the Adviser is named above, together with
the capacity in which such person is affiliated with the Company or the Adviser.
As described in the Prospectus under the caption "Organization and
Management of the Fund," the Fund has entered into an investment management
contract with the Adviser, under which the Adviser provides the Fund with a
continuous investment program, consistent with the Fund's stated investment
objective and policies. The Adviser is responsible for the day to day management
of the Fund's portfolio assets.
19
<PAGE>
Securities held by the Fund may also be held by other funds or
investment advisory clients for which the Adviser or any affiliate provides
investment advice. Because of different investment objectives or other factors,
a particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser for the Fund 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 affiliates may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
No person other than the Adviser and its directors and employees
regularly furnish advice to the Fund with respect to the desirability of the
Fund's investing in, purchasing or selling securities. The Adviser may from time
to time receive statistical or other similar factual information, and
information regarding general economic factors and trends, from the John Hancock
Mutual Life Insurance Company and its affiliates.
Under the terms of the investment management contract with the Fund, the
Adviser provides the Fund with office space, supplies and other facilities
required for the business of the Fund. All expenses which are not specifically
paid by the Adviser and which are incurred in the operation of the Fund,
including fees of Directors of the Company who are not "interested persons," as
such term is defined in the Investment Company Act (the "Independent
Directors"), and the continuous public offering of the shares of the Fund are
borne by the Fund but excluding certain distribution-related activities required
to be paid by the Adviser or John Hancock Funds.
As discussed in the Prospectus and as provided by the investment
management contract, the Fund pays the Adviser monthly an investment management
fee, which is accrued daily, based on an annual rate of 0.60% of the average of
the daily net assets of the Fund. From time to time, the Adviser may reduce its
fee or make other arrangements to limit the Fund's expenses to a specified
percentage of average net assets. The Adviser retains the right to re-impose a
fee and recover other payments to the extent that, at the end of any fiscal
year, the Fund's actual expenses at year end fall below any such limit.
Investment Advisory fees to the Adviser during the fiscal year ended
December 31, 1995 amounted to $_______.
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 common stock, the fee payable to the
Adviser will be reduced to the extent of such excess. At this time, the most
restrictive limit applicable to the Fund is 2.5% of the first $30,000,000 of the
Fund's average daily net assets, 2% of the next $70,000,000 of such assets and
1.5% of the remaining average daily net assets. When calculating the Fund's
expense ratio for this purpose, the Fund may exclude interest, brokerage
commissions and extraordinary expenses.
20
<PAGE>
Pursuant to the investment management contract, the Adviser is not
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the investment management
contract relates, except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser in the performance of its duties or
from reckless disregard of its obligations and duties under the investment
management contract.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and currently has more than $16 billion in
assets under management in its capacity as investment adviser to the Fund and
other mutual funds and publicly traded investment companies in the John Hancock
group of funds having a combined total of over 1,060,000 shareholders. The
Adviser is an affiliate of the Life Insurance Company, one of the most
recognized and respected financial institutions in the nation. With total assets
under management more than $80 billion, the Life Insurance Company is one of the
ten largest life insurance companies in the United States, and carries high
ratings from S&P and A.M. Best's. Founded in 1862, the Life Company has been
serving clients for over 130 years.
Under the investment management contract, the Fund may use the name
"John Hancock" or any name derived from or similar to it only for so long as the
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent that it lawfully
can) will cease to use such a name or any other name indicating that it is
advised by or otherwise connected with the Adviser. In addition, the Adviser or
the Life Insurance Company may grant the nonexclusive right to use the name
"John Hancock" or any similar name to any other corporation or entity, including
but not limited to any investment company of which the Life Insurance Company or
any subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
The Adviser has entered into a service agreement with Sovereign Asset
management Corporation (SAMCORP) which is an indirect wholly-owned subsidiary of
the Life Insurance Company. The service agreement provides that SAMCORP will
provide to the Adviser certain portfolio management services with respect to the
equity securities held in the portfolio of the Fund. The service agreement
further provides that the Adviser will remain ultimately responsible for all of
its obligations under the investment management contract between the Adviser and
the Fund. Subject to the supervision of the Adviser, SAMCORP furnishes the Fund
with recommendations with respect to the purchase, holding and disposition of
equity securities in the Fund's portfolio; furnishes the Fund with research,
economic and statistical data in connection with the Fund's equity investments;
and places orders for transactions in equity securities.
The Adviser pays to SAMCORP 40% of the monthly investment management fee
received by the Adviser with respect to the equity securities held in the
portfolio of the Fund during such month. The fees paid by the Fund to the
Adviser under the investment management contract are not affected by this
arrangement.
During the fiscal year ended December 31, 1995, the Adviser paid SAMCORP
$________ in connection with the service agreement with SAMCORP.
21
<PAGE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a 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.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of any determination of a Fund's NAV.
A 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. On any day an international market is
closed and the New York Stock Exchange is open, any foreign securities will be
valued at the prior day's close with the current day's exchange rate. Trading of
foreign securities may take place on Saturdays and U.S. business holidays on
which a Fund's NAV is not calculated. Consequently, a Fund's portfolio
securities may trade and the NAV of the Fund's redeemable securities may be
significantly affected on days when a shareholder has no access to the Fund.
