-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LX1/NxUUcb/CCNZiCbM9DwNm5RS2Kbbr2yRBF8fEeFR3/ZJLvyN4mBAIEQIoPf42 rPf+qsQtZmIhycBEWgdC2w== 0001010521-96-000046.txt : 19960430 0001010521-96-000046.hdr.sgml : 19960430 ACCESSION NUMBER: 0001010521-96-000046 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19960429 EFFECTIVENESS DATE: 19960429 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN SOVEREIGN BOND FUND CENTRAL INDEX KEY: 0000045288 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 042528977 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-48925 FILM NUMBER: 96553005 BUSINESS ADDRESS: STREET 1: 101 HUNTINGTON AVE CITY: BOSTON STATE: MA ZIP: 02199 BUSINESS PHONE: 6173751700 FORMER COMPANY: FORMER CONFORMED NAME: HANCOCK JOHN BOND FUND DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: HANCOCK JOHN BOND TRUST DATE OF NAME CHANGE: 19910704 FORMER COMPANY: FORMER CONFORMED NAME: HANCOCK JOHN BOND FUND INC DATE OF NAME CHANGE: 19841225 485BPOS 1 JOHN HANCOCK SOVEREIGN BOND REGISTRATION NO. 2-48925 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, C.C. 20549 FORM N-1A --------- REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] PRE-EFFECTIVE AMENDMENT NO. [ ] POST-EFFECTIVE AMENDMENT NO. 40 [X] AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] AMENDMENT NO. 23 (Check appropriate box or boxes) --------- JOHN HANCOCK SOVEREIGN BOND FUND (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 VICE PRESIDENT AND SECRETARY JOHN HANCOCK ADVISERS, INC. 101 Huntington Avenue Boston, Massachusetts 02199-7603 (Name and Address of Agent for Service) --------- IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (Check appropriate box) [ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B) [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 OR 486) PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SECURITIES UNDER THE SECURITIES ACT OF 1933. THE REGISTRANT FILED THE NOTICE REQUIRED BY RULE 24F-2 FOR ITS MOST RECENT FISCAL YEAR ON OR ABOUT FEBRUARY 26, 1996.
JOHN HANCOCK SOVEREIGN BOND FUND Cross Reference Sheet Item Number Form N-1A, Statement of Additional Part A Prospectus Caption Information Caption - ---------------------- ------------------ ----------------------- 1 Front Cover Page * 2 Expense Information; The Fund's Expenses; * Share Price 3 The Fund's Financial Highlights; * Performance 4 Investment Objectives and Policies; * Organization and Management of the Fund 5 Organization and Management of the Fund; * The Fund's Expenses; Back Cover Page 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 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
John Hancock Sovereign Bond 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 9 Alternative Purchase Arrangements 10 The Fund's Expenses 11 Dividends and Taxes 12 Performance 13 How to Buy Shares 14 Share Price 15 How to Redeem Shares 20 Additional Services and Programs 22 Appendix 26 This Prospectus sets forth information about John Hancock Sovereign Bond Fund (the "Fund") a diversified fund, 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 or telephoning: John Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116, 1-800-225-5291, (1-800-554-6713 TDD). Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed by, any bank, and the shares are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other 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. 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 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 in the future may be greater or less than those indicated. Class A Class B Shares Shares ------- --------- Shareholder Transaction Expenses Maximum sales charge imposed on purchases (as a percentage of offering price) 4.50% None Maximum sales charge imposed on reinvested dividends None None Maximum deferred sales charge None* 5.00% Redemption fee+ None None Exchange fee None None Annual Fund Operating Expenses (as a percentage of average net assets) Management fee 0.50% 0.50% 12b-1 fee** 0.30% 1.00% Other expenses 0.35% 0.35% Total Fund operating expenses 1.15% 1.85% *No sales charge is payable at the time of purchase on investments 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 the Fund's average daily net assets, and the remaining portion will be used to cover distribution expenses. See "The Fund's Expenses." +Redemption by wire fee (currently $4.00) not included.
