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. 92 [X]
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 92
(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 thast this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On May 1, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] On (date) 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>
<TABLE>
<CAPTION>
JOHN HANCOCK SOVEREIGN INVESTORS FUNDS, INC.
Cross Reference Sheet
Item Number Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
- ---------------------- ------------------ -----------------------
<S> <C> <C>
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
<PAGE>
Item Number Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
- ---------------------- ------------------ -----------------------
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
</TABLE>
<PAGE>
John Hancock
Sovereign
Investors
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 Objective and Policies 5
Organization and Management of the Fund 7
Alternative Purchase Arrangements 8
The Fund's Expenses 10
Dividends and Taxes 11
Performance 11
How to Buy Shares 13
Share Price 14
How to Redeem Shares 19
Additional Services and Programs 21
This Prospectus sets forth information about John Hancock Sovereign Investors
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 INFROMATION
The purpose of the following information is to help you understand the
various fees and expenses that 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 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.
Class A Class B
Shareholder Transaction Expenses Shares*** Shares***
----------- ------------
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 Fund Operating Expenses
(as a percentage of average net assets)
Management fee+++ 0.58% 0.58%
12b-1 fee** 0.30% 1.00%
Other expenses 0.28% 0.34%
Total Fund operating expenses 1.16% 1.92%
* No sales charge is payable at the time of purchase on investments in
Class A shares of $1 million or more, but a contingent deferred sales
charge of up to 1.00% may be imposed on these investments, as described
under the caption "Share Price," in the event of certain redemption
transactions within one year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average net assets, and the remaining portion will be
used to cover distribution expenses.
*** The information set forth in the foregoing table relates only to the
Class A shares and Class B shares. As of the date of this Prospectus, the
Trustees have authorized the issuance of three classes of the Fund,
designated as Class A, Class B and Class C. Class C shares are only
offered to certain institutional investors and are described in a
separate prospectus which can be obtained by calling John Hancock
Investors Services Corporation at 1-800-437-9312.
+ Redemption by wire fee (currently $4.00) not included.
+++ The calculation of the management fee is based on average net assets for
the fiscal year ended December 31, 1995. See "The Fund's Expenses."
1 3 5 10
Example: Year Years Years Years
You would pay the following
expenses for the indicated period
of years on a hypothetical $1,000
investment, assuming 5% annual
return:
Class A Shares $61 $85 $111 $184
Class B Shares
--Assuming complete redemption at
end of period $70 $90 $124 $205
--Assuming no redemption $20 $60 $104 $205
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.)
The Fund's payment of a distribution fee may result in a long-term
shareholder indirectly paying more than the economic equivalent of the
maximum front-end sales charge permitted under the National Association of
Securities Dealers Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement
of Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contract."
2
<PAGE>
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 years 1986 through 1992 were 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>
Year Ended December 31,
---------------------------------------------------------------
1995 1994 1993 1992(f) 1991(f)(h)
---------- ---------- ---------- ---------- -----------
Class A
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net Asset Value, Beginning
of Period $14.24 $15.10 $14.78 $14.31 $11.94
---------- ---------- ---------- ---------- -----------
Net Investment Income 0.40 0.46 0.44 0.47 0.54
Net Realized and
Unrealized Gain (Loss)
on Investments 3.71 (0.75) 0.39 0.54 3.03
---------- ---------- ---------- ---------- -----------
Total from Investment
Operations 4.11 (0.29) 0.83 1.01 3.57
---------- ---------- ---------- ---------- -----------
Less Distributions:
Dividends from Net
Investment Income (0.40) (0.46) (0.42) (0.45) (0.53)
Distributions from Net
Realized Gain on
Investments Sold (0.08) (0.11) (0.09) (0.09) (0.67)
---------- ---------- ---------- ---------- -----------
Total Distributions (0.48) (0.57) (0.51) (0.54) (1.20)
---------- ---------- ---------- ---------- -----------
Net Asset Value, End of
Period $17.87 $14.24 $15.10 $14.78 $14.31
========== ========== ========== ========== ===========
Total Investment Return at
Net Asset Value (g) 29.15% (1.85%) 5.71% 7.23% 30.48%
---------- ---------- ---------- ---------- -----------
Ratios and Supplemental
Data
Net Assets, End of Period
(000's omitted) $1,280,321 $1,090,231 $1,258,575 $872,932 $194,055
Ratio of Expenses to
Average Net Assets 1.14% 1.16% 1.10% 1.13% 1.18%
Ratio of Net Investment
Income to Average Net
Assets 2.45% 3.13% 2.94% 3.32% 4.01%
Portfolio Turnover Rate 46% 45% 46% 30% 67%
</TABLE>
<TABLE>
<CAPTION>
1990(f) 1989(f) 1988(f) 1987(f) 1986(f)(i)
---------- ---------- ---------- ---------- -----------
Class A
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net Asset Value, Beginning
of Period $12.60 $11.19 $10.96 $12.36 $11.31
---------- ---------- ---------- ---------- -----------
Net Investment Income 0.58 0.59 0.57 0.53 0.58
Net Realized and
Unrealized Gain (Loss)
on Investments (0.05) 2.01 0.65 (0.45) 1.89
---------- ---------- ---------- ---------- -----------
Total from Investment
Operations 0.53 2.60 1.22 0.08 2.47
---------- ---------- ---------- ---------- -----------
Less Distributions:
Dividends from Net
Investment Income (0.59) (0.61) (0.61) (0.58) (0.55)
Distributions from Net
Realized Gain on
Investments Sold (0.60) (0.58) (0.38) (0.90) (0.87)
---------- ---------- ---------- ---------- -----------
Total Distributions (1.19) (1.19) (0.99) (1.48) (1.42)
---------- ---------- ---------- ---------- -----------
Net Asset Value, End of
Period $11.94 $12.60 $11.19 $10.96 $12.36
========== ========== ========== ========== ===========
Total Investment Return at
Net Asset Value (g) 4.38% 23.76% 11.23% 0.28% 21.70%
---------- ---------- ---------- ---------- -----------
Ratios and Supplemental
Data
Net Assets, End of Period
(000's omitted) $83,470 $66,466 $45,861 $40,564 $34,708
Ratio of Expenses to
Average Net Assets 1.14% 1.07% 0.86% 0.85% 0.70%
Ratio of Net Investment
Income to Average Net
Assets 4.77% 4.80% 4.97% 3.96% 4.28%
Portfolio Turnover Rate 55% 40% 35% 59% 34%
</TABLE>
1995 1994
-------- -----------
Class B (a)
Per Share Operating Performance
Net Asset Value, Beginning of Period $14.24 $15.02(d)
-------- -----------
Net Investment Income 0.27(e) 0.38(e)
Net Realized and Unrealized Gain (Loss)
on Investments 3.71 (0.69)
-------- -----------
Total from Investment Operations 3.98 (0.31)
-------- -----------
Less Distributions:
Dividends from Net Investment Income (0.28) (0.36)
Distributions from Net Realized Gain
on Investments Sold (0.08) (0.11)
-------- -----------
Total Distributions (0.36) (0.47)
-------- -----------
Net Asset Value, End of Period $17.86 $14.24
======== ===========
Total Investment Return at Net Asset Value (g) 28.16% (2.04%)(c)
-------- -----------
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $257,781 $128,069
Ratio of Expenses to Average Net Assets 1.90% 1.86%*
Ratio of Net Investment Income to Average
Net Assets 1.65% 2.57%*
Portfolio Turnover Rate 46% 45%
3
<PAGE>
Year Ended
December 31
-----------------
For the Period
May 7, 1993
To December 31,
1995 1994 1993
------- ------- ---------------
Class C (b)
Per Share Operating Performance
Net Asset Value, Beginning of
Period $14.24 $15.11 $14.79(d)
------- ------- ---------------
Net Investment Income 0.46(e) 0.52 0.27(e)
Net Realized and Unrealized Gain
(Loss) on Investments 3.71 (0.77) 0.48
------- ------- ---------------
Total from Investment Operations 4.17 (0.25) 0.75
------- ------- ---------------
Less Distributions:
Dividends from Net Investment
Income (0.46) (0.51) (0.34)
Distributions from Net Realized
Gain on Investments Sold (0.08) (0.11) (0.09)
------- ------- ---------------
Total Distributions (0.54) (0.62) (0.43)
------- ------- ---------------
Net Asset Value, End of Period $17.87 $14.24 $15.11
======= ======= ===============
Total Investment Return at Net
Asset Value (g) 29.68% (1.57%) 5.13%(c)
------- ------- ---------------
Ratios and Supplemental Data
Net Assets, End of Period (000's
omitted) $19,946 $15,128 $10,189
Ratio of Expenses to Average Net
Assets 0.74% 0.81% 0.88%*
Ratio of Net Investment Income to
Average Net Assets 2.84% 3.53% 3.17%*
Portfolio Turnover Rate 46% 45% 46%
Note: During the period covered by this table Sovereign Advisers, Inc. was
the investment adviser until October 23, 1991 when John Hancock Advisers,
Inc. became the Fund's investment adviser.
* On an annualized basis.
(a) Class B shares commenced operations on January 3, 1994.
(b) Class C shares commenced operations on May 7, 1993.
(c) Not annualized.
(d) Initial price to commence operations.
(e) On average month end shares outstanding.
(f) These periods are covered by the report of other independent auditors
(not included herein).
(g) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(h) On October 23, 1991, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(i) Restated for 2 for 1 stock split effective April 29, 1987.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective
is to seek long-term growth of
capital and income without undue
market risks.
The Fund's investment objective is to provide long term growth of capital and
of income without assuming undue market risks. The Fund believes that its
shares are suitable for investment by persons who are in search of
above-average long term reward. At times, however, the Fund may find it
advantageous to invest primarily for current income because of market
conditions. The Fund will diversify its investments among a number of
industry groups without concentrating more than 25% of its assets in any
particular industry. The Fund's investments will be subject to market
fluctuation and risks inherent in all securities. There is no assurance that
the Fund will achieve its investment objective.
The Fund will invest primarily in
common stocks, although it may
respond to market conditions by
investing in other types of
securities.
Common stocks will generally represent the major part of the Fund's holdings,
although, for defensive purposes, the Fund may temporarily hold a larger
percentage of high grade liquid preferred stocks or debt securities. 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 amount of the Fund's
assets that may be invested in either equity or fixed income securities is
not restricted and is based upon management's judgment of what might best
achieve the Fund's investment objective.
The Fund generally invests in
seasoned companies in sound
financial condition with a long
record of paying dividends.
While there is considerable flexibility in the investment grade and type of
security in which the Fund may invest, the Fund may only invest in companies
who have (or whose predecessors have) been in continuous business for at
least five years and have total assets of at least $10 million. The Fund
currently uses a strategy of investing only in those common stocks which have
a record of having increased their dividend payout in each of the preceding
ten or more years. This dividend performers strategy can be changed at any
time.
Investments in corporate fixed income securities may be in bonds, convertible
debentures and preferred convertible or non-convertible stock. Convertible
issues, while influenced by the level of interest rates, are also subject to
the changing value of the underlying common stock into which they are
convertible. Fixed income securities eligible for purchase by the Fund may
have stated maturities of one to thirty years. The value of fixed income
securities varies inversely with interest rates. Although fixed income
securities in the Fund's portfolio may include securities rated as low as C
by Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's") and unrated securities deemed of equivalent quality by John
Hancock Advisers, Inc. (the "Adviser"), no more than 5% of the Fund's net
assets will be invested in debt securities rated lower than BBB by S&P or Baa
by Moody's or unrated securities of equivalent quality. Bonds rated BBB or
Baa normally exhibit adequate protection parameters. However, bonds rated BBB
or Baa or lower have speculative characteristics, and adverse changes in
economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than with higher
grade bonds. Bonds rated lower than BBB or Baa are high risk securities
commonly known as "junk bonds." If any security in the
5
<PAGE>
Fund's portfolio falls below the Fund's minimum credit quality standards, as
a result of a rating downgrade or the Adviser's determination, the Fund will
dispose of the security as promptly as possible while attempting to minimize
any loss.
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 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.
Government Securities. 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 Federal National
Mortgage Association ("Fannie Maes"), and obligations supported by the credit
of the instrumentality, such as Student Loan Marketing Association Bonds
("Sallie Maes").
The Fund may invest in mortgage-backed securities that have stated maturities
of up to thirty years when they are issued, depending upon the length of the
mortgages underlying the securities. In practice, however, unscheduled or
early payments of principal and interest on the underlying mortgages may make
the securities' effective maturity shorter than this, and the prevailing
interest rates may be higher or lower than the current yield of the Fund's
portfolio at the time the Fund receives the payments for reinvestment.
Mortgage-backed securities may have less potential for capital appreciation
than comparable fixed-income securities, due to the likelihood of increased
prepayments of mortgages as interest rates decline. If the Fund buys
mortgage-backed securities at a premium, mortgage foreclosures and
prepayments of principal by mortgagors (which may be made at any time without
penalty) may result in some loss of the Fund's principal investment to the
extent of the premium paid.
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
6
<PAGE>
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.
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
classified as fundamental or non-fundamental. The Fund's investment objective
and those investment restrictions designated as fundamental may not be
changed without shareholder approval. The Fund's non-fundamental investment
policies and restrictions, however, may be changed by a vote of the Directors
without shareholder approval. The Fund's portfolio turnover rates for recent
years are shown in "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 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 are
indirectly owned by John Hancock Mutual Life Insurance Company (the "Life
Company"), which in turn indirectly owns the Adviser.
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.
ORGANIZATION AND MANAGEMENT OF THE FUND
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 authorized shares of capital stock. The
Company's Articles of Incorporation permit the Directors to create and
classify 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 Incorporation 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 three classes of the Fund, designated Class A, Class B and Class
C. The shares of each class represent an interest in the same portfolio of
investments of the Fund. Each class has equal rights as to voting,
redemption, dividends and liquidation. However, each bears different
distribution fees. Also, Class A and Class B shareholders have exclusive
voting rights with respect to the Rule 12b-1 distribution plan, which has
been adopted by holders of those shares in connection with the shares'
distribution.
Shareholders have certain rights to remove Directors. The Company is not
required and does not intend to hold annual meetings of shareholders,
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.
7
<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 the Life 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 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.
John F. Snyder III is primarily responsible for management of the equity
securities of the Fund. Barry H. Evans is primarily responsible for
management of the fixed income securities of the Fund. They are assisted by
Jere Estes and a team of analysts. Mr. Snyder has been a portfolio manager of
the Fund since 1984. He has been associated with the Adviser since 1991 when
the Adviser assumed management of the Fund. He is also co-portfolio manager
of John Hancock Sovereign Balanced Fund. Mr. Evans is Vice President and
Portfolio Manager of the Fund and also leads a team of managers on several
other Hancock funds. Mr. Evans has managed bond funds since he joined John
Hancock in 1986.
In order to avoid any conflict with portfolio trades for the Fund, the
Adviser, the Sub-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.
An alternative purchase plan
allows you to choose the method
of payment that is best for you.
ALTERNATIVE PURCHASE ARRANGEMENTS
You can purchase shares of the Fund at a price equal to their net asset value
per share, plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge
Alternative--Class A shares") or on a contingent deferred basis (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 purchase. 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."
8
<PAGE>
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 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 that of Class A shares. To the extent that any dividends are
paid by the Fund, these higher expenses will also result in lower dividends
than those paid on Class A shares.