DISTRIBUTION CONTRACTS
The Fund has entered into a distribution contract with John Hancock
Funds. Under the contract, John Hancock Funds is obligated to use its best
efforts to sell shares of each class of the Fund. Shares of the Fund are also
sold by selected broker-dealers (the "Selling Brokers") which have entered into
selling agency agreements with John Hancock Funds. John Hancock Funds accepts
orders for the purchase of the shares of the Fund which are continually offered
at net asset value next determined, plus any applicable sales charge. In
connection with the sale of Class A or Class B shares, John Hancock Funds and
Selling Brokers receive compensation in the form of a sales charge imposed, in
the case of Class A shares, at the time of sale or, in the case of Class B
shares, on a deferred basis. The sales charges are discussed further in the
Prospectus.
22
<PAGE>
The Fund's Trustees adopted Distribution Plans with respect to Class A
and Class B shares ("the Plans"), pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Under the Plans, the Fund will pay distribution and service
fees at an aggregate annual rate of up to 0.30% and 1.00% respectively, of the
Fund's daily net assets attributable to shares of that class. However, the
service fee will not exceed 0.25% of the Fund's average daily net assets
attributable to each class of shares. The distribution fees reimburse John
Hancock Funds for its distribution costs incurred in the promotion of sales of
Fund shares, and the service fees compensate Selling Brokers for providing
personal and account maintenance services to shareholders. In the event that
John Hancock Funds is not fully reimbursed for expenses incurred by it under the
Class B Plan in any fiscal year, John Hancock Funds may carry these expenses
forward, provided, however, that the Trustees may terminate the Class B Plan and
thus the Fund's obligation to make further payments at any time. Accordingly,
the Fund does not treat unreimbursed expenses relating to the Class B shares as
a liability of the Fund. The Plans were approved by a majority of the voting
securities of the Fund. The Plans and all amendments were approved by the
Trustees, including a majority of the Trustees who are not interested persons of
the Fund and who have no direct or indirect financial interest in the operation
of the Plans (the "Independent Trustees"), by votes cast in person at meetings
called for the purpose of voting on such Plans.
The Plans were approved by the Adviser as the sole initial shareholder
of the Class A and B shares. The Plans, and all amendments to the Plans, have
also been approved by a majority of the Directors, including a majority of the
Independent Directors, by votes cast in person at a meeting called for the
purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides
the Fund with a written report of the amounts expended under the Plans and the
purpose for which the expenditures were made. The Directors review these reports
on a quarterly basis.
During the fiscal year ended December 31, 1995 the Funds paid John
Hancock Funds the following amounts of expenses with respect to the Class A and
Class B shares of the Funds:
Expense Items
<TABLE>
<CAPTION>
Printing and
Mailing of Expenses of Interest
Prospectus to Compensation John Hancock Carrying or
New to Selling Funds Other Finance
Advertising Shareholders Brokers Charges
Sovereign
Balanced Fund
<S> <C> <C> <C> <C> <C>
Class A Shares $33,515 $3,846 $98,915 $59,698 None
Class B Shares $53,861 $4,475 $328,674 $83,603 $351,388
</TABLE>
By their terms, the Plans will continue in effect only so long as their
continuance is approved at least annually by the Board of Directors and by the
Independent Directors. Each of the Plans provides that it may be terminated
without penalty (a) by vote of a majority of the Independent Directors (b) by a
majority of the Fund's outstanding shares of the applicable class having voting
rights with respect to the Plan upon 60 days' written notice to Broker Services,
and (c) automatically in the event of assignment. Each of the Plans further
provides that it may not be
23
<PAGE>
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 also provides that no material amendment to the Plan will, in any event,
be effective unless it is approved by a vote of the Board of Directors and the
Independent Directors of the Company. 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 Directors concluded that, in their judgment,
there is a reasonable likelihood that each Plan will benefit the holders of the
applicable class of shares of the Fund.
When the Company seeks an Independent Director to fill a vacancy or as a
nominee for election by shareholders, the selection or nomination of the
Independent Director is, under resolutions adopted by the Directors
contemporaneously with their adoption of the Plans, committed to the discretion
of the Committee on Administration of the Directors. The members of the
Committee on Administration are all Independent Directors and are identified in
this Statement of Additional Information under the caption "Management of the
Fund."
Under each Plan the Fund has also entered into a distribution agreement
with John Hancock Funds under which John Hancock Funds is obligated to use its
best efforts to sell shares of each class on behalf of the Fund. Shares of the
Fund are also sold by Selling Brokers. John Hancock Funds and Selling Brokers
receive compensation in connection with the sale of shares of the Fund in the
form of a sales charge imposed either at the time of sale or on a deferred
basis. The sales charges are discussed further in the Prospectus.
The investment management contract, discussed in this Statement of
Additional Information under the caption "Investment Advisory and Other
Services," and the service agreement and the distribution agreement, discussed
above, continue in effect if approved annually by the vote of a majority of the
Independent Directors, cast in person at a meeting called for the purpose of
voting on such approval, and by either the Board of Directors or the holders of
a majority of the Fund's outstanding voting securities. In addition, the service
agreement automatically terminates upon termination or assignment of the
investment management contract. Each contract automatically terminates upon
assignment. Each contract may be terminated without penalty on 60 days' notice
at the option of either party to the respective contract or by vote of a
majority of the outstanding voting securities of the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund
are described in the Prospectus. Methods of obtaining reduced sales charges
referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of Class A shares,
the investor is entitled to cumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund owned by the
Investor, or if 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.