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 $56 $80 $105 $178 Class B Shares -- Assuming complete redemption at end of period $69 $88 $120 $199 -- Assuming no redemption $19 $58 $100 $199
(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 THE FUND'S FINANCIAL HIGHLIGHTS The following table of Financial Highlights has been audited by Ernst & Young LLP, the Fund's independent auditors, whose unqualified report is included in the Fund's 1995 Annual Report and is included in the Statement of Additional Information. Further information about the performance of the Fund is contained in the Fund's Annual Report to Shareholders, 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:
YEAR ENDED DECEMBER 31, --------------------------------------------------- 1995 1994 1993 1992 1991 1990 ----- ------ ----- ----- ----- ----- CLASS A Per Share Operating Performance Net Asset Value, Beginning of Period $13.90 $15.53 $15.29 $15.31 $14.33 $14.77 --- ---- --- --- --- --- Net Investment Income 1.12 1.12 1.14 1.20 1.29 1.32 Net Realized & Unrealized Gain (Loss) on Investments and Financial Futures Contracts 1.50 (1.55) 0.62 (0.01) 0.98 (0.40) --- ---- --- --- --- --- Total from Investment Operations 2.62 (0.43) 1.76 1.19 2.27 0.92 --- ---- --- --- --- --- Less Distributions: Dividends from Net Investment Income (1.12) (1.12) (1.14) (1.21) (1.29) (1.35) Distributions to shareholders from Capital Paid-In -- -- -- -- -- (0.01) Distributions from Net Realized Gain on Investments Sold and Financial Futures Contracts -- (0.08) (0.38) -- -- -- --- ---- --- --- --- --- Total Distributions (1.12) (1.20) (1.52) (1.21) (1.29) (1.36) --- ---- --- --- --- --- Net Asset Value, End of Period $15.40 $13.90 $15.53 $15.29 $15.31 $14.33 === ==== === === === === Total Investment Return at Net Asset Value (e) 19.40% (2.75%) 11.80% 8.08% 16.59% 6.71% Ratios and Supplemental Data Net Assets, End of period (000,000's omitted) $1,535 $1,326 $1,506 $1,386 $1,250 $1,103 Ratio of Expenses to Average Net Assets 1.13% 1.26% 1.41% 1.44% 1.27% 1.31% Ratio of Net Investment Income to Average Net Assets 7.58% 7.74% 7.18% 7.89% 8.81% 9.18% Portfolio Turnover Rate 103%+ 85% 107% 87% 90% 92%
YEAR ENDED DECEMBER 31, --------------------------------- 1989 1988 1987 1986 ----- ------ ----- ----- CLASS A Per Share Operating Performance Net Asset Value, Beginning of Period $14.51 $14.53 $15.89 $15.85 --- ---- --- --- Net Investment Income 1.43 1.44 1.40 1.55 Net Realized & Unrealized Gain (Loss) on Investments and Financial Futures Contracts 0.27 (0.06) (1.17) 0.52 --- ---- --- --- Total from Investment Operations 1.70 1.38 0.23 2.07 --- ---- --- --- Less Distributions: Dividends from Net Investment Income (1.44) (1.40) (1.53) (1.53) Distributions to shareholders from Capital Paid-In -- -- -- -- Distributions from Net Realized Gain on Investments Sold and Financial Futures Contracts -- -- (0.06) (0.50) --- ---- --- --- Total Distributions (1.44) (1.40) (1.59) (2.03) --- ---- --- --- Net Asset Value, End of Period $14.77 $14.51 $14.53 $15.89 === ==== === === Total Investment Return at Net Asset Value (e) 12.13% 9.82% 1.58% 13.67% Ratios and Supplemental Data Net Assets, End of period (000,000's omitted) $1,110 $1,104 $1,095 $1,152 Ratio of Expenses to Average Net Assets 0.80% 0.82% 0.82% 0.72% Ratio of Net Investment Income to Average Net Assets 9.68% 9.77% 9.32% 9.65% Portfolio Turnover Rate 64% 66% 159% 163%
3 THE FUND'S FINANCIAL HIGHLIGHTS (continued)