Class B shares are not available 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.
You should consider which class
of shares would be more
beneficial for you.
Factors to Consider in Choosing and Alternative
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares given the amount of your purchase, the length of time 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
that 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 shares will be paid from the proceeds
of the initial 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 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.
9
<PAGE>
Dividends, if any, on Class A and Class B shares will be calculated in the
same manner, at the same time, 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, shareholder meeting expenses and any
incremental transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a fee to the
Adviser which is based on a stated percentage of the Fund's average daily net
asset value equivalent on an annual basis as follows:
$0 to $750 million 0.60%
750 million to 1.5 billion 0.55%
1.5 billion to 2.5 billion 0.50%
2.5 billion and over 0.45%
The investment management fee for the 1995 fiscal year was 0.58% of the
Fund's average daily net asset value.
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 reimpose a fee and recover any other
payments to the extent that, at the end of any fiscal year, the Fund's actual
expenses fall below the limit.
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 fiscal year ended December 31, 1995 an aggregate of $1,907,573 of
distribution expenses, or 1.0% of the average net assets of the Class B
shares of the Fund, was not reimbursed or recovered by the John Hancock Funds
through the receipt of deferred sales charges or 12b-1 fees in prior periods.
Information on the Fund's expenses is in the Fund's Financial Highlights
section of this Prospectus.
The Fund compensates the Adviser for performing necessary tax and financial
management services. The compensation for 1996 is estimated to be at an
annual rate of 0.01875% of the average net assets of the Fund.
10
<PAGE>
DIVIDENDS AND TAXES
The Fund has paid quarterly
dividends continuously since
1937.
Dividends. Dividends from the Fund's net investment income are declared
and paid quarterly. Capital gains, if any, are generally declared and
distributed annually. From time to time the Fund may declare a special
dividend at year's end. Dividends are reinvested in additional shares of your
class unless you elect the option to receive cash. If you elect the cash
option and the U.S. Postal Service cannot deliver your checks, your election
will be converted to the reinvestment option. Because of the higher expenses
associated with Class B shares, any dividend on these shares will be lower
than that of the Class A shares. See "Share Price."
Taxation. Dividends from the Fund's net investment income, and net
short-term capital gains are taxable to you as ordinary income. Dividends
from the Fund's net long-term capital gains are taxable as long-term capital
gains. These dividends are taxable whether received in 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 each year 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 taxes on
any net investment income and net realized capital gains that are distributed
to its shareholders within the time period prescribed by the Code. When you
redeem (sell) or exchange shares, you may realize a taxable gain or loss.
On the account application, you must certify that your social security or
other taxpayer identification number you provide is correct, and that you are
not subject to backup withholding of Federal income tax. If you do not
provide this information or are otherwise subject to 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 investments in and distributions from the Fund. In
many states, a portion of the Fund's dividends that represent interest
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 a
different tax treatment not described above. You should consult your tax
adviser for specific advice.
The Fund may advertise its yield
and total return.
PERFORMANCE
Yield reflects the Fund's rate of income on portfolio investments as a
percentage of its share price. Yield is computed by annualizing the result of
dividing the net investment income per share over a 30-day period by the
maximum offering price per share on the last day of that period. Yield is
also calculated according to accounting methods that are standardized for all
stock and bond funds. Because yield accounting methods differ from the
methods used for other accounting purposes, the Fund's yield may not equal
the income paid on shares or the income reported in the Fund's financial
statements.
The Fund'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.
11
<PAGE>
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 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 (except as shown in "the Fund's Financial
Highlights"). 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, Class B and Class C shares will be calculated
separately and, because each class is subject to different expenses, the
yield or total return with respect to that class for the same period may
differ. The relative performance of the Class A and Class B shares will be
affected by a variety of factors, including the higher operating expenses
attributable to the Class B shares, whether the Fund's investment performance
is better in the earlier or later portions of the period measured and the
level of net assets of the classes during the period. The Fund will include
the total return of Class A, Class B and Class C shares in any advertisement
or promotional materials including the Fund performance data. The value of
the 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."
12
<PAGE>
HOW TO BUY SHARES
Opening an account.
Buying additional Class A and
Class B shares.
The minimum initial investment in Class A and Class B shares is $1,000 ($250 for
group investments and retirement plans).
Complete the Account Application attached to this Prospectus and indicate
whether you are buying Class A or Class B shares. If you do not specify which
class of shares you are purchasing, Investor Services will assume that you are
investing in Class A shares.
- --------------------------------------------------------------------------
By Check 1. Make your check payable to John Hancock Investor
Services Corporation ("Investor Services").
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:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Sovereign Investors
Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered.
3. Deliver the completed application to your
registered representative or Selling Broker or mail
it directly to Investor Services.
- ----------------- ------------------------------------------------------
Monthly 1. Complete the "Automatic Investing" and "Bank
Automatic Information" sections on the Account Privileges
Accumulation Application, designating a bank account from which
Program your funds may be drawn.
(MAAP) 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 your account is registered, the
Fund name, the class of shares you own, your
account number and the amount you wish to invest.
4. Your investment normally will be credited to your
account the business day following your phone
request.
- ----------------- ------------------------------------------------------
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 and 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.
13
<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 Investors Fund
(Class A and 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.
- --------------------------------------------------------------------------
Institutional Investors. Certain institutional investors may purchase
Class C shares of the Fund, which have no sales charge or 12b-1 fee. See
"Institutional Investors" for further information.
- --------------------------------------------------------------------------
You will receive account
statements, which you should keep
to help with your personal
recordkeeping.
You will receive a statement of your account after any transaction that
affects your share balance or registration (statements related to
reinvestment of dividends and automatic investment/withdrawal plans will be
sent to you quarterly). A tax information statement will be mailed to you by
January 31 of each year.
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.
SHARE PRICE
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of
outstanding shares of that class. The NAV of each class can differ.
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services, or 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 fair value. The NAV is calculated once daily as of the close of
regular trading on the New York Stock Exchange (the "Exchange") (generally at
4:00 P.M., New York time) on each day that the Exchange is open.
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock
Funds. If you buy shares of the Fund through a Selling Broker, the Selling
Broker must receive your investment before the close of regular trading on
the Exchange, and transmit it to John Hancock Funds before its close of
business, to receive that day's offering price.
Initial Sales Charge Alternative--Class A Shares.
The offering price you pay for Class A shares of the Fund equals the NAV next
computed after your investment is received in good order by John Hancock
Funds plus a sales charge, as follows:
14
<PAGE>
<TABLE>
<CAPTION>
Sales Charge Combined
Sales Charge as a Reallowance and Reallowance to
as a Percentage Service Fee as Selling Broker
Amount Invested Percentage of the a Percentage of as a Percentage
(Including Sales of 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 contingent deferred sales charge 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 the 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
Fund's net assets invested in the Fund at the time of sale. Thereafter
it pays the service fee periodically in arrears in an amount up to
0.25% of the Fund's average annual net assets. Selling Brokers receive
the fee as compensation for providing personal and account maintenance
services to shareholders.
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:
15
<PAGE>
Amount Invested CDSC Rate
----------------------------------- ----------
$1 million to $4,999,999 1.00%
$5 Million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
above rate.
The CDSC will be assessed on an amount equal to the lesser of the current
market value or the original purchase cost of the redeemed Class A shares.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends which have been reinvested in
additional Class A shares.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. Therefore, it will be assumed that the redemption is first made from
any shares in your account that are not subject to the CDSC. The CDSC is
waived on 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 Class A shares of the
John Hancock funds in meeting the breakpoints for a reduced sales charge. For
the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE, the applicable sales
charge will be based on the total of:
1. Your current purchase of Class A shares of the Fund;
2. The net asset value (at the close of business on the previous day) of (a)
all Class A shares of the Fund you hold, and (b) all Class A shares of any
other John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
Example
If you hold Class A shares of a John Hancock fund with a net asset value of
$20,000 and, subsequently, invest $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
rate is the rate that would otherwise be applicable to investments of less
than $50,000. See "Initial Sales Charge Alternative-Class A Shares."
Class A shares may be available without a sales charge to certain individuals
and organizations.
If you are in one of the following categories, you may purchase Class A
shares of the Fund without paying a sales charge:
16
<PAGE>
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 service 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 reinvestment 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:
17
<PAGE>
(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 all or part of 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 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.
Year In Which Class B Contingent Deferred Sales
Shares Redeemed Charge As a Percentage of
Following Purchase Dollar Amount Subject to CDSC
------------------------- --------------------------------
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
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
personal and account maintenance services provided 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: 2.5% for redemptions during
the fourth year after purchase, 2% for redemptions during the fifth year, 1%
for redemptions during the sixth year, and no CDSC for the seventh year and
thereafter.
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 of Class A shares that are subject to a
CDSC, unless indicated otherwise, in the circumstances defined below:
(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.
18
<PAGE>
(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 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 recently made by check or Invest-by-Phone have been collected
(which may take up to 10 calendar days).
Once your shares are redeemed, the Fund generally sends you payment on the
next business day. When you redeem your shares, you may realize a taxable
gain or loss depending usually on the difference between what you paid for
them and what you receive for them, subject to certain tax rules. Under
unusual circumstances, the Fund may suspend redemptions or postpone payment
for up to three business days or longer, as permitted by Federal securities
laws.
19
<PAGE>
To assure acceptance of your
redemption request, please follow
these procedures.
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. (New York 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 by telephone, but the address
on the account must not have changed for the last thirty
days. A check will be mailed to the exact name(s) and
address 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 with the telephone
transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or Fund shares that are in
certificate 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 EASILINE. EASILINE'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.
Type of Registration Requirements
-------------------------- ------------------------------------------------
Individual, Joint Tenants,
Sole Proprietorship, A letter of instruction signed (with titles
Custodial (Uniform Gifts where applicable) by all persons authorized to
or Transfer to Minors sign for the account, exactly as it is
Act), General Partners. registered with the signature(s) guaranteed.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s) authorized to
act on the account with the signature(s)
guaranteed.
Trusts A letter of instruction signed by the Trustee(s)
with 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.)
If you do not fall into any of these registration categories please call
1-800-225-5291 for further instructions.
20
<PAGE>
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 any such
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 Your broker may be able to initiate the redemption. Contact
Broker 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 or 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
charge 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.
Exchanges between funds that are not subject to a CDSC are based on their
respective net asset values. No sales charge or transaction charge is
imposed. Class B shares of the Fund are subject to a CDSC may be exchanged
for Class B shares of another John Hancock fund without incurring the CDSC;
however these shares will be subject to the CDSC schedule of the shares
acquired (except that exchanges into John Hancock Short-Term Strategic Income
Fund, John Hancock 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
21
<PAGE>
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 to execute a new exchange. The Fund may also terminate or alter the
terms of the exchange privilege upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and
the purchase of shares of another for Federal income tax purposes. An
exchange may result in a taxable gain or loss.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers
and investment advisers may exchange their clients' Fund shares, subject to
the terms of those agreements and John Hancock Funds' right to reject or
suspend those exchanges at any time. Because of the restrictions and
procedures under those agreements, the exchanges may be subject to timing
limitations and other 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.
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
exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable
to the account and other relevant information may be requested. In
addition, telephone instructions are recorded.
22
<PAGE>
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 the 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
account number and class from which your shares were originally redeemed.
Systematic Withdrawal Plan
You can pay routine bills from
your account, or make periodic
disbursements 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 and to a CDSC on your redemption of Class B shares. In
addition, your redemptions are taxable events.
23
<PAGE>
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks, or if deposits to a bank account are returned for any reason.
Monthly Automatic Accumulation Program (MAAP)
You can make automatic
investments and simplify your
investing.
1. You can authorize an investment to be automatically withdrawn each month
from your bank for investment in Fund shares under the "Automatic
Investing" and "Bank Information" sections of the Account Privileges
Application.
2. You can also authorize automatic 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 being withdrawn from a bank account and we are
notified that the account has been closed, your withdrawals will be
discontinued.
Group Investment Program
Organized groups of at least four
persons may establish accounts.
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate
dollar amount of all participants' investments. To determine how to
qualify for this program, contact your registered representative or call
1-800-225-5291.
2. The initial aggregate 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.
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 the above
plans is $250. However, accounts being established as Group IRA, SEP,
SARSEP, TSA, 401(k) and Section 457 Plans will be accepted without an
initial minimum investment.
24
<PAGE>
(NOTES)
<PAGE>
(NOTES)
<PAGE>
(NOTES)
<PAGE>
JOHN HANCOCK SOVEREIGN
INVESTORS 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-2900P 5/96
JOHN HANCOCK
SOVEREIGN
INVESTORS
FUND
Class A and Class B Shares
Prospectus
May 1, 1996
A mutual fund seeking long-term
growth of capital and income
without undue market risks.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Telephone 1-800-225-5291
[Recycle logo] Printed on recycled paper using soybean ink
<PAGE>
John Hancock
Sovereign
Investors Fund
CLASS C Shares
Prospectus
May 1, 1996
TABLE OF CONTENTS
Page
-------
Expense Information 2
The Fund's Financial Highlights 3
Investment Objective and Policies 5
Organization and Management of the Fund 7
The Fund's Expenses 8
Dividends and Taxes 9
Performance 10
Who Can Buy Class C Shares 10
How to Buy Class C Shares 10
Class C Share Price 12
How to Redeem Class C Shares 12
Additional Services and Programs 14
This Prospectus sets forth information about John Hancock Sovereign
Investors 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 9277, Boston,
Massachusetts 02205-9277, 1-800-437-9312.
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.
1
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you understand the
various fees and expenses that 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 Class C shares
of the Fund for the fiscal year ended December 31, 1995, adjusted to reflect
current fees and expenses. Actual fees and expenses of Class C shares in the
future may be greater or less than those shown.
Class C
Shareholder Transaction Expenses Shares*
----------
Maximum sales charge imposed on purchases (as a percentage of
offering price) None
Maximum sales charge imposed on reinvested dividends None
Maximum deferred sales charge None
Redemption fee+ None
Exchange fee None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Management fee+++ 0.58
Other Expenses 0.18
Total Fund operating expenses 0.76
*The information set forth in the foregoing table relates only to Class C
shares.
+Redemption by wire fee (currently $4.00) not included.
+++The calculation of the management fee is based on average net assets for
the fiscal year ended December 31, 1995. See "The Fund's Expenses."
1 3 5 10
Example: Class C Shares Year Years Years Years
You would pay the following expenses for the
indicated period of years on a
hypothetical $1,000 investment, assuming a
5% annual return $8 $24 $42 $94
(This example should not be considered a representation of past or future
expenses. Actual expenses of Class C shares may be greater or less than those
shown.)
The management fee referred to above is more fully explained in this
Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the caption "Investment Advisory and Other
Services."