24
<PAGE>
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 spouse and their children under the age of 21,
purchasing securities for his or their own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account, and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
Without Sales Charge. As described in the Prospectus, Class A shares of
the Fund may be sold without a sales charge to persons described in the
Prospectus.
Accumulation Privilege. Investors (including investors combining
purchases) who are already Class A shareholders may also obtain the benefit of a
reduced sales charge by taking into account not only the amount then being
invested but also the purchase price or current value of the Class A shares
already held by such person.
Combination Privilege. Reduced sales charges (according to the schedule
set forth in the Prospectus) also are available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares of
the Fund and shares of all other John Hancock funds which carry a sales charge.
Letter of Intention. The reduced sales charges 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 group IRA's, SEP, SARSEP, TSA, 401(k) plans,
403(b) plans, and Section 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 within 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 13-month period, at which time the
escrowed Class A shares will be released. If the total investment specified in
the LOI is not completed, the Class A shares held in escrow may be redeemed and
the proceeds used as required to pay such sales charge as may be due. By signing
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the LOI, the investor authorizes Investor Services to act as his
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional Class A shares and
may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so that the Fund will receive
the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed
within six years of purchase will be subject to a contingent deferred sales
charge ("CDSC") at the rates set forth in the Prospectus as a percentage of the
dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the current market value or the original purchase cost of
the shares being redeemed. Accordingly, no CDSC will be imposed on increases in
account value above the initial purchase price, including 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 Investor Services and are used in
whole or in part by Investor Services to defray its expenses related to
providing distribution-related services to the Fund in connection with the sale
of the Class B shares, such as the payment of compensation to select Selling
Brokers for selling Class B shares. The combination of the CDSC and the
distribution and service fees facilitates the ability of the Fund to sell the
Class B shares without a sales charge being deducted at the time of the
purchase. See the Prospectus for additional information regarding the CDSC.
ADDITIONAL SERVICES AND PROGRAMS FOR CLASS A AND CLASS B SHARES
Exchange Privilege. As described more fully in the Prospectus, the Fund
permits exchanges of shares of the Fund for shares of the same class in any
other John Hancock fund offering that class.
Systematic Withdrawal Plan. The Fund permits the establishment of a
Systematic Withdrawal Plan. Payments under this plan represent proceeds arising
from the redemption of shares of the Fund. Since the redemption price of the
shares of the Fund may be more or less than the shareholder's cost, depending
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
purchases of Class A shares and the CDSC imposed on redemptions of Class B
shares and
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<PAGE>
because redemptions are taxable events. Therefore, a shareholder should not
purchase Class A or Class B 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
more fully in the Prospectus. The program, as it relates to automatic investment
drafts, 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 your bank. The bank shall be under no
obligation to notify the shareholder as to the non-payment of any checks.
The Program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the processing date of any investment.
Reinvestment Privilege. A shareholder who has redeemed shares of the
Fund may, within 120 days after the date of redemption, reinvest any part of the
redemption proceeds in shares of the same class of the Fund or in any of the
other John Hancock funds, subject to the minimum investment limit in any fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
any of the other John Hancock funds. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from such redemption at net asset value in
additional shares of the class from which the redemption was made. Such
shareholder's account will be credited with the amount of any CDSC charged upon
the prior redemption and such new shares will continue to be subject to the
CDSC. For purposes of determining the amount of any CDSC imposed upon a
subsequent redemption, the holding period of the shares acquired through
reinvestment will 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 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
shares will be treated for tax purposes as described below.
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TAX STATUS
Each series of the Company, including the Fund, is treated as a separate
entity for accounting and tax purposes. The Fund has qualified and has elected
to be treated as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). As such and by complying
with the applicable provisions of the Code regarding the sources of its income,
the timing of its distributions and the diversification of its assets, the Fund
will not be subject to Federal income tax on taxable income (including net
realized capital gains) which is distributed to shareholders at least annually
in accordance with the timing requirements of the Code.
The Fund will be subject to a four percent nondeductible Federal excise
tax on certain amounts not distributed (and not treated as having been
distributed) on a timely 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 taken the
distribution in cash, divided by the number of shares received.
Foreign exchange gains and losses realized by the Fund in connection
with certain transactions involving foreign currency-denominated debt
securities, forward foreign currency contracts, certain foreign currency futures
and options, foreign currencies, or payables or receivables denominated in a
foreign currency are subject to Section 988 of the Code, which generally causes
such gains and losses to be treated as ordinary income and losses and may affect
the amount, timing and character of distributions to shareholders. Any such
transactions that are not directly related to the Fund's investment in stock or
securities may increase the amount of gain it is deemed to recognize from the
sale of certain investments held for less than three months, which gain is
limited under the Code to less than 30% of its annual gross income, and may
under future Treasury regulations produce income not among the types of
"qualifying income" from which the Fund must derive at least 90% of its annual
gross income. If the net foreign exchange loss for a year treated as ordinary
loss under Section 988 were to exceed the Fund's investment company taxable
income computed without regard to such loss (i.e., all of the Fund's net income
other than any excess of net long-term capital gain over net short-term capital
loss) the resulting overall ordinary loss for such year would not be deductible
by the Fund or its shareholders in future years.