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 years 1986 through 1992 were
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>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1995 1994 1993 1992(f) 1991(f)(h) 1990(f) 1989(f) 1988(f) 1987(f) 1986(f)(i)
------- ------- ------- ----- ----- ---- ---- ---- ---- ------
Class A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net Asset Value,
Beginning of
Period $14.24 $15.10 $14.78 $14.31 $11.94 $12.60 $11.19 $10.96 $12.36 $11.31
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Investment
Income 0.40 0.46 0.44 0.47 0.54 0.58 0.59 0.57 0.53 0.58
Net Realized and
Unrealized Gain
(Loss) on
Investments 3.71 (0.75) 0.39 0.54 3.03 (0.05) 2.01 0.65 (0.45) 1.89
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from
Investment
Operations 4.11 (0.29) 0.83 1.01 3.57 0.53 2.60 1.22 0.08 2.47
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from Net
Investment Income (0.40) (0.46) (0.42) (0.45) (0.53) (0.59) (0.61) (0.61) (0.58) (0.55)
Distributions from
Net Realized Gain
on Investments
Sold (0.08) (0.11) (0.09) (0.09) (0.67) (0.60) (0.58) (0.38) (0.90) (0.87)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
Distributions (0.48) (0.57) (0.51) (0.54) (1.20) (1.19) (1.19) (0.99) (1.48) (1.42)
----- ----- ----- ----- --- ----- ----- ----- ----- -----
Net Asset Value, End
of Period $17.87 $14.24 $15.10 $14.78 $14.31 $11.94 $12.60 $11.19 $10.96 $12.36
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Investment
Return at Net
Asset Value (g) 29.15% (1.85%) 5.71% 7.23% 30.48% 4.38% 23.76% 11.23% 0.28% 21.70%
----- ----- ----- ---- ----- ----- ----- ----- ----- -----
Ratios and
Supplemental Data
Net Assets, End of
Period (000's
omitted) $1,280,321 $1,090,231 $1,258,575 $872,932 $194,055 $83,470 $66,466 $45,861 $40,564 $34,708
Ratio of Expenses to
Average Net Assets 1.14% 1.16% 1.10% 1.13% 1.18% 1.14% 1.07% 0.86% 0.85% 0.70%
Ratio of Net
Investment Income
to Average Net
Assets 2.45% 3.13% 2.94% 3.32% 4.01% 4.77% 4.80% 4.97% 3.96% 4.28%
Portfolio Turnover
Rate 46% 45% 46% 30% 67% 55% 40% 35% 59% 34%
</TABLE>
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Class B (a)
Per Share Operating Performance
Net Asset Value, Beginning of Period $14.24 $15.02(d)
----- ---------
Net Investment Income 0.27(e) 0.38(e)
Net Realized and Unrealized Gain (Loss) on Investments 3.71 (0.69)
----- ---------
Total from Investment Operations 3.98 (0.31)
----- ---------
Less Distributions:
Dividends from Net Investment Income (0.28) (0.36)
Distributions from Net Realized Gain on Investments
Sold (0.08 (0.11)
-----
Total Distributions (0.36) (0.47)
-----
Net Asset Value, End of Period $17.86 $14.24
===== =========
Total Investment Return at Net Asset Value (g) 28.16% (2.04%)(c)
----- ---------
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $257,781 $128,069
Ratio of Expenses to Average Net Assets 1.90% 1.86%*
Ratio of Net Investment Income to Average Net Assets 1.65% 2.57%*
Portfolio Turnover Rate 46% 45%
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
For the Period
May 7, 1993
Year Ended To December 31,
December 31 1993
---------------- -------------------
<S> <C> <C> <C>
Class C (b) 1995 1994
---- ----
Per Share Operating Performance
Net Asset Value, Beginning of Period $14.24 $15.11 $14.79(d)
---- ---- -----------------
Net Investment Income 0.46(e) 0.52 0.27(e)
Net Realized and Unrealized Gain (Loss) on Investments 3.71 (0.77) 0.48
---- ---- -----------------
Total from Investment Operations 4.17 (0.25) 0.75
---- ---- -----------------
Less Distributions:
Dividends from Net Investment Income (0.46) (0.51) (0.34)
Distributions from Net Realized Gain on Investments
Sold (0.08) (0.11) (0.09)
---- ---- -----------------
Total Distributions (0.54) (0.62) (0.43)
---- ---- -----------------
Net Asset Value, End of Period $17.87 $14.24 $15.11
==== ==== =================
Total Investment Return at Net Asset Value (g) 29.68% (1.57%) 5.13%(c)
---- ---- -----------------
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $19,946 $15,128 $10,189
Ratio of Expenses to Average Net Assets 0.74% 0.81 0.88%*
Ratio of Net Investment Income to Average Net Assets 2.84% 3.53% 3.17%*
Portfolio Turnover Rate 46% 45% 46%
</TABLE>
Note: During the period covered by this table Sovereign Advisers, Inc. was
the investment adviser until October 23, 1991 when John Hancock Advisers,
Inc. became the Fund's investment adviser.
*On an annualized basis.
(a) Class B shares commenced operations on January 3, 1994.
(b) Class C shares commenced operations on May 7, 1993.
(c) Not annualized.
(d) Initial price to commence operations.
(e) On average month end shares outstanding.
(f) These periods are covered by the report of other independent auditors
(not included herein).
(g) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(h) On October 23, 1991, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(i) Restated for 2 for 1 stock split effective April 29, 1987.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek long-term growth of capital and
income without undue market risk.
The Fund's investment objective is to provide long term growth of capital and
of income without assuming undue market risks. The Fund believes that its
shares are suitable for investment by persons who are in search of
above-average long term reward. At times, however, because of market
conditions the Fund may find it advantageous to invest primarily for current
income. The Fund will diversify its investments among a number of industry
groups without concentrating more than 25% of its assets in any particular
industry. The Fund's investments will be subject to market fluctuation and
risks inherent in all securities. There is no assurance that the Fund will
achieve its investment objective.
The Fund will invest primarily in common stocks, although it may respond to
market conditions by investing in other types of securities.
Common stocks will generally represent the major part of the Fund's holdings,
although, for defensive purposes, the Fund may temporarily hold a larger
percentage of high grade liquid preferred stocks or debt securities. 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 amount of the Fund's
assets that may be invested in either equity or fixed income securities is
not restricted and is based upon management's judgment of what might best
achieve the Fund's investment objective.
The Fund generally invests in seasoned companies in sound financial condition
with a long record of paying dividends.
While there is considerable flexibility in the investment grade and type of
security in which the Fund may invest, the Fund may only invest in companies
who have (or whose predecessors have) been in continuous business for at
least five years and have total assets of at least $10 million. The Fund
currently uses a strategy of investing only in those common stocks which have
a record of having increased their dividend payout in each of the preceding
ten or more years. This dividend performers strategy can be changed at any
time.
Investments in corporate fixed income securities may be in bonds, convertible
debentures and preferred convertible or non-convertible stock. Convertible
issues, while influenced by the level of interest rates, are also subject to
the changing value of the underlying common stock into which they are
convertible. Fixed income securities eligible for purchase by the Fund may
have stated maturities of one to thirty years. The value of fixed income
securities varies inversely with interest rates. Although fixed income
securities in the Fund's portfolio may include securities rated as low as C
by Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's") and unrated securities deemed of equivalent quality by John
Hancock Advisers, Inc. (the "Adviser"), no more than 5% of the Fund's net
assets will be invested in debt securities rated lower than BBB by S&P or Baa
by Moody's or unrated securities of equivalent quality. Bonds rated BBB or
Baa normally exhibit adequate protection parameters. However, speculative
characteristics, and adverse changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make principal
and interest payments than higher grade bonds. Bonds rated lower than BBB or
Baa are high risk securities commonly known as "junk bonds." If any security
in the Fund's portfolio falls below the Fund's minimum credit quality
standards, as a result of a rating downgrade or the Adviser's determination,
the Fund will dispose of the security as promptly as possible while
attempting to minimize any loss.
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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 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, the Fund 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.
Government Securities. 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 Federal National
Mortgage Association ("Fannie Maes"), and obligations supported by the credit
of the instrumentality, such as Student Loan Marketing Association Bonds
("Sallie Maes").
The Fund may invest in mortgage-backed securities which have stated
maturities of up to thirty years when they are issued, depending upon the
length of the mortgages underlying the securities. In practice, however,
unscheduled or early payments of principal and interest on the underlying
mortgages may make the securities' effective maturity shorter than this, and
the prevailing interest rates may be higher or lower than the current yield
of the Fund's portfolio at the time the Fund receives the payments for
reinvestment. Mortgage-backed securities may have less potential for capital
appreciation than comparable fixed-income securities, due to the likelihood
of increased prepayments of mortgages as interest rates decline. If the Fund
buys mortgage-backed securities at a premium, mortgage foreclosures and
prepayments of principal by mortgagors (which may be made at any time without
penalty) may result in some loss of the Fund's principal investment to the
extent of the premium paid.
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 obligations and the Fund is delayed in or prevented from
liquidating the collateral. The Fund will segregate in a separate account
cash or liquid,
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<PAGE>
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.
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
classified as fundamental or non-fundamental. The Fund's investment objective
and those investment restrictions designated as fundamental may not be
changed without shareholder approval. The Fund's non-fundamental investment
policies and restrictions, however, may be changed by a vote of the Directors
without shareholder approval. The Fund's portfolio turnover rates for recent
years are shown in "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
prices, taking into account the broker's professional ability and quality of
service. Consideration may also be given to the broker's sale of Fund shares.
Pursuant to procedures established by the 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. which are indirectly
owned by John Hancock Mutual Life Insurance Company (the "Life 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 authorized shares of capital stock. The
Company's Articles of Incorporation permit the Directors to create and
classify 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 Incorporation 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
Class A shares, Class B shares and Class C shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund. Each
class has equal rights as to voting, redemption, dividends and liquidation.
However, each bears different distribution fees. Also, Class A and Class B
shareholders have exclusive voting rights with respect to the Rule 12b-1
distribution plan, which has been adopted by holders of those shares in
connection with the shares' distribution.
Shareholders have certain rights to remove Directors. The Company is not
required and does not intend to hold annual meetings of shareholders,
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.
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 the Life 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
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("Selling Brokers"). Certain Fund officers 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 without the Adviser and its affiliate,
Sovereign Asset Management Corporation ("SAMCorp"), SAMCorp furnishes to the
Adviser certain portfolio management services with respect to the 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.
John F. Snyder III is primarily responsible for management of the equity
securities of the Fund. Barry H. Evans is primarily responsible for
management of the fixed income securities of the Fund. They are assisted by
Jere Estes and a team of analysts. Mr. Snyder has been a portfolio manager of
the Fund since 1984. He has been associated with the Adviser since 1991 when
the Adviser assumed management of the Fund. He is also co-portfolio manager
of John Hancock Sovereign Balanced Fund. Mr. Evans is Vice President and
Portfolio Manager of the Fund and also leads a team of managers on several
other Hancock funds. Mr. Evans has managed bond funds since he joined John
Hancock in 1986.
In order to avoid any conflict with portfolio trades for the Fund, the
Adviser, the Sub- 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.
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a fee to the
Adviser which is based on a stated percentage of the Fund's average daily net
asset value equivalent on an annual basis as follows:
$0 to 750 million 0.60%
750 million to 1.5 billion 0.55%
1.5 billion to 2.5 billion 0.50%
2.5 billion and over 0.45%
The investment management fee for the 1995 fiscal year was 0.58% of the
Fund's average daily net asset value.
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 impose such fee and recover any other
payments to the extent at the end of any fiscal year, the Fund's actual
expenses at year end fall below the limit.
The Fund compensates the Adviser for performing necessary tax and financial
management services. The compensation for 1996 is estimated to be at an
annual rate of 0.01875% of the average net assets of the Fund.
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Information on the Fund's total expenses is in the Fund's Financial
Highlights section of this Prospectus.
DIVIDENDS AND TAXES
The Fund has paid quarterly distributions continuously since 1937.
Dividends. Dividends from the Fund's net investment income are declared and
paid quarterly. Capital gains if any, are generally distributed annually.
From time to time, the Fund may declare a special dividend at year's end.
Dividends are reinvested in additional shares of your class unless you elect
the option to receive cash. If you elect the cash option and the U.S. Postal
Service cannot deliver your checks, your election will be converted to the
reinvestment option.
Taxation. For investors who are not exempt from Federal income taxes,
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 receive cash
or reinvest in additional Class C 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 taxes on any net
investment income and net realized capital gains that are distributed to its
shareholders within the time period prescribed by the Code. When you redeem
(sell) or exchange Class C 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 you provide is correct and that you are
not subject to backup withholding of Federal income tax. If you do not
provide this information or are otherwise subject to backup withholding, the
Fund may be required to withhold 31% of your taxable 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 investments in and distributions from the Fund.
In many states, a portion of the Fund's dividends that represents interest
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 a
different tax treatment not described above. You should consult your tax
adviser for specific advice.
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PERFORMANCE
The Fund may advertise its yield and total return on Class C shares.
Yield reflects the Fund's rate of income on portfolio investments as a
percentage of the Class C share price. Yield is computed by annualizing the
result of dividing the net investment income per share over a 30 day period
by the net asset value per Class C 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 Class C shares or the income reported in the
Fund's financial statements.
The Fund's total return on Class C shares 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 Class C
shares' performance over a period of time. Average annual total return shows
the cumulative return of the Class C Fund shares divided by the number of
years included in the period. Because average annual total return tends to
smooth out variations in the performance of Class C Fund shares, you should
recognize that it is not the same as actual year-to-year results.
Neither total return nor yield calculations with respect to Class C shares
reflect the imposition of a sales charge. The value of Class C Fund shares,
when redeemed, may be more or less than their original cost. Both yield and
total return are historical calculations and are not an indication of future
performance.
WHO CAN BUY CLASS C SHARES
Class C shares are available to certain institutional investors.
In order to buy Class C Fund shares, you must qualify as one of the following
types of institutional investors: (i) Benefits plans (other than
self-directed plans) not affiliated with the Adviser which have at least
$25,000,000 in plan assets and either have a separate trustee vested with
investment discretion and certain limitations on the ability of the plan
beneficiaries to access their plan investments without incurring adverse tax
consequences or allow their participants to select among one or more
investment options, including the Fund ("participant-direct plans"); (ii)
Banks and insurance companies which are not affiliated with the Adviser
purchasing shares for their own account; (iii) Investment companies not
affiliated with the Adviser; (iv) Tax exempt retirement plans of the Adviser
and its affiliates, including affiliated brokers; and (v) Unit investment
trusts sponsored by John Hancock Funds and certain other sponsors and (vi)
existing full-service clients of the Life Company who were group annuity
contract holders as of September 1, 1994. Participant-directed plans include
but are not limited to 401(k), TSA and Section 457 plans.
HOW TO BUY CLASS C SHARES
Opening an account.
The minimum initial investment is $1,000,000, except that this requirement
may be waived at the discretion of the Fund's officers. You may qualify for
the minimum investment if you invest more than $1,000,000 in Class C shares
in the Fund and Class C shares of other funds in the John Hancock family.
This is discussed in greater detail in the Statement of Additional
Information.
Complete the Account Application attached to this Prospectus.
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.
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Buying additional Class C shares.
By Wire 1. Obtain an account number by contacting your registered
representative or Selling Broker or by calling
1-800-437-9312.
2. Instruct your bank to wire funds to:
First Signature Bank and Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Sovereign Investors Fund
(Class C 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.
By Telephone 1. Complete the "Invest-By-Phone" and "Bank Information"
sections on the Account Privileges Application designating
a bank account from which 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 C shares by calling Investor
Services toll-free at 1-800-437-9312.
3. Give the Investor Services representative the name(s) in
which your account is registered, the Fund name and your
account number, and the amount you wish to invest in Class
C shares.
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 and 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.