The Fund may be subject to foreign taxes on its income from certain
foreign securities. Tax conventions between certain countries and the U.S. may
reduce or eliminate such taxes. Because more than 50% of the Fund's assets at
the close of any taxable year will not consist of stocks or securities of
foreign corporations, the Fund will be unable to pass such taxes through to
shareholders (as additional income) along with a corresponding entitlement to a
foreign tax credit or deduction. If the Fund acquires stock in certain non-U.S.
corporations that receive at least
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75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to Federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. Certain elections may, if available, ameliorate there adverse tax
consequences, but any such election would require the Fund to recognize taxable
income or gain without the concurrent receipt of cash. The Fund may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
The amount of net realized capital gains, if any, in any given year will
result from sales of securities or transactions in options or futures made with
a view to the maintenance of a portfolio believed by the Fund's management to be
most likely to attain the Fund's objective. Such sales, and any resulting gains
or losses, may therefore vary considerably from year to year. At the time of an
investor's purchase of shares of the Fund, a portion of the purchase price is
often attributable to realized or unrealized appreciation in the Fund's
portfolio or undistributed taxable income of the Fund. Consequently, subsequent
distributions 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 (including by exercise of the exchange
privilege) a shareholder will ordinarily 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 Class A shares of the Fund or another John Hancock fund
are subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. Such disregarded charge will result in an
increase in the shareholder's tax basis in the Class A shares subsequently
acquired. Also, any loss realized on a redemption or exchange may be disallowed
to the extent the shares disposed of are replaced with other shares of the Fund
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of, such as pursuant to 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 the Fund's present intention is to distribute all net capital
gains, if any, the Fund reserves the right to retain and reinvest all or any
portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net long-term capital gains 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
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<PAGE>
year his pro rata share of such excess, and he had paid his pro rata share of
the taxes paid by the Fund and reinvested the remainder in the Fund.
Accordingly, each shareholder would (a) include his pro rata share of such
excess as long-term capital gain in his return for 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 by the difference between his pro rata share of such excess and his pro
rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward
a net capital loss in any year to offset net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and as noted above would not be distributed as such to
shareholders. The Fund has $340,120 of a capital loss carryforward available, to
the extent provided by regulations, to offset future net realized capital gains.
The carryforward expires December 31, 2002.
For purposes of the dividends received deduction available to
corporations, dividends received by the Fund, if any, from U.S. domestic
corporations in respect of the stock of such corporations held by the Fund, for
U.S. Federal income tax purposes, for at least 46 days (91 days in the case of
certain preferred stock) and distributed and designated by the Fund may be
treated as qualifying dividends. Corporate shareholders must meet the minimum
holding period requirement stated above (46 or 91 days) with respect to their
shares of the Fund in order to qualify for the deduction and, if they borrow to
acquire such shares, may be denied a portion of the dividends received
deduction. the entire qualifying divided, including the otherwise deductible
amount, will be included in determining the excess if any) of a corporate
shareholder's adjusted current earnings over its alternative minimum taxable
income, which may increase its alternative minimum tax liability. Additionally,
any corporate shareholder should consult its tax adviser regarding the
possibility that its basis in its shares may be reduced, for Federal income tax
purposed, by reason of "extraordinary dividends" received with respect to the
shares, for the purpose of computing its gain or loss on redemption or other
disposition of the shares.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
The Fund accrues income on zero coupon securities or certain PIKs or
increasing rate securities (and, in general, any other securities with original
issue discount or with market discount if the Fund elects to include market
discount in income currently) prior to the receipt of the corresponding cash
payments. 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.
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Investments in debt obligations that are at risk of or in default
present special tax issues for the Fund. Tax rules are not entirely clear about
issues such as when the Fund may cease to accrue interest, original issue
discount, or market discount; when and to what extent deductions may be taken
for bad debts or worthless securities; how payments received on obligations in
default should be allocated between principal and income; and whether exchanges
of debt obligations in a workout context are taxable. These and other issues
will be addressed by the Fund, in the event it invests in such securities, in
order to reduce the risk of distributing insufficient income to preserve its
status as a regulated investment company and seek to avoid becoming subject to
Federal income or excise tax.
Limitations imposed by the Code on regulated investment companies like
the Fund may restrict the Fund's ability to enter into futures, options and
forward transactions.
The options and futures transactions and certain forward foreign
currency 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 their character as long-term or short-term (or, in
the case of currency forwards, options, or futures, as ordinary income or loss)
and timing of some gains and losses realized by the Fund. Also, some of the
Fund's losses on its transactions involving options, futures and forward
contracts and/or offsetting portfolio positions may be deferred rather than
being taken into account currently in calculating the Fund's taxable income.
Some 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.
These transactions may therefore affect the amount, timing and character of the
Fund's distributions to shareholders. The Fund will take into account the
special tax rules applicable to options, futures and forward contracts
(including consideration of any available elections) in order to minimize any
potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies
and financial institutions. Dividends, capital gain distributions, and ownership
of or gains realized on the redemption (including an exchange) of shares of the
Fund may also be subject to state and local taxes. 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.
Shareholders should consult their own tax advisers as to the Federal, state or
local tax consequences of ownership of shares of, and receipt of distributions
from, the Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which
their Fund investment is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to 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
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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.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will not be required to pay Massachusetts corporate excise, franchise
or income taxes.