By Wire Instruct your bank to wire funds to:
First Signature Bank and Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Sovereign Investors Fund
(Class C 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. Class C share certificates are not issued unless a
request is made in writing to Investor Services.
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<PAGE>
You will receive account statements that you should keep to help with your
personal recordkeeping.
You will receive a statement of your account after any transactions that
affects your share balance or registration (statements related to
reinvestment of dividends will be sent to you quarterly). A tax information
statement will be mailed to you by January 31 of each year.
CLASS C SHARE PRICE
The offering price of your Class C shares is their net asset value.
The net asset value per share ("NAV") of a Class C share is the value of one
Class C 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 in value. Securities in the Fund's portfolio are valued on the basis
of market quotations, valuations provided by independent pricing services or
at fair value as determined in good faith in accordance with procedures
approved by the 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 fair value. The NAV of Class C shares 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.
Class C shares of the Fund are sold at the offering price based on the NAV
computed after your investment request is received in good order by John
Hancock Funds. If you buy shares of the Fund through a Selling Broker, the
Selling Broker must receive your investment before the close of regular
trading on the Exchange and transmit it to John Hancock Funds prior to its
close of business to receive that day's offering price. No sales charge is
imposed on the purchase of Class C shares.
A one-time payment of up to 0.15% of the amount invested in Class C shares
may be made by John Hancock Funds to a Selling Broker for sales of Class C
shares made by that Selling Broker. A person entitled to receive compensation
for selling shares of the Fund may receive different compensation with
respect to sales of Class A shares, Class B shares and Class C shares of the
Fund. John Hancock Funds, out of its own resources, may pay to a selling
Broker an annual service fee up to 0.20% of the amount invested in Class C
shares by these clients.
HOW TO REDEEM CLASS C SHARES
You may redeem all or a portion of your Class C shares on any business day.
Your Class C shares will be redeemed at the next NAV for Class C shares
calculated after your redemption request is received in good order by
Investor Services. The Fund may hold payment until reasonably satisfied that
investments which were recently made by check or Invest-by-Phone have been
collected (which may take up to 10 calendar days).
Once your Class C shares are redeemed, the Fund generally sends you payment
on the next business day. When you redeem your Class C shares, you may
realize a taxable gain or loss depending usually on the difference between
what you paid for them and what you receive for them, subject to certain tax
rules. Under unusual circumstances, the Fund may suspend redemptions or
postpone payment for up to three business days or longer, as permitted by
Federal securities laws.
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To assure acceptance of your redemption request, please follow the
procedures.
By Telephone All Fund shareholders are eligible automatically for the
telephone redemption privilege. Call 1-800-437-9312, from 8:00
A.M. to 4:00 P.M. (New York 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 by telephone, 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 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 with the telephone transaction procedures mentioned
above.
Telephone redemption is not available for tax-qualified
retirement plans or for Class C shares of the Fund that are in
certificate 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 such 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 Institutional Account 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 Class C
shares to be redeemed, your name, class of shares, your
account number and the additional requirements listed below
that apply to your particular account.
Type of Registration Requirements
- -------------------------- -------------------------------------------------
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s) authorized to
act on the account with the signature(s)
guaranteed.
Trusts A letter of instruction signed by the
Trustee(s) with the signatures guaranteed. (If
the Trustee's name is not registered on your
account, also provide a copy of the trust
document, certified within the last 60 days.)
If you do not fall into any of these registration categories, please call
1-800-437-9312 for further instructions.
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<PAGE>
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 Class C 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.
Through Your Broker Your broker may be able to initiate the redemption.
Contact your broker for instructions.
Additional information about redemptions.
If you have certificates for your shares, you must submit them with your
stock power or a letter of instruction. 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 all Class C 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 or additional
fee imposed, if the value of the account is in excess of the Fund's minimum
initial investment. Shareholders will be notified before these redemptions
are to be made or this charge is imposed and will have 30 days to purchase
additional Class C shares to bring their account balance up to the required
minimum. Unless the number of Class C shares acquired by additional purchases
and any dividend reinvestments exceeds the number of Class C shares redeemed,
repeated redemptions from a smaller account may eventually trigger this
policy.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege
You may exchange Class C shares of the Fund only for Class C shares 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. Not all John Hancock funds offer Class C. 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 Class C shares. Exchanges may be made only into Class C
shares of other John Hancock funds.
Exchanges between funds are based on their respective net asset values. No
sales charge or transaction charge is imposed.
The Fund reserves the right to require you to keep previously exchanged Class
C 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 make an exchange, your account registration must be identical in
both the existing and new account. The exchange privilege is available only
in states where the exchange can be made legally.
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<PAGE>
Under exchange agreements with John Hancock Funds, certain dealers, brokers
and investment advisers may exchange their clients' Fund shares, subject to
the terms of those agreements and John Hancock Funds' right to reject or
suspend those exchanges at any time. Because of the restrictions and
procedures under those agreements, the exchanges may be subject to timing
limitations and other restrictions that do not apply to exchanges requested
by shareholders directly, as described above.
Because Fund performance and shareholders can be hurt by excessive trading,
the Fund reserves the right to terminate the exchange privilege for any
person or group that, in John Hancock Funds' judgment, is involved in a
pattern of exchanges that coincide with a "market timing" strategy that may
disrupt the Fund's ability to invest effectively according to its investment
objective and policies, or might otherwise affect the Fund and its
shareholders adversely. The Fund may also temporarily or permanently
terminate the exchange privilege for any person who makes seven or more
exchanges out of the Fund per calendar year. Accounts under common control or
ownership will be aggregated for this purpose. Although the Fund will attempt
to give prior notice whenever it is reasonably able to do so, it may impose
these restrictions at any time.
By Telephone
1. When you complete the application for your initial purchase of Class C
shares of the Fund, you automatically authorize exchanges by telephone
unless you check the box indicating that you do not wish to authorize the
telephone exchange privilege.
2. Call 1-800-437-9312. Have the account number of your current fund and the
exact name in which it is registered available to give to the customer
service 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:
--name of the Fund whose Class C 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 Class C shares, all Class C shares or the dollar amount
you wish to exchange.
Sign your request exactly as the account is registered.
2. Mail the request and information to:
Attn: Institutional Services
John Hancock Investor Services Corporation
P.O. Box 9277
Boston, Massachusetts 02205-9277
15
<PAGE>
JOHN HANCOCK SOVEREIGN
INVESTORS 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 St.
Boston, MA 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For Service Information
For Telephone Exchange Call 1-800-437-9312
For Investment-by-Phone
For Telephone Redemption
JOHN HANCOCK
SOVEREIGN
INVESTORS
FUND
CLASS C SHARES
Prospectus
May 1, 1996
A mutual fund seeking long-term growth of capital and income without undue
market risks.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Telephone 1-800-437-9312
JHD-290CP 5/96 [Recycle Logo] Printed on Recycled Paper
<PAGE>
JOHN HANCOCK
SOVEREIGN INVESTORS FUND
CLASS A, CLASS B and CLASS C SHARES
Statement of
Additional Information
May 1, 1996
This Statement of Additional Information provides information about John
Hancock Sovereign Investors Fund (the "Fund") in addition to the information
that is contained in the Fund's Class A and Class B and the Class C
Prospectuses, dated May 1, 1996 (the "Prospectuses").
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Fund's Prospectuses, 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 Objective and Policies 2
Investment Restrictions 6
Those Responsible for Management 9
Investment Advisory and Other Services 15
Distribution Contracts 18
Net Asset Value 19
Initial Sales Charge on Class A Shares 20
Deferred Sales Charge on Class B Shares 22
Special Redemptions 23
Additional Services and Programs 23
Description of Fund Shares 24
Tax Status 25
<PAGE>
Calculation of Performance 28
Brokerage Allocation 31
Transfer Agent Services 32
Custody of Portfolio 33
Independent Auditors 33
Appendix A-1 A-1
Financial Statements
ORGANIZATION OF THE FUND
John Hancock Sovereign Investors 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 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 Balanced Fund ("Balanced Fund") and authorized the
issuance of three classes of shares of the Fund: Class A, Class B and Class C.
See "Description of Fund Shares." Additional series may be added in the future
from time to time.
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 Company"), chartered in 1862, with national
headquarters at John Hancock Place, Boston, Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide long-term growth of capital
and of income 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 objective
will be attained. The Fund will make investments in different types and classes
of securities in accordance with the Board of Directors' and the Adviser's
appraisal of economic and market conditions. The securities held by the Fund are
under continuous study by the Adviser. They are selected because they are
considered by the management to contribute to the possible achievement of the
Fund's objective. They are held or disposed of in accordance with the results of
a continuing examination of their merit. Shareholder approval is not required to
effect changes in investment objective.
The Fund currently uses a strategy of investing only in those common stocks
which have a record of having increased their dividend payout in each of the
preceding ten or more years. This dividend performers strategy can be changed at
any time.
2
<PAGE>
The Fund has adhered to this philosophy since 1979. By investing primarily
in these companies, the portfolio management team focuses on investments with
characteristics such as: a strong management team that has demonstrated
leadership through changing market cycles; Financial soundness as evidenced by
consistently rising dividends and profits, strong cash flows, high return on
equity and a balanced sheet showing little debt; and strong brand recognition
and market acceptance, backed by proven products and a well-established, often
global, distribution network.
The Fund may hold all common stocks or for more defensive purposes it may
hold high grade liquid preferred stocks and debt securities or cash. In
addition, temporary investments in short term debt securities may be made so as
to receive a return on excess cash.
The investment policy of the Fund is to purchase and hold securities for
capital appreciation and investment income, although there may be a limited
number of short-term transactions incidental to the pursuit of its investment
objective. The Fund may make portfolio purchases and sales to the extent that in
its Board's opinion, relying on the Adviser or independently, such transactions
are in the interest of shareholders.
Portfolio turnover rates for the past three fiscal years were: 1993, 46%,
1994, 45% and 1995, 46%.
The Fund endeavors to achieve its objectives by utilizing experienced
management and generally investing in securities of seasoned companies in sound
financial condition. A company or its predecessors must have been in continuous
business for at least five years and must have total assets of at least
$10,000,000 before its securities can be purchased by the Fund. The Fund has not
purchased securities of real estate investment trusts and has no present
intention of doing so in the future.
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 did not do so in
its past fiscal year and has no current intention of doing so, except that 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. 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
3
<PAGE>
restricted securities. The Fund does not intend to invest more that 5% of its
net assets in Rule 144A securities in the coming year.
Diversification. The Fund's investments are diversified in a broad list of
issues, representing many different industries. Although diversification does
not eliminate market risk, it may tend to reduce it. At the same time, holdings
of a large number of shares in any one company are avoided. Thus, during periods
when general economic and political conditions are subject to rapid changes, it
may be appropriate to effect rapid changes in the Fund's investments. This can
be more readily accomplished by limiting the amount of any one investment.
As is common to all securities investments, the stock of this managed
diversified Fund is subject to fluctuation in value; its portfolio will not
necessarily prove a defense in periods of declining prices or lead the advance
in rising markets. The Fund's management will endeavor to reduce the risks
encountered in the use of any single investment by investing the assets of the
Fund in a widely diversified group of securities. Diversification, however, will
not necessarily reduce inherent market risks. Securities are selected mainly for
their investment character, based upon generally accepted elements of intrinsic
value including industry position, management, financial strength, earning
power, ready marketability and prospects for future growth.
Concentration. The Fund's policy is not to concentrate its investments in any
one industry, but investments of up to 25% of its total assets at market value
may be made in a single industry. This limitation may not be changed without the
affirmative vote of a majority of the Fund's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act").
Lower Rated Bonds. The Fund may invest in debt securities rated as low as C by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("S&P") and unrated securities deemed of equivalent quality by the Adviser.
These 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. No more than 5% of the Fund's net assets,
however, will be invested in securities rated lower than BBB by S&P or Baa by
Moody's. In addition, no more than 5% of the Fund's net assets may be invested
in securities rated BBB or Baa and unrated securities deemed of equivalent
quality. 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 comparable quality unrated securities which,
in the opinion of the Adviser, offer comparable yields and risks to those
securities which are rated.
Debt obligations rated in the lower ratings categories, or which are
unrated, involve greater volatility of price and risk of loss of principal and
income. In addition, lower ratings reflect a greater possibility of an adverse
change in financial condition affecting the ability of the issuer to make
payments of interest and principal. The high yield fixed income market is
relatively new and its growth occurred during a period of economic expansion.
The market has not yet been fully tested by an economic recession.
The market price and liquidity of lower rated fixed income securities
generally respond to short term corporate and market developments to a greater
extent than do the price and liquidity of higher rated securities because such
developments are perceived to have a more direct
4
<PAGE>
relationship to the ability of an issuer of such lower rated securities to meet
its ongoing debt obligations. The market prices of zero coupon bonds are
affected to a greater extent by interest rate changes, and thereby tend to be
more volatile than securities which pay interest periodically. Increasing rate
note securities are typically refinanced by the issuers within a short period of
time.
Reduced volume and liquidity in the high yield bond market or the reduced
availability of market quotations will make it more difficult to dispose of the
bonds and to value accurately 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 bonds. In addition, the Fund's investments in
high yield 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 risks inherent in all securities.
Options and Futures. The Fund may not invest in futures contracts or sell call
or put options. The Fund has authority to purchase put and call options,
although the Fund has no present intention of doing so in the coming fiscal
year.
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"). 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.
Mortgage-backed securities have stated maturities of up to thirty years
when they are issued depending upon the length of the mortgages underlying the
securities. In practice, however, unscheduled or early payments of principal and
interest on the underlying mortgages may make the securities' effective maturity
shorter than this and the prevailing interest rates may be higher or lower than
the current yield of the Fund's portfolio at the time such payments are received
by the Fund for reinvestment. Mortgage-backed securities may have less potential
for capital appreciation than comparable fixed-income securities due to the
likelihood of increased prepayments of mortgages as interest rates decline. If
the Fund buys mortgage-backed securities at a premium, mortgage foreclosures and
prepayments of principal by mortgagors (which may be made at any time without
penalty) may result in some loss of the Fund's principal investment to the
extent of the premium paid.
5
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without approval of a majority of the Fund's outstanding voting
securities which, as used in the Prospectuses and this Statement of Additional
Information, means approval by the lesser of (1) 67% or more of the Fund's
shares represented at a meeting if at least 50% of Fund's outstanding shares are
present in person or by proxy at the meeting or (2) 50% of the Fund's
outstanding shares.
(1) The Fund may not, with respect to 75% of its total assets, purchase any
security (other than securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements collateralized by such
securities) if, as a result: (a) more than 5% of its total assets would be
invested in the securities of any one issuer, or (b) the Fund would own more
than 10% of the voting securities of any one issuer.
(2) The Fund may not issue senior securities, except as permitted by
paragraphs (3) and (7) below. For purposes of this restriction, the issuance of
shares of common stock in multiple classes, the purchase or sale of options,
futures contracts and options on futures 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 are not
deemed to be senior securities.
(3) The Fund may not borrow money except in connection with the sale or
resale of its capital stock.
(4) The Fund may not act as an underwriter, except to the extent that, in
connection with the disposition of portfolio investments, the Fund may be deemed
to be an underwriter for purposes of the Securities Act of 1933.