DESCRIPTION OF FUND SHARES
The Directors of the Company are responsible for the management and
supervision of the Company. Under the Articles of Incorporation, the Directors
have the authority to classify unissued capital stock in separate series,
without further action by shareholders. The Company's authorized capitalization
is 345,000,000 fully paid and non-assessable shares of capital stock, $.01 par
value, of which 60,000,000 shares are allocated to the Fund. As of the date of
this Statement of Additional Information, the Directors have authorized two
series of the Company. Additional series may be added in the future. The
Articles of Incorporation also authorize the Directors to classify and
reclassify the shares of the Company, or any new series of the Company, into one
or more classes. As of the date of this Statement of Additional Information, the
Directors have authorized the issuance of two classes of shares of the Fund,
designated as Class A and Class B.
Each Class A share and Class B share of the Fund represents an equal
proportionate interest in the assets belonging to the Fund. The holders of Class
A and Class B shares each have certain exclusive voting rights on matters
relating to their respective Rule 12b-1 distribution plans. Shares of each class
may be exchanged only for shares of the same class in another fund sponsored by
the Adviser and for shares of John Hancock Cash Management Fund, a money market
fund. Shares of Class B shares may also be exchanged for shares of the Class B
shares of the Freedom Money Market Fund, an affiliate of the Fund. 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 that (i) Class B shares will pay higher distribution
and service fees than Class A shares and (ii) each of Class A shares and Class B
shares will bear any other class expenses properly attributable to such class of
shares. Similarly, the net asset value per share may vary depending on the class
of shares purchased.
When issued, shares are fully paid and non-assessable except as provided
in the Prospectus under the caption "Organization and Management of the Fund."
In the event of liquidation, shareholders are entitled to share pro rata in the
net assets of the Fund available for distribution to such shareholders. Shares
entitle their holders to one vote per share, are freely transferable and have no
preemptive, subscription or conversion rights.
Unless otherwise required by the Investment Company Act or the Articles
of Incorporation, the Company has no intention of holding annual meetings of
shareholders. Shareholders of the Company may remove a Director by the
affirmative vote of at least a majority of the Company's outstanding shares and
the Directors shall promptly call a meeting for such purpose when requested to
do so in writing by the record holders of not less than 25% of the outstanding
shares of the Company. Shareholders may, under certain circumstances,
communicate with other shareholders in connection with requesting a special
meeting of shareholders. However, at any time that less than a majority of the
Directors holding office were elected by the shareholders, the Directors will
call a special meeting of shareholders for the purpose of electing Directors.
Shareholders have no preemptive or conversion rights.
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CALCULATION OF PERFORMANCE
The average annual total return is determined separately for each class
of shares at December 31, 1995, with all distributions reinvested in shares. The
average annualized total returns for Class A shares for the 1-year period and
cumulative total return since the Fund's inception on October 5, 1992, were
(____)% and ____%, respectively, and reflect payment of the maximum sales charge
of 5.00%. The average annualized total returns for Class B shares for the 1-year
period and cumulative since the Fund's inception on October 5, 1992, were
(____)% and ____%, respectively, and reflects applicable contingent deferred
sales charge (maximum contingent deferred sales charge of 5% declines to 0% over
six years).
The Fund's total return is computed by finding the average annual
compounded rate of return over the 1 year, 5 year and 10 year periods that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
T = "n"th root of ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the 1 year and life-of-fund periods.
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 5.0% sales charge
on Class A shares or the CDSC on Class B shares into account. Excluding the
Fund's sales charge on Class A and the CDSC on Class B shares from a total
return calculation produces a higher total return figure.
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The Fund's yield is computed by dividing net investment income per share
determined for a 30-day period by the maximum offering price per share on the
last day of the period, according to the following standard formula:
Yield =2 [(a-b )(6) - 1]
--- + 1
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued during the period (net of fee reductions and expense
limitation payments, if any).
c = the average daily number of Class A 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.
The Class A and Class B shares' yield at December 31, 1995 was ____% and
____%, respectively. Both total return and yield calculations for Class A shares
include the effect of paying the maximum sales charge of 5.00%. Investments at
lower sales charges would result in higher performance figures. Both total
return and yield for the Class B shares reflect deduction of the applicable CDSC
imposed on a redemption of shares held for the applicable period. All
calculations assume that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the periods. The total return and
yield of Class A and Class B shares will differ; the Fund will include the total
return and yield of both classes in any advertisement or promotional material
including Fund performance data. The value of Fund shares, when redeemed, may be
more or less than their original cost. Both total return and yield are
historical calculations and are not an indication of future performance.
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 -- Fund
Performance Analysis," a publication which tracks mutual fund net assets, total
return, and yield. Comparisons may also be made to bank certificates of deposit
("CDs"), which differ from mutual funds, such as the Fund, in several ways. The
interest rate established by the sponsoring bank is fixed for the term of a CD,
there are penalties for early withdrawal from CDs, and the principal on a CD is
insured.
Performance rankings and ratings reported periodically in national
financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, the WALL
STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, BARRON'S and IBBOTSON ASSOCIATES
will also be utilized as well as the RUSSELL and WILSHIRE indices. The Fund may
also cite Morningstar Mutual Values, an independent mutual fund information
service which ranks mutual funds. 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.
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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; and changes in operating expenses
are all examples of items that can increase or decrease the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities of
the Fund are made by the Adviser pursuant to recommendations made by its
investment committee, which consists of directors of the Adviser and officers
and Directors who are interested persons of the Company. Orders for purchases
and sales of securities are placed in a manner, which, in the opinion of the
Adviser, will offer the best price and market for the execution of each such
transaction. Purchases from underwriters of portfolio securities may include a
commission or commissions paid by the issuer and transactions with dealers
serving as market maker reflect a "spread." Debt securities are generally traded
on a net basis through dealers acting for their own account as principals and
not as brokers; no brokerage commissions are payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing primary
policy, the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. and such other policies as the Board of Directors 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 Insurance Company or other advisory clients of the Adviser,
and, conversely, brokerage commissions and spreads paid by other advisory
clients of the Adviser may result in research information and statistical
assistance beneficial to the Fund. The Fund will make no commitment to allocate
portfolio transactions upon any prescribed basis. While the Adviser will be
primarily responsible for the allocation of the Fund's brokerage business, the
policies and practices of the Adviser in this regard must be consistent with the
foregoing and will at all times be subject to review by the Board of Directors.
For the period ended December 31, 1995, the Fund paid brokerage commissions in
the amount of $187,534.
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<PAGE>
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 Board of Directors that such
price is reasonable in light of the services provided and to such policies as
the Board may adopt from time to time.
For the fiscal year ended December 31, 1995, the Fund paid commissions
in the amount of $40,621 to compensate brokers for research services evaluations
of securities.
The Adviser's indirect parent, the Life Insurance Company, is the
indirect sole shareholder of Tucker Anthony Incorporated, John Hancock
Distributors, and Sutro & Company, Inc., which are broker-dealers ("Affiliated
Brokers"). Pursuant to procedures determined by the Board of Directors and
consistent with the above policy of obtaining best net results, the Fund may
execute portfolio transactions with or through Affiliated Brokers. During the
period ending December 31, 1995, the Fund did not execute any portfolio
transactions with Affiliated Brokers.
Any of the Affiliated Brokers may act as broker for the Fund on
securities or commodities exchange transactions, subject, however, to the
general policy of the Fund set forth above and the procedures adopted by the
Board of Directors pursuant to the Investment Company Act. Commissions paid to
an Affiliated Broker must be at least as favorable as those which the Board
believes to be contemporaneously charged by other brokers in connection with
comparable transactions involving similar securities being purchased or sold. A
transaction would not be placed with an Affiliated Broker if the Fund would have
to pay a commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers, except for accounts for which the Affiliated Broker
acts as clearing broker for another brokerage firm, and any customers of the
Affiliated Broker not comparable to the Fund as determined by a majority of the
Directors who are not interested persons (as defined in the Investment Company
Act) of the Company, the Adviser or the Affiliated Broker. Any such transactions
would be subject to a good faith determination by the Board of Directors that
the compensation paid to Affiliated Brokers is fair and reasonable. Because the
Adviser, which is affiliated with the Affiliated Brokers, has, as an investment
adviser to the Fund, the obligation to provide investment management services,
which includes elements of research and related investment skills, such research
and related skills will not be used by the Affiliated Broker as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria. The Fund will not engage in principal transactions with
Affiliated Brokers. The Fund may, however, purchase securities from other
members of underwriting syndicates of which Tucker Anthony and Sutro are members
but only in accordance with the policy set forth above and procedures adopted
and reviewed periodically by the Board of Directors.
36
<PAGE>
TRANSFER AGENT SERVICES
John Hancock Fund Services, Inc., P.O. Box 9116, Boston, MA 02205-9116, a
wholly-owned indirect subsidiary of the Life Insurance Co., is the transfer and
dividend paying agent for the Fund. The Fund pays Investor Services an annual
fee for Class A shares of $16.00 per shareholder account and for Class B shares
of $18.50 per shareholder account, plus certain out-of -pocket expenses. These
expenses are aggregated and charged to the Fund and allocated to each class on
the basis of the related net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian
agreement between the Company and Investors Bank & Trust Company, 24 Federal
Street, Boston, Massachusetts 02110. Under the custodian agreement, Investors
Bank & Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Ernst & Young LLP, Boston,
Massachusetts 02116. The independent auditors audit and render an opinion on the
Fund's annual financial statements and prepare the Fund's income tax returns.
s:corpsec\n1a\sai\sovbal\sov5_96.doc
37
<PAGE>
PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in the Registration Statement:
John Hancock Sovereign Investors Fund
Not Applicable
John Hancock Sovereign Balanced Fund
Not Applicable
(b) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibits
Index hereto and are incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with Registrant
No person is directly or indirectly controlled by or under common
control with Registrant.
Item 26. Number of Holders of Securities
As of February 2, 1996, the number of record holders of shares of Registrant was
as follows:
Title of Class Shares Number of Record Holders
---------------------- ------------------------
John Hancock Sovereign Investors Fund
Class A Shares 96,465
Class B Shares 23,035
Class C Shares 62
John Hancock Sovereign Balanced Fund
Class A Shares 6,345
Class B Shares 6,659
C-1
<PAGE>
Item 27. Indemnification
(a) Under Registrant's Articles of Incorporation and By-laws. Article XII of the
Articles of Incorporation of Registrant and Article XIII of the By-Laws of
Registrant contain provisions indemnifying each director and each officer of
Registrant from liability to the full extent permitted by the Maryland General
Corporation law, subject to the provisions of the Investment Company Act of
1940.