(5) The Fund may not purchase or sell real estate, or any interest therein,
including real estate mortgage loans, except that the Fund may: (i) hold and
sell real estate acquired as the result of its ownership of securities, or (ii)
invest in securities of corporate or governmental entities secured by real
estate or marketable interests therein or securities issued by companies (other
that real estate limited partnerships) that invest in real estate or interests
therein.
(6) The Fund may not make loans, except that the Fund (1) may lend
portfolio securities in accordance with the Fund's investment policies in an
amount up to 331/3% of the Fund's total assets taken at market value, (2) enter
into repurchase agreements, and (3) purchase all or a portion of an issue of
debt securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or not
the purchase is made upon the original issuance of the securities.
(7) The Fund may not purchase or sell commodities or commodity contracts;
except that the Fund may purchase and sell options on securities, securities
indices, currency and other financial instruments, futures contracts on
securities, securities indices, currency and other financial instruments and
options on such futures contracts, forward commitments, interest rate swaps,
caps and floors, securities index put or call warrants and repurchase agreements
entered into in accordance with the Fund's investment policies.
6
<PAGE>
(8) The Fund may not purchase securities of an issuer conducting its
principal activity in any particular industry if immediately after such purchase
the value of the Fund's investments in all issuers in this industry would exceed
25% of its total assets taken at market value.
NON FUNDAMENTAL INVESTMENT RESTRICTIONS
The following restrictions may be changed by the Funds Board of Directors
and will not require shareholder approval.
The Fund may not:
(a) Participate on a 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 any investment
adviser to the Fund in order to save commissions or to average prices among the
accounts, and the participation of the Fund as a part of a group bidding for the
purchase of tax exempt bonds shall not be deemed to result in participation in a
securities trading account.
(b) Purchase securities on margin or make short sales unless, by virtue of
its ownership of other securities, the Fund has the right to obtain securities
equivalent in kind and amount to the securities sold short and, if the right is
conditional, the sale is made upon the same conditions, except that the Fund may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities.
(c) Purchase a security if, as a result, (i) more than 10% of the Fund's
total assets would be invested in the securities of other investment
companies, (ii) the Fund would hold more than 3% of the total outstanding
voting securities of any one investment company, or (iii) more than 5% of
the Fund's total assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the investment of
cash collateral, received by the Fund in connection with lending the Fund's
portfolio securities, in the securities of open-end investment companies or
(b) the purchase of shares of any investment company in connection with a
merger, consolidation, reorganization or purchase of substantially all of
the assets of another investment company. Subject to the above percentage
limitations, 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. The Fund may not purchase the shares of any closed-end
investment company except in the open market where no commission or profit
to a sponsor or dealer results from the purchase, other than customary
brokerage fees."
(d) Purchase a security of a company unless it or its predecessors have
been in continuous business for at least five years, and unless its most recent
balance sheet shows at least $10,000,000 total assets.
(e) Invest for the purpose of exercising control over or management of any
company.
(f) Purchase warrants of any issuer, if as a result, 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 Fund's total assets would be
7
<PAGE>
invested in warrants, whether or not so listed, such warrants in each case to be
valued at the lesser of cost or market, but assigning no value to warrants
acquired by the Fund in units with or attached to debt securities.
(g) Knowingly purchase or retain securities of an issuer if one or more of
the Directors or officers of the Fund or directors or officers of the Adviser or
any investment management subsidiary of the Adviser individually owns
beneficially more than 1/2 of 1% and together own beneficially more than 5% of
the securities of such issuer.
(h) Purchase interests in oil, gas or other mineral lease exploration
programs; however, this policy will not prohibit the acquisition of securities
of companies engaged in the production or transmission of oil, gas or other
minerals.
(i) Purchase any security, including any repurchase agreement maturing in
more than seven days, which is illiquid, 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 currently considers
over-the-counter options to be illiquid securities subject to the 15% limit.)
(j) Write put or call options.
(k) Purchase put and call options (other than protective put options) if,
as a result, the value of the Fund's aggregate investment in such options would
exceed 5% of its total assets.
(l) Purchase interests in real estate limited partnerships.
(m) No officer or director of the Fund may take a short position in the
shares of the Fund, withhold orders or buy shares in anticipation of orders.
(n) No security of a bank or trust company may be purchased unless it is a
domestic corporation, and has combined capital, surplus and undivided profits of
at least $20,000,000.
In order to permit the sale of shares of the Fund in certain states, the
Directors may, in their sole discretion, adopt restrictions on investment policy
more restrictive than those described above. Should the 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 Directors may revoke such restrictive policy. Moreover, if the states
involved shall no longer require any such restrictive policy, the Directors may,
at their 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.
8
<PAGE>
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 restriction.
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.
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 Directors. Several of the officers and
Directors of the Fund are also officers or directors of the Adviser or officers
or directors of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds,").
The following table sets forth the principal occupation or employment of
the Trustees and principal officers of the Fund during the past five years:
9
<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
101 Huntington Avenue Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial 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 (1) Chairman and Director, Sovereign
Interstate/Johnson Lane Advisers, Inc.; Senior Vice
1892 Andell Bluff Blvd. President, Interstate/Johnson Lane
Johns Island, SC 29455 Corp. (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 Administration Committee.
10
<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 Director(3) Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc.
Natick, MA 01760 (management/investments); Director,
Arbella Mutual Insurance Company
(insurance), Consolidated Group
Trust (insurance administration),
Carlin Insurance Agency, Inc., West
Insurance Agency, Inc. (until May,
1995) and Uno Restaurant Corp.;
Chairman, Massachusetts Board of
Higher Education; Receiver, the
City of Chelsea (until August,
1992).
Charles F. Fretz Director (3) Retired; Former Vice President and
RD #5, Box 300B Director, Towers, Perrin, Foster &
Clothier Springs Road Crosby, Inc. (international
Malvern, PA 19355 management consultants)
(1952-1985).
Harold R. Hiser, Jr. Director (3) Executive Vice President,
123 Highland Avenue Schering-Plough Corporation
Short Hills, NJ 07078 (pharmaceuticals) (until 1996);
Director, ReCapital Corporation
(reinsurance)(until 1995).
Charles L. Ladner Director (3) Director, Energy North, Inc.
UGI Corporation (public utility holding company)
P.O. Box 858 (until 1992); Senior Vice President
Valley Forge, PA 19482 and Chief Financial Officer of UGI
Corp. Holding Company: Public
Utilities, LPGAS.
Patricia P. McCarter Director (3) Director and Secretary of The
1230 Brentford Road McCarter Corp. (machine
Malvern, PA 19355 manufacturer).
</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 Administration Committee.
11
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Steven R. Pruchansky Director (1,3) Director and President, Mast
6920 Daniel Road Holdings, Inc.(since 1991);
Naples, FL 33942 Director, First Signature Bank &
Trust Company (until August 1991);
Director, Mast Realty Trust (1982-
1994); President, Maxwell Building
Corp. (until 1991).
Norman H. Smith Director (3) Lieutenant General, United States
243 Mt. Oriole Lane Marine Corps; Deputy Chief of Staff
Linden, VA 22642 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,
13 Chadwell Place National Liquid Reserves, Inc., The
Morristown, NJ 07960 Tax Free Money 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 Chief Vice Chairman and Chief Investment
101 Huntington Avenue Investment Officer (2) Officer, the Adviser; President,
Boston, MA 02199 the Adviser (until December 1994).
</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 Administration Committee.
12
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Anne C. Hodsdon* President (2) President and Chief Operating
101 Huntington Avenue Officer, the Adviser; Executive
Boston, MA 02199 Vice President, the Adviser (until
December 1994); Senior Vice
President; the Adviser (until
December 1993); Vice President, the
Adviser (until 1991).
Thomas H. Drohan* Senior Vice President and Senior Vice President and Secretary
101 Huntington Avenue Secretary of the Adviser.
Boston, MA 02199
James B. Little* Senior Vice President and Senior Vice President, the Adviser.
101 Huntington Avenue Chief Financial Officer
Boston, MA 02199
Susan S. Newton* Vice President, Assistant Vice President and Assistant
101 Huntington Avenue Secretary and Compliance Secretary, the Adviser.
Boston, MA 02199 Officer
John A. Morin* Vice President Vice President, the Adviser;
101 Huntington Avenue Counsel, the Life Company (until
Boston, MA 02199 1995).
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 Administration Committee.
13
<PAGE>
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.
The following table provides information regarding the compensation paid by
the Funds and the other investment companies in the John Hancock Fund Complex to
the Independent Trustees for their services. Mr. Boudreau and each of the
officers of the Funds are interested persons of the Adviser, are compensated by
the Adviser and received no compensation for the Funds for their services.
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual From the Fund and John
Compensation From Accrued as Part of Benefits Upon Hancock Fund Complex
Independent Directors the Fund the Fund's Expenses Retirement to Directors(1)(2)
- --------------------- -------- ------------------- ---------- ------------------
<S> <C> <C> <C> <C>
James F. Carlin $15,878 - $ $ 60,700
Charles F. Fretz 22,758 - - 56,200
Harold R. Hiser, Jr. -- $25,266 - 60,200
Charles L. Ladner 13,422 - - 60,700
Patricia P. McCarter 13,422 - - 60,700
Steven R. Pruchansky 13,865 - - 62,700
Norman H. Smith 13,865 - - 62,700
John P. Toolan -- 13,422 - 60,700
------- ------- --------
$93,210 $38,688 $484,600
</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.
As of March 13, 1996, the officers and trustees of the Fund as a group owned
less than 1% of the outstanding shares of each class of the Fund and as of the
same date the following shareholders beneficially owned 5% of or more of the
outstanding shares of the Funds listed below:
14
<PAGE>
<TABLE>
<CAPTION>
Number of shares Percentage of total
Name and Address of beneficial outstanding shares of the
of Shareholder Class of Shares interest owned class of the Fund
- -------------- --------------- -------------- -----------------
<S> <C> <C> <C>
Mellon Bank Trustee
California Savings Plus Program
457 Plan A/C CSPF0135002 Class C shares 908,200 77.90
Attn: Bob Stein
1 Cabot Rd.
Medford, MA 02155-5158
Mellon Bank Trustee Class C shares 257,645 22.10
California Savings Plus Program
401(K) Thrift Plan A/C CSPF0035002
Attn: Bob Stein
1 Cabot Rd.
Medford, MA 02155-5158
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Prospectuses, the Fund receives its investment advice
from the Adviser. Investors should refer to the Prospectus for a description of
certain information concerning the investment management contract.
Each of the Directors and principal officers affiliated with the Fund who
is also an affiliated person of the Adviser is named above, together with the
capacity in which such person is affiliated with the Fund or the Adviser.
As described in the Prospectuses under the caption "Organization and
Management of the Fund," the Fund has entered into an investment management
contract with the Adviser. Under the investment management contract, the Adviser
provides the Fund (i) with a continuous investment program, consistent with the
Fund's stated investment objective and policies; (ii) supervision of all aspects
of the Fund's operations except those delegated to a custodian, transfer agent
or other agent and (iii) such executive, administrative and clerical personnel,
officers and equipment as are necessary for the conduct of its business. The
Adviser is responsible for the day to day management of the Fund's portfolio
assets.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or affiliates provide investment advice.
Because of different investment objectives or other factors, a particular
security may be bought for one or more funds or clients when one or more are
selling the same security. If opportunities for purchase or sale of securities
15
<PAGE>
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 and
SAMCorp Advisers, Inc. 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 Life 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. The Adviser pays the compensation of all
other officers and employees of the Fund, and pays the expenses of clerical
services relating to the administration of the Fund.
All expenses which are not specifically paid by the Adviser and which are
incurred in the operation of the Fund (including fees of Directors of the Fund
who are not "interested persons," as such term is defined in the Investment
Company Act but excluding certain distribution-related activities required to be
paid by the Adviser or John Hancock Funds) and the continuous public offering of
the shares of the Fund are borne by the Fund.
As discussed in the Class A and Class B Prospectus and as provided by the
investment management contract, the Fund pays the Adviser quarterly an
investment management fee, which is accrued daily, based on a stated percentage
of the average of the daily net assets of the Fund.
Investment advisory fees paid to the Adviser in 1995, 1994 and 1993
amounted to $8,017,834, $7,452,980 and 6,750,790, respectively. The Adviser paid
SAMCorp the sum of $2,672,150 in 1993, $2,997,156 in 1994 and $3,232,490 in
1995.
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
daily net assets. The Adviser retains the right to re-impose a fee and recover
any other payments to the extent that, at the end of any fiscal year, the Fund's
annual expenses fall below this limit.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of any state limit where the
Fund is registered to sell shares of common stock, the fee payable to the
Adviser will be reduced to the extent of such excess and the Adviser will make
any additional arrangements necessary to eliminate any remaining excess
expenses. Currently, the most restrictive limit applicable to the Fund is 2.5%
of the first $30,000,000 of the Fund's average daily net assets, 2% of the next
$70,000,000 of such assets and 1.5% of the remaining average daily net assets.
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
16
<PAGE>
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 the 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 1,080,000 shareholders. The
Adviser is an affiliate of the Life Company, one of the most recognized and
respected financial institutions in the nation. With total assets under
management of more than $80 billion, the Life Company is one of the ten largest
life insurance companies in the United States, and carries highest ratings from
Standard & Poor's and A.M. Best. 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 Company may grant the non-exclusive right to use the name "John
Hancock" or any similar name to any other corporation or entity, including but
not limited to any investment company of which the Life Company or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
The Adviser has entered into a service agreement with SAMCorp Advisers,
Inc. ("SAMCorp"), which is an indirect wholly-owned subsidiary of the Life
Company. The service agreement provides that SAMCorp will provide to the Adviser
certain portfolio management services with respect to the 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 quarterly investment management fee
received by the Adviser with respect to 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.
The investment management contract and the distribution contract continue
in effect from year to year thereafter if approved annually by 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 Directors or the
holders of a majority of the Fund's outstanding voting securities. The contract
automatically terminates upon assignment. The 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.
17
<PAGE>
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.
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.
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:
18
<PAGE>
<TABLE>
<CAPTION>
Expense Items
Printing and
Mailing of Interest Carrying
Prospectus to New Compensation to Expenses of John or Other Finance
Advertising Shareholders Selling Brokers Hancock Funds Charges
----------- ------------ --------------- ------------- -------
Sovereign
Balanced Fund
- -------------
<S> <C> <C> <C> <C>
Class A Shares $459,536 $28,722 $1,921,699 $1,135,643 None
Class B Shares $179,770 $13,303 $ 531,451 $ 438,931 $744,118
</TABLE>
Each of the Plans provides that it 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 John Hancock
Fund, and (c) automatically in the event of assignment. Each of the Plans
further provides that it may not be amended to increase the maximum amount of
the fees for the services described therein without the approval of a majority
of the outstanding shares of the class of the Fund which has voting rights with
respect to the Plan. Each of the Plans 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 Fund. 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.
Class C shares of the Fund are not subject to any distribution plan.
Expenses associated with the obligation of John Hancock Funds to use its best
efforts to sell Class C shares will be paid by the Adviser or by John Hancock
Funds and will not be paid from the fees paid under Class A or Class B Plans.
When the Fund 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."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a Fund's shares,
the following procedures are utilized wherever applicable.
19
<PAGE>
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.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Fund's Class A and Class B Prospectus. Methods of obtaining
reduced sales charges referred to generally in the Prospectus are described in
detail below. In calculating the sales charge applicable to current purchases of
Class A shares of the Fund, 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.