(b) Under the Underwriting Agreement. Under Section 12 of the Distribution
Agreement, the principal underwriter has agreed to indemnify the Registrant and
its Trustees, officers and controlling persons against claims arising out of
certain acts and statements of the underwriter.
(c) Under the By-Laws of the John Hancock Mutual Life Insurance Company ("the
Insurance Company"), John Hancock Funds, Inc. ("John Hancock Funds") and John
Hancock Advisers, Inc. (the "Adviser"). Section 9a of the By-Laws of the
Insurance Company provides, in effect, that the Insurance Company will, subject
to limitations of law, indemnify each present and former director, officer and
employee of the Insurance Company who serves as a director or employee or
officer of the Registrant at the direction or request of the Insurance company
against litigation expenses and liabilities incurred while acting as such,
except that such indemnification does not cover any expense or liability
incurred or imposed in connection with any matter as to which such person shall
by finally adjudicated not to have acted in good faith in the reasonable belief
that his action was in the best interests of the Insurance Company. In addition,
no such person will be indemnified by the Insurance company in respect of any
liability or expense incurred in connection with any mater settled without final
adjudication unless such settlement shall have been approved as in the best
interests of the Insurance Commune either by vote of the Board of Directors at a
meeting composed of directors who have no interest in the outcome of such vote
or by vote of the policyholders. The Insurance Company may pay expenses incurred
in defending an action or claim in advance of its final disposition, but only
upon receipt of an undertaking by the person indemnified to repay such payment
if he should be determined to be entitled to indemnification.
Article IX of the respective by-laws of John Hancock Funds and the Adviser
provides as follows:
"Section 9.01. Indemnity: Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation a serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Corporation
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and the liability was not
incurred by reason of gross negligence or reckless disregard of the duties
involved in the conduct of his office, and expenses in connection therewith may
be advanced by the Corporation, all to the full extent authorized by the law."
C-2
<PAGE>
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided
by Section 9.01 shall not be deemed exclusive of any other right to which those
indemnified may be entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such as person."
(d) Under the Investment Management Contract of Registrant. Section 8 of the
Registrant's Investment Management Contract provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with matters to which the contract relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by the Adviser
of its obligations and duties under the contract. Any person, even though also
employed by the Adviser, who may be or become an employee of the paid by the
Fund shall be deemed, when acting within the scope of his employment by the
Fund, to be acting in such employment solely for the fund and not as the
Adviser's employee or agent.
(e) Insofar as indemnification for liabilities under the Securities Act of 1933
(the "Act") may be permitted to Trustees, officers and controlling persons of
Registrant pursuant to Section 0.1 of the Registrant's By-Laws, Section 13 of
the Underwriting Agreement filed as Exhibit 6 to the original Registration
Statement, the By-Laws of the Registrant, the By-laws of the John Hancock Funds,
the Adviser, or the Insurance Company or otherwise. Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisers
For information as to the business, profession, vocation or employment
of a substantial nature of each of the officers and Directors of the Investment
Adviser, reference is made to Forms ADV (801-8124) filed under the Investment
Advisers Act of 1940, herein incorporated by reference.
Item 29. Principal Underwriters
(a) John Hancock Funds acts as principal underwriter for the Registrant and also
serves as principal underwriter or distributor of shares for John Hancock Cash
Reserve, Inc., John Hancock Bond Fund, John Hancock Current Interest, John
Hancock Special Series, Inc., John Hancock Tax-Free Bond Fund, John Hancock
California Tax-Free Income Fund, John Hancock Capital Series, John Hancock
Limited-Term Government Fund, John Hancock Tax-Exempt Income Fund, John Hancock
Sovereign Investors Fund, Inc., John Hancock Special Equities Fund, John Hancock
Sovereign Bond Fund, John Hancock Tax-Exempt Series, John Hancock Strategic
Series, John Hancock Technology Series, Inc. and John Hancock World Fund, John
Hancock
C-3
<PAGE>
Investment Trust, John Hancock Institutional Series Trust, Freedom Investment
Trust, Freedom Investment Trust II and Freedom Investment Trust III.
(b) The following table lists, for each director and officer of John Hancock
Funds, the information indicated.
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- --------------------- ------------------------ ---------------------
Edward J. Boudreau, Jr. President, Chief Executive Chairman
101 Huntington Avenue Officer and Director
Boston, Massachusetts
Robert H. Watts Director, Executive None
John Hancock Place Vice President and Chief
P.O. Box 111 Compliance Officer
Boston, Massachusetts
Robert G. Freedman Director Vice President, Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
Stephen M. Blair Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Thomas H. Drohan Senior Vice President Senior Vice President and
101 Huntington Avenue Secretary
Boston, Massachusetts
James W. McLaughlin Senior Vice President None
101 Huntington Avenue and
Boston, Massachusetts Chief Financial Officer
David A. King Senior Vice President and None
101 Huntington Avenue Director
Boston, Massachusetts
John A. Morin Vice President Vice President
101 Huntington Avenue
Boston, Massachusetts
C-4
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- -------------------- --------------------- ---------------------
Susan S. Newton Vice President and Vice President,
101 Huntington Avenue Secretary Assistant Secretary
Boston, Massachusetts and Compliance Officer
Christopher M. Meyer Treasurer None
101 Huntington Avenue
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Richard S. Scipione Director Director
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John Goldsmith Director None
One Beacon Street
Boston, Massachusetts
C-5
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
------------------- --------------------- ---------------------
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Foster Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
David F. D'Alessandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Michael T. Carpenter Senior Vice President None
1000 Louisiana Steet
Houston, Texas
(c) None.