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 Director or other fiduciary
purchasing for a single Fund, 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
20
<PAGE>
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 Class A and Class B 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 Class A and Class B Prospectus) also are available to an investor
based on the aggregate amount of his concurrent and prior investments in Class A
shares of the Fund and shares of all other John Hancock funds which carry a
sales charge.
Letter of Intention. The reduced sales loads are also applicable to investments
made over a specified period pursuant to a Letter of Intention (LOI), which
should be read carefully prior to its execution by an investor. The Fund offers
two options regarding the specified period for making investments under the LOI.
All investors have the option of making their investments over a period of
thirteen (13) months. Investors who are using the Fund as a funding medium for a
qualified retirement plan, however, may opt to make the necessary investments
called for by the LOI over a forty-eight (48) month period. These qualified
retirement plans include IRA'S, SEP, SARSEP, TSA, 401 (k) plans, TSA 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 with the specified period (either 13 or 48 months),
the sales charge applicable will not be higher than that which would have been
applied (including accumulations and combinations) had the LOI been for the
amount actually invested.
The LOI authorizes Investor Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the 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 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.
Because Class C shares are sold at net asset value without the imposition
of any sales charge, none of the privileges described under these captions are
available to Class C investors, with the following exception:
21
<PAGE>
Combination Privilege. As explained in the Prospectus for Class C Shares, a
Class C investor may qualify for the minimum $1,000,000 investment (or such
other amount as may be determined by the Fund's officers) if the aggregate
amount of his current and prior investments in Class C shares of the Fund and
Class C shares of any other John Hancock Fund exceeds $1,000,000.
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 Class A and Class B Prospectus as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the current market value or the original purchase cost of
the Class B shares being redeemed. Accordingly, no CDSC will be imposed on
increases in account value above the initial purchase prices, including Class B
shares derived from reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole
or in part by 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 enables the Fund to sell the Class B shares without a sales charge
being deducted at the time of the purchase. See the Class A and Class B
Prospectus for additional information regarding the CDSC.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, he would incur a brokerage charge. Any such
securities would be valued for the purposes of making such payment at the same
value as used in determining net asset value. The Fund has, however, elected to
be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the
Fund must redeem its shares for cash except to the extent that the redemption
payments to any shareholder during any 90-day period would exceed the lesser of
$250,000 or 1% of the Fund's net asset value at the beginning of such period.
22
<PAGE>
ADDITIONAL SERVICES AND PROGRAMS FOR CLASS A AND CLASS B SHARES
Exchange Privilege. As described more fully in the Prospectuses, the Fund
permits exchanges of shares of any class of the Fund for shares of the same
class in any other John Hancock fund offering that class.
Systematic Withdrawal Plan. As described briefly in the Fund's Class A and Class
B Prospectus, the Fund permits the establishment of a Systematic Withdrawal
Plan. Payments under this plan represent proceeds arising from the redemption of
shares. 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 such purchases of Class A shares and the CDSC imposed on redemptions
of Class B shares and because redemptions are taxable events. Therefore, a
shareholder should not purchase Class A and 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 fully
in the Class A and Class B Prospectus. The program, as it relates to automatic
investment drafts, is subject to the following conditions:
The investment drafts will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic Accumulation
Program may be revoked by Investor Services without prior notice if any
investment is not honored by the Shareholder's bank. The bank shall be under no
obligation to notify the shareholder as to the non-payment of any 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 without payment of a
sales charge any part of the redemption proceeds in shares of the same class of
the Fund or another John Hancock fund, 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 Class A shares of any other John Hancock fund. 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. The shareholder's account
23
<PAGE>
will be credited with the amount of any CDSC charged upon the prior redemption
and the new shares will continue to be subject to the CDSC. The holding period
of the shares acquired through reinvestment will, for purposes of computing the
CDSC payable upon a subsequent redemption, include the holding period of the
redeemed shares. The Fund may modify or terminate the reinvestment privilege at
any time.
A redemption or exchange of 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.
DESCRIPTION OF FUND SHARES
As of December, 1993, the Company's authorized capitalization is
345,000,000 fully paid and non-assessable shares of capital stock, $.01 par
value with 285,000,000 shares allocated to this Fund and 60,000,000 shares
allocated to the John Hancock Sovereign Balanced Fund. When issued, each share
is fully transferable, has one vote and has equal rights with respect to
earnings, dividends and liquidation. Shareholders have no preemptive or
conversion rights. On April 20, 1987, shareholders voted to increase the
authorized shares and to split the capital stock 2-for-1 thereby restating the
par value from $1 to $.50 per share. On May 1, 1990 the Company reincorporated
in Maryland with authority to issue 100,000,000 shares of $.01 par value.
Presently outstanding stock certificates of $1 and $.50 par should be retained
and will have the same value as the new $.01 par stock.
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. 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 Fund, 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 three classes of shares: Class A, Class B and Class C shares.
The shares of each class of the Fund represent an equal proportionate
interest in the aggregated net assets belonging to the Fund. Class A shares and
Class B shares of the Fund will be sold exclusively to members of the public
(other than the institutional investors described in the Class A and Class B
Prospectus) at net asset value and a sales charge that will vary inversely with
the dollar amount of shares purchased. For Class A shares, no sales charge is
payable at the time of purchase on investments of $1 million or more, but for
such investments a contingent deferred sales charge may be imposed in the event
of certain redemption transactions within one year of purchase.
Holders of Class A and Class B shares have certain exclusive voting rights
on matters relating to their respective Rule 12b-1 distribution plans. Holders
of Class C shares have no voting rights with respect to the Class A or Class B
distribution plans. The different classes of the
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<PAGE>
Fund may bear different expenses relating to the cost of holding shareholder
meetings necessitated by the exclusive voting rights of any class of shares.
Class A and Class B shares pay transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses. Class C shares pay a
monthly transfer agent fee equivalent, on an annual basis, to 0.10% of the
average daily net asset value of Class C shares 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) the distribution and service fees
relating to Class A and Class B shares will be borne exclusively by such class,
(ii) Class B shares will pay higher distribution and service fees than Class A
shares and (iii) each class of shares will bear any other class expenses
properly attributable to that class of shares, subject to certain conditions
imposed by the Internal Revenue Service in issuing rulings to funds with a
multiple-class structure. Similarly, the net asset value per share may vary
depending on the class of shares purchased.
In the event of liquidation, shareholders are entitled to share pro rata in
the net assets of the Fund available for distribution to the shareholders.
Shares entitle their holders to one vote per share, are freely transferable and
have no preemptive, subscription or conversion rights. When issued, shares are
fully paid and non-assessable.
Unless otherwise required by the Investment Company Act or the Articles of
Incorporation, the Fund has no intention of holding annual meetings of
shareholders. Fund shareholders may remove a Director by the affirmative vote of
at least a majority of the Fund'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 10% of the outstanding shares of the Fund.
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.
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"), and intends to continue
to so qualify in the future. As such and by complying with the applicable
provisions of the Code regarding the sources of its income, the timing of its
distributions and the diversification of its assets, the Fund will not be
subject to Federal income tax on taxable income (including net realized capital
gains) 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.
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<PAGE>
Distributions from the Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Fund's Prospectus, whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to capital gains.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for Federal income tax purposes in each share so received
equal to the amount of cash they would have received had they elected to receive
the distributions in cash, divided by the number of shares received.
The amount of net realized capital gains, if any, in any given year will
result from sales of securities 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 (or portions thereof) 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 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 automatic 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 year his pro rata share of such excess, and he had paid his
pro rata share of the taxes paid by the
26
<PAGE>
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 in the Fund by the difference
between his pro rata share of such excess and his pro rata share of these 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. Presently, there are no realized capital loss carryforwards to
offset against future net realized capital gains.
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 a
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 dividend, 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, if any. Additionally, any
corporate shareholder should consult its tax adviser regarding the possibility
that its tax basis in its shares may be reduced, for Federal income tax
purposes, by reason of "extraordinary dividends" received with respect to the
shares, for the purpose of computing its gain or loss on redemption or other
disposition of the shares.
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 PIK 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 cash payments. The Fund
must distribute, at least annually, all or substantially all of its net 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.
Investments in debt obligations that are at risk of or in default may
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
27
<PAGE>
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.
The foregoing discussion relates solely to U.S. Federal income tax laws
applicable to the 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. The
foregoing discussion related to U.S. investors that are not exempt from U.S.
Federal income tax. Different tax consequences will apply to plan participants,
tax-exempt investors and investors that are subject to tax deferral. You should
consult your tax adviser for specific advice. Under the Code, a tax-exempt
investor in the Fund will not generally recognize unrelated business taxable
income from its investment in the Fund unless the tax-exempt investor incurred
indebtedness to acquire or continue to hold Fund shares and such indebtedness
remains unpaid. 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 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.
CALCULATION OF PERFORMANCE
For the 30-day period ended December 31, 1995, the annualized yield on
Class A, Class B and Class C shares of the Fund was 1.51%, 0.76%, and 2.02%,
respectively. The average annual total return of the Class A and shares of the
Fund for the 1, 5, 10 year periods ended December 31, 1995 was 22.69%, 12.28%
and 12.08%, respectively. The average annual total return of the Class B shares
of the Fund for the 1 year period ended December 31, 1995 and for the period
from the commencement of operations, January 3, 1994 to December 31, 1995 was
23.16% and 9.84%, respectively. The average annual total return of the Class C
shares of the Fund for the 1
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<PAGE>
year period ended December 31, 1995 and for the period from commencement of
operation, May 7, 1993 to December 31, 1995 was 29.68% and 11.74%, respectively.
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:
n ___________
T = \ /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, 5 and 10 year periods.
This calculation assumes the maximum sales charge of 5.0% is included in
the initial investment or the CDSC is applied at the end of the period, and also
assumes that all dividends and distributions are reinvested at net asset value
on the reinvestment dates during the period. Performance calculations for Class
C shares do not include any sales charge or distribution plan fees.
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. The "distribution
rate" is determined by annualizing the result of dividing the declared dividends
of the Fund during the period stated by the maximum offering price or net asset
value at the end of the period. Excluding the Fund's sales charge on Class A
shares and the CDSC on Class B shares from a total return calculation produces a
higher total return figure.
The Fund's yield is computed by dividing net investment income per share
determined for a 30-day period by the maximum offering price per share (which
includes the full sales charge) on the last day of the period, according to the
following standard formula:
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<PAGE>
Y = 2 ([(a-b) + 1] 6-1)
---
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 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.
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 Clipper Analytical Services, Inc.'s "Lipper -- Growth and
Income Fund Performance Analysis," a monthly 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. Beta is a widely accepted measurement of risk. By definition, the beta
of the market is 1.00. A fund with a higher beta is more volatile than the
market and a fund with a lower beta can be expected to rise and fall more slowly
that the market . The Standard & Poor's 500 Stock Index ( S&P 500) is an
unmanaged index that includes 500 widely traded common stocks and is an often
used measure of the stock market performance.
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.
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BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of broker commissions are made by the Advisers pursuant to
recommendations made by its investment committee, which consists of officers and
directors of the Adviser and officers and Directors who are interested persons
of the Fund, and by SAMCorp. 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 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 broker 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 and SAMCorp, 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 and SAMCorp. The receipt of research information is not expected to
reduce significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser and SAMCorp, and, conversely,
brokerage commissions and spreads paid by other advisory clients of the Adviser
or SAMCorp 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 and SAMCorp will be
primarily responsible for the allocation of the Fund's brokerage business, their
policies and practices in this regard must be consistent with the foregoing and
will at all times be subject to review by the Directors. For the years ended on
December 31, 1995, 1994 and 1993, the Fund paid negotiated brokerage commissions
in the amount of $1,652,520, $1,197,837 and $1,517,163, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Fund may pay to a broker which provides brokerage and research services to the
Fund an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Directors that such price is
reasonable in light of the services provided and to such policies as the
Directors may adopt from time to time. During the fiscal year ended December 31,
1995, the Fund directed
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<PAGE>
commissions in the amount of $216,694 to compensate brokers for research
services such as industry, economic and company reviews and evaluation of
securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its subsidiaries,
three of which, Tucker Anthony Incorporated, John Hancock Distributors, and
Sutro & Company, Inc., are broker-dealers ("Affiliated Brokers"). Pursuant to
procedures determined by the 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 year ended December 31, 1995, 1994 and
1993, 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 Directors pursuant to
the Investment Company Act. Commissions paid to an Affiliated Broker must be at
least as favorable as those which the Directors believe to be contemporaneously
charged by other 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 Fund, the Adviser, SAMCorp or
the Affiliated Broker. Any such transactions would be subject to a good faith
determination by the Directors that the compensation paid to Affiliated Brokers
is fair and reasonable. Because the Adviser and SAMCorp, which are affiliated
with the Affiliated Brokers, have, as investment advisers 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
Directors.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, 101 Huntington
Avenue, Boston, MA 02205-9116, a wholly-owned indirect subsidiary of the Life
Company, is the transfer and dividend paying agent for the Fund. The Fund pays
an annual fee of $16.00 for each Class A shareholder and $18.50 for each Class B
shareholder account and 0.10% of the average daily net assets attributable to
the Class C shares, plus certain out-of-pocket expenses.
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CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund 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, 200 Clarendon
Street, Boston, Massachusetts 02116. The independent auditors audit and render
an opinion on the Fund's annual financial statements and prepare the Fund's
annual income tax returns.
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APPENDIX
Moody's describes its lower ratings for corporate bonds as follows:
Bonds 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 bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds 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 characterized
bonds in this class.
Bonds 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.
Bonds 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.
Bonds which are rated Ca represented obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Standard & Poor's describes its lower ratings for corporate bonds as follows:
Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits 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 debt in this
category than in higher rated categories.
Debt rated 'BB,' 'B,' 'CCC,' or 'CC' is 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 'CC' the highest degree of speculation. While
such debt 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
A-1
<PAGE>
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.
Standard & Poor's describes its lower ratings for corporate bonds as follows:
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits 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
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated 'BB', 'B', 'CCC', 'CC" and 'C' is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. 'BB'
indicates the lowest degree of speculation and 'C' the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.
CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.
A-2
<PAGE>
CC The rating 'CC' is typically applied to debt subordinated to senior debt that
is assigned an actual or implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior debt which
is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued. Standard & Poor's describes its three highest
ratings for commercial paper as follows:
A-1. This designation indicated 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.
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.
A-3
<PAGE>
John Hancock
Sovereign
Balanced Fund
Class A and Class B Shares
Prospectus
May 1, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-------
<S> <C>
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 13
Performance 13
How to Buy Shares 15
Share Price 16
How to Redeem Shares 22
Additional Services and Programs 23
Appendix 28
</TABLE>
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
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 0.39% 0.39%
Total operating expenses 1.29% 1.99%
</TABLE>
* No sales charge is payable at the time of purchase on investments in Class A
shares of $1 million or more, but a contingent deferred sales charge may be
imposed on these investments, as described under the caption "Share Price," in
the event of certain redemption transactions within one year of purchase.
**The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of average net assets, and the remaining portion will be used to cover
distribution expenses.
+ Redemption by wire fee of $4.00 not included.
<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 $62 $89 $117 $198
Class B Shares--Assuming complete redemption at end
of period $70 $92 $127 $214
Class B Shares--Assuming no redemption $20 $62 $107 $214
</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,
YEAR ENDED DECEMBER 31, 1992 TO
DECEMBER
31, 1992
1995 1994 1993 (a)(c)
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $9.84 $10.74 $10.19 $10.00
Net Investment Income 0.44(e) 0.50 0.46 0.04(b)
Net Realized and Unrealized Gain (Loss) on
Investments 1.91 (0.88) 0.68 0.20
------- ------- ------- --------
Total from Investment Operations 2.35 (0.38) 1.14 0.24
------- ------- ------- --------
Less Distributions:
Dividends from Net Investment Income (0.44) (0.50) (0.45) (0.05)
Distributions from Net Realized Gain on Investments
Sold ...... (0.02) (0.14) ......
------- ------- ------- --------
Total Distributions (0.44) (0.52) (0.59) (0.05)
------- ------- ------- --------
Net Asset Value, End of Period $11.75 $9.84 $10.74 $10.19
======= ======= ======= ========
Total Investment Return at Net Asset Value (f) 24.23% (3.51%) 11.38% 2.37%(d)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $69,811 $61,952 $62,218 $5,796
Ratio of Expenses to Average Net Assets 1.27% 1.23% 1.45% 2.79%*(b)
Ratio of Net Investment Income to Average Net Assets 3.99% 4.89% 4.44% 3.93%*(b)
Portfolio Turnover Rate 45% 78% 85% 0%
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $9.84 $10.75 $10.20 $10.00
------- ------- ------- --------
Net Investment Income 0.36(e) 0.43 0.37 0.03(b)
Net Realized and Unrealized Gain (Loss) on
Investments 1.90 (0.89) 0.70 0.20
------- ------- ------- --------
Total from Investment Operations 2.26 (0.46) 1.07 0.23
------- ------- ------- --------
Less Distributions:
Dividends from Net Investment Income (0.36) (0.43) (0.38) (0.03)
Distributions from Net Realized Gain on Investments
Sold ...... (0.02) (0.14) ......
------- ------- ------- --------
Total Distributions (0.36) (0.45) (0.52) (0.03)
------- ------- ------- --------
Net Asset Value, End of Period $11.74 $9.84 $10.75 $10.20
======= ======= ======= ========
Total Investment Return at Net Asset Value (f) 23.30% (4.22%) 10.63% 2.29%(d)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $87,827 $79,176 $78,775 $14,311
Ratio of Expenses to Average Net Assets 1.96% 1.87% 2.10% 3.51%*(b)
Ratio of Net Investment Income to Average Net Assets 3.31% 4.25% 4.01% 3.21%*(b)
Portfolio Turnover Rate 45% 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. 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. Without the
reimbursement, total investment return would have been lower.
(c) This period is covered by the report of other independent auditors (not
included herein).
(d) Not annualized.
(e) On average month end shares outstanding.
(f) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
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 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 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 equity
securities of the Fund. Barry Evans is primarily responsible for management of
the fixed income securities of the Fund. They are assisted by Jere Estes and a
team of analysts. Mr. Snyder has been 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 Investors Fund. Barry Evans
is Vice President of the Adviser and also leads a team of managers on several
other Hancock funds. Mr. Evans has managed bond funds since he joined John
Hancock in 1986.
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 3.7% 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.
The Fund compensates the Adviser for performing necessary tax and financial
management services. The compensation for 1996 is estimated to be at an annual
rate of 0.01875% of the average net assets of the Fund.
Information on the Fund's total expenses is in the Fund's Financial Highlights
section of this Prospectus.
12
<PAGE>
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 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 you provide is correct and that you are not
subject to backup withholding of Federal income tax. If you do not provide this
information, or are otherwise subject to 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 investments in and distributions from the Fund. In
many 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 a
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.
13
<PAGE>
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 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 (except as shown in "the Fund's Financial
Highlights"). 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 the 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>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<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
Program (MAAP) funds 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
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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.
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 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 Charge Reallowance to Selling
Sales Charge as a and Service Brokers
as a Percentage Fee as a as a
Amount Invested Percentage of the Percentage Percentage
(including Sales of Offering Amount of 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>
Amount Invested CDSC Rate
- ------------------------------ ----------
$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%
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
rate 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 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.
Year in Which Class B Contingent Deferred Sales
Shares Redeemed Charge As a Percentage of
Following Purchase Dollar Amount Subject to CDSC
- ------------------------- --------------------------------
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
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: 2.5% for redemptions during the
fourth year after purchase, 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
21
<PAGE>
been advised 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.)
If you do not fall into any of these registration categories please call
1-800-225-5291 for further instructions.
- --------------------------------------------------------------------------------------------------
</TABLE>
Who may guarantee your signature.
Additional information about redemptions.
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.
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. 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
from your bank for investment in Fund shares under the "Automatic
Investing" and "Bank Information" sections of the Account Privileges
Application.
2. You can also authorize automatic 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>
Y-T-D Rating Rating
Average % of Assigned % of Assigned % of
Security Rating Value Portfolio by Adviser Portfolio by Service Portfolio
- ------------------- ---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
AAA $23,631,725 16.0% 0 0.0% $23,631,725 16.0%
AA 3,340,775 2.2% 0 0.0% 3,340,775 2.2%
A 9,990,026 6.8% 0 0.0% 9,990,026 6.8%
BAA 8,349,007 5.6% 0 0.0% 8,349,007 5.6%
BA 5,156,810 3.5% 0 0.0% 5,156,810 3.5%
B 7,779,377 5.3% 0 0.0% 7,779,377 5.3%
CAA 0 0.0% 0 0.0% 0 0.0%
CA 0 0.0% 0 0.0% 0 0.0%
C 0 0.0% 0 0.0% 0 0.0%
D 0 0.0% 0 0.0% 0 0.0%
0
Debt Securities 58,247,720 39.4% 0 0.0% $58,247,720 39.4%
0
Equity Securities 84,752,103 57.5%
0
Short-Term
Securities 4,512,692 3.1%
--------
0
Total Portfolio 147,512,515 100.0%
0
Other Assets--Net 997,940
0
Net Assets $148,510,455
</TABLE>
30
<PAGE>
(NOTES)
<PAGE>
(NOTES)
<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
[Recycle 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 10
Ratings 14
Those Responsible for Management 14
Investment Advisory and Other Services 21
Net Asset Value 22
Distribution Contracts 23
Initial Sales Charge on Class A Shares 24
Deferred Sales Charge on Class B Shares 26
Additional Services and Programs for Class A and 26
Class B Shares
Tax Status 27
Description of Fund Shares 32
Calculation of Performance 33
Brokerage Allocation 35
Transfer Agent Services 36
Custody of Portfolio 37
Independent Auditors 37
Financial Statement 38
<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 two classes of shares of the Fund: Class A and
Class B. 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
Company (the "Life Company"), chartered in 1862, with national headquarters at
John Hancock Place, Boston, Massachusetts.
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
the relationship of such countries' currency to the U.S. dollar. These factors
are judged on the
2
<PAGE>
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
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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.
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.
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
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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 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
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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 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.
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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 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")
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<PAGE>
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.
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
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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.
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.
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<PAGE>
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.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions
will not be changed without approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectuses and this Statement of
Additional Information, means approval by the lesser of
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(1) 67% or more of the Fund's shares represented at a meeting if at least 50% of
the Fund's outstanding shares are present in person or by proxy at the meeting
or (2) 50% of the Fund's outstanding shares.
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.
(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
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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.
(d) Purchase a security if, as a result, (i) more than 10% of the Fund's
total assets would be invested in the securities of other investment
companies, (ii) the Fund would hold more than 3% of the total outstanding
voting securities of any one investment company, or (iii) more than 5% of
the Fund's total assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the investment of
cash
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<PAGE>
collateral, received by the Fund in connection with lending the Fund's
portfolio securities, in the securities of open-end investment companies or
(b) the purchase of shares of any investment company in connection with a
merger, consolidation, reorganization or purchase of substantially all of
the assets of another investment company. Subject to the above percentage
limitations, 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. The Fund may not purchase the shares of any closed-end
investment company except in the open market where no commission or profit
to a sponsor or dealer results from the purchase, other than customary
brokerage fees."
(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.
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
13
<PAGE>
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
101 Huntington Avenue Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial 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 (1) Chairman and Director, Sovereign
Interstate/Johnson Lane Advisers, Inc.; Senior Vice
1892 Andell Bluff Blvd. President, Interstate/Johnson Lane
Johns Island, SC 29455 Corp. (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 Administration Committee.
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 Director(3) Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc.
Natick, MA 01760 (management/investments); Director,
Arbella Mutual Insurance Company
(insurance), Consolidated Group
Trust (insurance administration),
Carlin Insurance Agency, Inc., West
Insurance Agency, Inc. (until May,
1995) and Uno Restaurant Corp.;
Chairman, Massachusetts Board of
Higher Education; Receiver, the
City of Chelsea (until August,
1992).
Charles F. Fretz Director (3) Retired; Formerly Vice President
RD #5, Box 300B and Director, Towers, Perrin,
Clothier Springs Road Foster & Crosby, Inc.
Malvern, PA 19355 (international management
consultants) (1952-1985).
Harold R. Hiser, Jr. Director (3) Executive Vice President,
123 Highland Avenue Schering-Plough Corporation
Short Hills, NJ 07078 (pharmaceuticals) (until 1996);
Director, ReCapital Corporation
(reinsurance)(until 1995).
Charles L. Ladner Director (3) Director, Energy North, Inc.
UGI Corporation (public utility holding company)
P.O. Box 858 (until 1992); Senior Vice President
Valley Forge, PA 19482 and Chief Financial Officer of UGI
Corp. Holding Company: Public
Utilitite, LPGAS.
Patricia P. McCarter Director (3) Director and Secretary of The
1230 Brentford Road McCarter Corp. (machine
Malvern, PA 19355 manufacturer).
</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 Administration Committee.
16
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Steven R. Pruchansky Director (1,3) Director and President, Mast
6920 Daniel Road Holdings, Inc.(since 1991);
Naples, FL 33942 Director, First Signature Bank &
Trust Company (until August
1991);Trustee, Mast Realty Trust
(1984- 1994); President, Maxwell
Building Corp. (until 1991).
Norman H. Smith Director (3) Lieutenant General, United States
243 Mt. Oriole Lane Marine Corps; Deputy Chief of Staff
Linden, VA 22642 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,
13 Chadwell Place National Liquid Reserves, Inc., The
Morristown, NJ 07960 Tax Free Money 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 Chief Vice Chairman and Chief Investment
101 Huntington Avenue Investment Officer (2) Officer, the Adviser; President,
Boston, MA 02199 the Adviser (until December 1994).
</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 Administration Committee.
17
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Anne C. Hodsdon* President (2) President and Chief Operating
101 Huntington Avenue Officer, the Adviser; Executive
Boston, MA 02199 Vice President, the Adviser (until
December 1994); Senior Vice
President; the Adviser (until
December 1993); Vice President, the
Adviser (until 1991).
Thomas H. Drohan* Senior Vice President and Senior Vice President and Secretary
101 Huntington Avenue Secretary of the Adviser.
Boston, MA 02199
James B. Little* Senior Vice President and Senior Vice President, the Adviser.
101 Huntington Avenue Chief Financial Officer
Boston, MA 02199
Susan S. Newton* Vice President, Assistant Vice President and Assistant Secretary,
101 Huntington Avenue Secretary and Compliance the Adviser.
Boston, MA 02199 Officer
John A. Morin* Vice President Vice President, the Adviser; Counsel,
101 Huntington Avenue the Life Company (until 1995).
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 Administration Committee.
18
<PAGE>
As of March 13, 1996, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of these outstanding shares of the Fund and the
knowledge of the registrant, no persons owned of record or beneficially 5% or
more of any class of registrant's outstanding securities.
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.
The following table provides information regarding the compensation paid by
the Funds and the other investment companies in the John Hancock Fund Complex to
the Independent Trustees for their services. Mr. Boudreau and each of the
officers of the Funds are interested persons of the Adviser, are compensated by
the Adviser and received no compensation for the Funds for their services.
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual From the Fund and John
Compensation From Accrued as Part of Benefits Upon Hancock Fund Complex
Independent Directors the Fund the Fund's Expenses Retirement to Directors(1)(2)
- --------------------- -------- ------------------- ---------- ------------------
<S> <C> <C> <C> <C>
James F. Carlin $ 1,777 $ -- $ -- $ 60,700
Charles F. Fretz 2,568 -- -- 56,200
Harold R. Hiser, Jr. -- 2,851 -- 60,200
Charles L. Ladner 1,510 -- -- 60,700
Patricia P. McCarter 1,510 -- -- 60,700
Steven R. Pruchansky 1,560 -- -- 62,700
Norman H. Smith 1,560 -- -- 62,700
John P. Toolan -- 1,510 -- 60,700
------- ------ ----- --------
$10,485 $4,361 $ $484,600
</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.
19
<PAGE>
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.
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
Company (the "Life Company") and its affiliates.
Under the terms of the investment management contract with the Fund, the
Adviser provides the Fund with office space, 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, 1994 and 1993 amounted to $891,221, $864,666 and $474,915,
respectively.
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
20
<PAGE>
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.
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 1,080,000 shareholders. The
Adviser is an affiliate of the Life Company, one of the most recognized and
respected financial institutions in the nation. With total assets under
management more than $80 billion, the Life 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 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 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 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.
21
<PAGE>
During the fiscal years ended December 31, 1995, 1994 and 1993, the Adviser
paid SAMCORP the sum of $118,896, $105,821, and $73,242, respective in
connection with the service agreement with SAMCORP.
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.
22
<PAGE>
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.
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.
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:
23
<PAGE>
<TABLE>
<CAPTION>
Expense Items
Printing and
Mailing of Interest Carrying
Prospectus to New Compensation to Expenses of John or Other Finance
Advertising Shareholders Selling Brokers Hancock Funds Charges
----------- ------------ --------------- ------------- -------
Sovereign
Balanced Fund
- -------------
<S> <C> <C> <C> <C> <C>
Class A Shares $33,515 $3,846 $ 98,915 $59,699 None
Class B Shares $53,861 $4,475 $328,674 $83,603 $351,388
</TABLE>
Each of the Plans provides that it 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 John Hancock
Fund, and (c) automatically in the event of assignment. Each of the Plans
further provides that it may not be amended to increase the maximum amount of
the fees for the services described therein without the approval of a majority
of the outstanding shares of the class of the Fund which has voting rights with
respect to the Plan. Each of the Plans 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 Fund. 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 Fund 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."
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
the LOI, the investor authorizes Investor Services to act as his
attorney-in-fact to redeem any
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<PAGE>
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
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<PAGE>
on purchases of Class A shares and the CDSC imposed on redemptions of Class B
shares and because redemptions are taxable events. Therefore, a shareholder
should not purchase 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.
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
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(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 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
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<PAGE>
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 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
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<PAGE>
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 $259,999 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.
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
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<PAGE>
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 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
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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. 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
18.01% and 8.38%, 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 18.30%
and 8.85%, 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:
n ______
T = \ / 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.
This calculation assumes the maximum sales charge of 5.0% is included in
the initial investment or the CDSC is applied at the end of the period, and also
assumes that all dividends and distributions are reinvested at net asset value
on the reinvestment dates during the period.