Item 30. Location of Accounts and Records
Registrant maintains the records required to be maintained by it under
Rules 31a-1 (a), 31a-a(b), and 31a-2(a) under the Investment Company Act of 1940
as its principal executive offices at 101 Huntington Avenue, Boston
Massachusetts 02199-7603. Certain records, including records relating to
Registrant's shareholders and the physical possession of its securities, may be
maintained pursuant to Rule 31a-3 at the main office of Registrant's Transfer
Agent and Custodian.
C-6
<PAGE>
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus with respect to a series of the Registrant is delivered
with a copy of the latest annual report to shareholders with
respect to that series upon request and without charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts on the
28th day of February 1996.
JOHN HANCOCK SOVEREIGN INVESTORS FUND, INC.
By: *
-------------------------------
Edward J. Boudreau, Jr.
Chairman
Pursuant to the requirements of the Securities Act of 1933, the
Registration has been signed below by the following persons in the capacities
and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman
______________________ (Principal Executive Officer)
Edward J. Boudreau, Jr.
Senior Vice President and February 28, 1996
Chief Financial Officer
/s/James B. Little (Principal Financial and
James B. Little Accounting Officer)
*
______________________ Director
Thomas W. L. Cameron
*
______________________ Director
Charles F. Fretz
* Director
- ----------------------
Charles L. Ladner
*
______________________ Director
Patricia P. McCarter
C-8
<PAGE>
Signature Title Date
--------- ----- ----
*
______________________ Director
Norman H. Smith
*
______________________ Director
Steven R. Pruchansky
*
______________________ Director
James F. Carlin
*
______________________ Director
John P. Toolan
*
______________________ Director
Harold R. Hiser, Jr.
*By:
/s/Thomas H. Drohan February 28, 1996
- ----------------------
Thomas H. Drohan
(Attorney-in-Fact)
C-9
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description Page Number
- ---------- ------------------- -----------
99.B1 Articles of Incorporation of Registrant of Registrant
dated March 22, 1990.*
99.B1.1 Articles of Amendment dated October 23, 1991.*
99.B1.2 Articles of Amendment dated September 23, 1992.*
99.B1.3 Articles of Amendment dated February 26, 1993.*
99.B1.4 Articles of Amendment dated December 8, 1993.*
99.B2 Amended and Restated By-Laws of Registrant as adopted on June 15,
1990 and amended on December 20, 1991, September 8, 1992, March 2,
1993 and November 30, 1993.*
99.B4 Specimen share certificate for the Registrant.*
99.B5 Investment Management Contract between John Hancock
Sovereign Investors Fund and John Hancock Advisers, Inc. dated
October 23, 1991.*
99.B5.1 Investment Management Contract between John Hancock
Sovereign Balanced Fund and John Hancock Advisers, Inc. dated
October 2, 1992.*
99.B5.2 Service Agreement between John Hancock Advisers,
Inc., TBFG Advisers, Inc.and John Hancock Sovereign Investors Fund,
Inc. dated October 2, 1992.*
99.B5.3 Amendment to Service Agreement between John Hancock
Advisers, Inc., TBFG Advisers, Inc. and John Hancock Sovereign
Investors Fund, Inc.*
99.B6 Distribution Agreement with Registrant and John
Hancock Broker Distribution Services, Inc. dated October 23, 1991.*
99.B6.1 Form of Soliciting Dealer Agreement between John
Hancock Broker Distribution Services, Inc. and Selected Dealers.*
99.B6.2 Form of Financial Institution Sales and Service
Agreement.*
99.B7 None
<PAGE>
Exhibit No. Exhibit Description Page Number
- ---------- ------------------- -----------
99.B8 Master Custodian Agreement between John Hancock
Mutual Funds and Investors Bank and Trust Company dated
December 15, 1992.*
99.B9 Transfer Agency Agreement between Registrant and John
Hancock Fund Services, Inc. dated October 2, 1992.*
99.B.10 None
99.B11 Not applicable
99.B12 Not applicable
99.B13 None
99.B14 None
99.B15 Class A Distribution Plan between John Hancock
Sovereign Investors Fund and John Hancock Broker Services, Inc.*
99.B.15.1 Class B Distribution Plan between John Hancock
Sovereign Investors Fund and John Hancock Broker Services, Inc.*
99.B15.2 Class A Distribution Plan between John Hancock
Sovereign Balanced Fund and John Hancock Broker Services, Inc.*
99.B.15.3 Class B Distribution Plan between John Hancock
Sovereign Balanced Fund and John Hancock Broker Services, Inc.*
99.B.16 Schedule for Computation of Yield and Total Return.*
99.B17 Powers of Attorney dated December 20, 1991, December 8, 1992,
January 1 1994.*
99.27.1A Not applicable
*Previously filed with Registration Statement and/or post-effective amendment.
+ Filed herewith.