In addition to average annual total returns, the Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments, and/or a series of redemptions, over any time period.
Total returns may be quoted with or without taking the Fund's 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.
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:
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Yield = 2 ([(a-b) + 1] 6-1)
---
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 2.67% and
2.11%, 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 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 fiscal years ended December 31, 1995, 1994 and 1993, the Fund paid
brokerage commissions in the amount of $187,534, $106,785 and $163,746,
respectively.
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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 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, 1994 and 1993, 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.
TRANSFER AGENT SERVICES
John Hancock Investors Services Corporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly-owned indirect subsidiary of the Life Company., is the
transfer and dividend paying agent for the Fund. The Fund pays Investor Services
an annual fee for Class A shares of $16.00 per
36
<PAGE>
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, 200 Clarendon
Street, 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.
37
<PAGE>
C-1
PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements listed below are included in and incorporated
by reference into Part B of the Registration Statement from the 1995 Annual
Report to Shareholders for the year ended December 31, 1995 (filed
electronically on February 26, 1996; file nos. 811-115 and 2-7954; accession
numbers 0000950135-96-001153 and 0000950135-96-001154):
John Hancock Sovereign Investors Fund, Inc.
John Hancock Sovereign Investors Fund
Statement of Assets and Liabilities as of December 31, 1995. Statement
of Operations for the year ended December 31, 1995. Statement of Changes
in Net Assets for each of the two years in the period ended December 31.
Financial Highlights for each of the periods indicated therein. Notes to
Financial Statements. Schedule of Investments as of December 31, 1995.
John Hancock Sovereign Balanced Fund
Statement of Assets and Liabilities as of December 31, 1995. Statement
of Operations for the year ended December 31, 1995. Statement of
Changes in Net Assets for each of the two years in the period ended
December 31. Financial Highlights for each of the periods indicated
therein. Notes to Fiancial Statements. Schedule of Investments as of
December 31, 1995.
(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.
C-1
<PAGE>
Item 26. Number of Holders of Securities
As of March 29, 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 96,697
Class B Shares 25,264
Class C Shares 3
John Hancock Sovereign Balanced Fund
Class A Shares 6,325
Class B Shares 6,701
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.
C-2
<PAGE>
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."
"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.
C-3
<PAGE>
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 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.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C>
Edward J. Boudreau, Jr. President, Chief Executive Chairman
101 Huntington Avenue Officer and Director
Boston, Massachusetts
Robert H. Watts Director, Executive Vice None
John Hancock Place President and Compliance Officer
P.O. Box 111
Boston, Massachusetts
Robert G. Freedman Director Vice Chairman, Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
C-4
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
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 Director None
101 Huntington Avenue
Boston, Massachusetts
Michael T. Capenter Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
James B. Little Senior Vice President Senior Vice President and
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Anthony P. Petrucci Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Charles H. Womack Senior Vice President None
6501 Americas Parkway
Albuquerque, New Mexico
John A. Morin Vice President Vice President
101 Huntington Avenue
Boston, Massachusetts
C-5
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
Susan S. Newton Vice President and Secretary Vice President,
101 Huntington Avenue Assistant Secretary
Boston, Massachusetts and Compliance Officer
Keith Harstein Vice President None
101 Huntington Avenue
Boston, Massachusetts
Griselda Lyman Vice President None
101 Huntington Avenue
Boston, Massachusetts
Christopher M. Meyer Treasurer None
101 Huntington Avenue
Boston, Massachusetts
Stephen L. Brown 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
Richard S. Scipione Director Trustee
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John Goldsmith Director None
One Beacon Street
Boston, Massachusetts
C-6
<PAGE>
Positions and Offices Positions and Offices Positions and Offices
with Registrant with Underwriter with Registrant
--------------- ---------------- ---------------
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio 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
Foster Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
</TABLE>
(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.
Item 31. Management Services
Not applicable.
C-7
<PAGE>
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-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) unless the Securities Act of 1933 and 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
day of April, 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman
______________________ (Principal Executive Officer)
Edward J. Boudreau, Jr.
Senior Vice President and Chief April , 1996
Financial Officer (Principal
/s/ James B. Little Financial and Accounting Officer)
James B. Little
*
______________________ Director
Thomas W. L. Cameron
*
______________________ Director
James F. Carlin
* Director
- ----------------------
Charles F. Fretz
C-9
<PAGE>
Signature Title Date
--------- ----- ----
*
______________________ Director
Harold R. Hiser, Jr.
*
______________________ Director
Charles L. Ladner
*
______________________ Director
Patricia P.McCarter
*
______________________ Director
Steven R. Pruchansky
*
______________________ Director
Norman H. Smith
*
______________________ Director
John P. Toolan
*By:
/s/ Thomas H. Drohan April , 1996
--------------------
Thomas H. Drohan
(Attorney-in-Fact)
</TABLE>
C-10
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description
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.B2.1 Amendment to By-Laws dated March 26, 1996+
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>
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.B9.1 Accounting & Legal Services Agreement between Registrant and John
Hancock Advisers, Inc.+
99.B.10 None
99.B11 Consent of Ernst & Young LLP+
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 Sovereign Balanced
99.27.1B Sovereign Balanced
99.27.2A Sovereign Investors
99.27.2B Sovereign Investors
* Previously filed electronically with post-effective amendment number 90 (file
nos. 811-115; 2-7954) on April 26, 1995, accession number 0000950146-95-000181.
+ Filed herewith.
John Hancock Sovereign Investors Fund, Inc.
AMENDMENT TO BY-LAWS
RESOLVED, that the By-Laws of the corporation be and hereby are amended to
delete the requirement contained in Article V, Section 1 of the By-Laws, that
the president shall be selected from among the directors.
RESOLVED, that the By-Laws of the corporation be and hereby are amended to
delete the requirement contained in Article V, Section 5 of the By-Laws, that
the officers of the corporation shall serve for one year.
As of January 1, 1996
ACCOUNTING & LEGAL SERVICES AGREEMENT
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Dear Sir:
The John Hancock Funds listed on Schedule A (the "Funds") have selected John
Hancock Advisers, Inc. (the "Administrator") to provide certain accounting and
legal services for the Funds, as more fully set forth below, and you are willing
to provide such services under the terms and conditions hereinafter set forth.
Accordingly, the Funds agree with you as follows:
1. Services. Subject to the general supervision of the Board of
Trustees/Directors of the Funds, you will provide certain tax, accounting
and legal services (the "Services") to the Funds. You will, to the extent
such services are not required to be performed by you pursuant to an
investment advisory agreement, provide:
(A) such tax, accounting, recordkeeping and financial management services
and functions as are reasonably necessary for the operation of each
Fund. Such services shall include, but shall not be limited to,
supervision, review and/or preparation and maintenance of the
following books, records and other documents: (1) journals containing
daily itemized records of all purchases and sales, and receipts and
deliveries of securities and all receipts and disbursements of cash
and all other debits and credits, in the form required by Rule
31a-1(b) (1) under the Act; (2) general and auxiliary ledgers
reflecting all asset, liability, reserve, capital, income and expense
accounts, in the form required by Rules 31a-1(b) (2) (i)-(iii) under
the Act; (3) a securities record or ledger reflecting separately for
each portfolio security as of trade date all "long" and "short"
positions carried by each Fund for the account of the Funds, if any,
and showing the location of all securities long and the off-setting
position to all securities short, in the form required by Rule
31a-1(b) (3) under the Act; (4) a record of all portfolio purchases or
sales, in the form required by Rule 31a-1(b) (6) under the Act; (5) a
record of all puts, calls, spreads, straddles and all other options,
if any, in which any Fund has any direct or indirect interest or which
the Funds have granted or guaranteed, in the form required by Rule
31a-1(b) (7) under the Act; (6) a record of the proof of money
balances in all ledger accounts maintained pursuant to this Agreement,
in the form required by Rule 31a-1(b) (8) under the Act; (7) price
make-up sheets and such records as are necessary to reflect the
determination of each Funds' net asset value; and (8) arrange for, or
participate in (a) the preparation for the Fund of all required tax
returns, (b) the preparation and submission of reports to existing
shareholders and (c) the preparation of financial data or reports
required by the Securities and Exchange Commission and other
regulatory authorities;
<PAGE>
(B) certain legal services as are reasonably necessary for the operation
of each Funds. Such services shall include, but shall not be limited
to; (1) maintenance of each Fund's registration statement and federal
and state registrations; (2) preparation of certain notices and proxy
materials furnished to shareholders of the Funds; (3) preparation of
periodic reports of each Fund to regulatory authorities, including
Form N-SAR and Rule 24f-2 legal opinions; (4) preparation of materials
in connection with meetings of the Board of Trustees/Directors of the
Funds; (5) preparation of written contracts, distribution plans,
compliance procedures, corporate and trust documents and other legal
documents; (6) research advice and consultation about certain legal,
regulatory and compliance issues, (7) supervision, coordination and
evaluation of certain services provided by outside counsel.
(C) provide the Funds with staff and personnel to perform such accounting,
bookkeeping and legal services as are reasonably necessary to
effectively service the Fund. Without limiting the generality of the
foregoing, such staff and personnel shall be deemed to include
officers of the Administrator, and persons employed or otherwise
retained by the Administrator to provide or assist in providing of the
services to the Fund.
(D) maintain all books and records relating to the foregoing services; and
(E) provide the Funds with all office facilities to perform tax,
accounting and legal services under this Agreement.
2. Compensation of the Administrator The Funds shall reimburse the
Administrator for: (1) a portion of the compensation, including all
benefits, of officers and employees of the Administrator based upon the
amount of time that such persons actually spend in providing or assisting
in providing the Services to the Funds (including necessary supervision and
review); and (2) such other direct and indirect expenses, including, but
not limited to, those listed in paragraph (1) above, incurred on behalf of
the Fund that are associated with the providing of the Services and (3) 10%
of the reimbursement amount. In no event, however, shall such reimbursement
exceed levels that are fair and reasonable in light of the usual and
customary charges made by others for services of the same nature and
quality. Compensation under this Agreement shall be calculated and paid
monthly in a arrears.
3. No Partnership or Joint Venture. The Funds and you are not partners of or
joint ventures with each other and nothing herein shall be construed so as
to make you such partners or joint venturers or impose any liability as
such on any of you.
4. Limitation of Liability of the Administrator. You shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the
Funds in connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross
negligence on your part in the performance of your duties or from reckless
disregard by you of your obligations and duties under this Agreement. Any
person, even though also employed by you, who may be or become an employee
of and paid by the Funds shall be deemed, when acting within the scope of
his or her employment by the Funds, to be acting in such employment solely
for the Funds and not as your employee or agent.
<PAGE>
5. Duration and Termination of this Agreement. This Agreement shall remain in
force until the second anniversary of the date upon which this Agreement
was executed by the parties hereto, and from year to year thereafter, but
only so long as such continuance is specifically approved at least annually
by a majority of the Trustees/Directors. This Agreement may, on 60 days'
written notice, be terminated at any time without the payment of any
penalty by the Funds by vote of a majority of the Trustees/Directors, or by
you. This Agreement shall automatically terminate in the event of its
assignment.
6. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver
or termination is sought.
7. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts without
regard to the choice of law provisions thereof.
8. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument. A copy of the Declaration of Trust of each Fund
organized as Massachusetts business trusts is on file with the Secretary of
State of the Commonwealth of Massachusetts. The obligations of each such
Fund are not personally binding upon, nor shall resort be had to the
private property of, any of the Trustees, shareholders, officers, employees
or agents of the Fund, but only the Fund's property shall be bound.
Yours very truly,
JOHN HANCOCK FUNDS (See Schedule A)
By: /s/ James B. Little
James B. Little
Senior Vice President
The foregoing contract is
hereby agreed to as of the
date hereof.
JOHN HANCOCK ADVISERS, INC.
By: /s/ Anne C. Hodsdon
Anne C. Hodsdon
President
<PAGE>
January 1, 1996
SCHEDULE A
John Hancock Capital Series
- John Hancock Growth Fund
- John Hancock Special Value Fund
John Hancock Limited Term Government Fund
John Hancock Sovereign Bond Fund John
Hancock Sovereign Investors Fund, Inc.
- John Hancock Sovereign Investors Fund
- John Hancock Sovereign Balanced Fund
John Hancock Special Equities Fund
John Hancock Strategic Series
- John Hancock Independence Diversified Core Equity Fund
- John Hancock Strategic Income Fund
- John Hancock Utilities Fund
John Hancock Tax-Exempt Income Fund
John Hancock World Fund
- John Hancock Pacific Basin Equities Fund
- John Hancock Global Rx Fund
- John Hancock Global Marketplace Fund
John Hancock Cash Reserve, Inc.
John Hancock Series, Inc.
- John Hancock Emerging Growth Fund
- John Hancock Global Resources Fund
- John Hancock Government Income Fund
- John Hancock High Yield Bond Fund
- John Hancock High Yield Tax-Free Fund
- John Hancock Money Market Fund
John Hancock Institutional Series Trust
- John Hancock Active Bond Fund
- John Hancock Dividend Performers Fund
- John Hancock Fundamental Value Fund
- John Hancock Global Bond Fund
- John Hancock International Equity Fund
- John Hancock Multi-Sector Growth Fund
- John Hancock Small Capitalization Equity Fund
- John Hancock Independence Diversified Core Equity Fund II
- John Hancock Independence Value Fund
- John Hancock Independence Balanced Fund
- John Hancock Independence Medium Capitalization Fund
- John Hancock Independence Growth Fund
John Hancock Declartion Trust
- John Hancock V.A. 500 Index Fund
- John Hancock V.A. Discovery Fund
- John Hancock V.A. Diversified Core Equity Fund
- John Hancock V.A. Emerging Equities Fund
- John Hancock V.A. Global Income Fund
- John Hancock V.A. International Fund
- John Hancock V.A. Money Market Fund
- John Hancock V.A. Sovereign Bond Fund
- John Hancock V.A. Strategic Income Fund
- John Hancokc V.A. Sovereign Investors Fund
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "The Fund's
Financial Highlights" in the John Hancock Sovereign Balanced Fund and the John
Hancock Sovereign Investors Fund Class A and Class B Shares Prospectuses and in
the Sovereign Investors Fund Class C Shares Prospectus and "Independent
Auditors" in the John Hancock Sovereign Balanced Fund Class A and Class B Shares
Statement of Additional Information and in the John Hancock Sovereign Investors
Fund Class A, Class B and Class C Shares Statement of Additional Information and
to the use of our reports on the financial statements and financial highlights
of the John Hancock Sovereign Balanced Fund and the John Hancock Sovereign
Investors Fund (the two portfolios constituting John Hancock Sovereign Investors
Fund, Inc.), both dated February 9, 1996, in this Post-Effective Amendment
Number 92 to Registration Statement (Form N-1A No. 2-7954) dated May 1, 1996.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 23, 1996
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<NAME> JOHN HANCOCK SOVEREIGN BALANCED FUND - CLASS A
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<NAME> JOHN HANCOCK SOVEREIGN BALANCED FUND - CLASS B
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<NAME> JOHN HANCOCK SOVEREIGN INVESTORS FUND - CLASS A
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<NAME> JOHN HANCOCK SOVEREIGN INVESTORS FUND - CLASS B
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<NAME> JOHN HANCOCK SOVEREIGN INVESTORS FUND - CLASS C
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