1995 1994 1993 -------------- ---------- ---------- CLASS B(a) Per Share Operating Performance Net Asset Value, Beginning of Period $ 13.90 $ 15.52 $15.90(b) ------------ -------- -------- Net Investment Income 1.02 1.04 0.11 Net Realized & Unrealized Gain (Loss) on Investments and Financial Futures Contracts 1.50 (1.54) -- ------------ -------- -------- Total from Investment Operations 2.52 (0.50) 0.11 ------------ -------- -------- Less Distributions: Dividends from Net Investment Income (1.02) (1.04) (0.11) Distributions from Net Realized Gain on Investments Sold and Financial Futures Contracts -- (0.08) (0.38) ------------ -------- -------- Total Distributions (1.02) (1.12) (0.49) ------------ -------- -------- Net Asset Value, End of Period $ 15.40 $ 13.90 $15.52 ============ ======== ======== Total Investment Return at Net Asset Value (e) 18.66% (3.13%) 0.90% Ratios and Supplemental Data Net Assets, End of period (000's omitted) $98,739 $40,299 $4,125 Ratio of Expenses to Average Net Assets 1.75% 1.78% 1.63%* Ratio of Net Investment Income to Average Net Assets 6.87% 7.30% 0.57%* Portfolio Turnover Rate 103%+ 85% 107%
PERIOD ENDED MAY 22, 1995 (UNAUDITED) YEAR ENDED DECEMBER 31, ------------ ---------------------- 1994 1993 CLASS C(c) Per Share Operating Performance Net Asset Value, Beginning of Period $ 13.90 $ 15.52 $15.86(b) ------------ -------- -------- Net Investment Income 0.42 1.19 0.81 Net Realized & Unrealized Gain (Loss) on Investments and Financial Futures Contracts 0.91 (1.54) 0.04 ------------ -------- -------- Total from Investment Operations 1.33 (0.35) 0.85 ------------ -------- -------- Less Distributions: Dividends from Net Investment Income (0.43) (1.19) (0.81) Distributions from Net Realized Gain on Investments Sold and Financial Futures Contracts -- (0.08) (0.38) ------------ -------- -------- Total Distributions (0.43) (1.27) (1.19) ------------ -------- -------- Net Asset Value, End of Period $ 14.80 $ 13.90 $15.52 ============ ======== ======== Total Investment Return at Net Asset Value (e) 9.73%(d) (2.19%) 5.45% Ratios and Supplemental Data Net Assets, End of period (000's omitted) $ 142 $ 1,670 $ 867 ------------ -------- -------- Ratio of Expenses to Average Net Assets 0.67%* 0.73% 0.90%* Ratio of Net Investment Income to Average Net Assets 7.82%* 8.28% 4.90%* Portfolio Turnover Rate N/A 85% 107%
* On an annualized basis. + Portfolio turnover excludes merger activity. (a) Class B shares commenced operations on November 23, 1993. (b) Initial price to commence operations. (c) Class C shares commenced operations on May 7, 1993. Net asset value and net assets at the end of the period reflect amounts prior to the redemption of all shares on May 22, 1995. (d) Not annualized. (e) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. N/A Not applicable. 4 INVESTMENT OBJECTIVE AND POLICIES [sidebar] The Fund's investment objective is to generate a high level of current income consistent with prudent investment risk. The Fund's investment objective is to generate a high level of current income, consistent with prudent investment risk, through investment in a diversified portfolio of freely marketable debt securities. The Fund's Adviser seeks high current income consistent with the moderate level of risk associated with a portfolio consisting primarily of investment grade debt securities. Under normal market conditions, at least 65% of the value of the Fund's assets will be in bonds and/or debentures. In addition, the Fund contemplates that at least 75% of the value of its total investments in debt securities (other than commercial paper) will be represented by those securities that have, at the time of purchase, a rating 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) and debt securities of banks, the U.S. Government and its agencies or instrumentalities and other issuers which, although not rated as a matter of policy by either Moody's or S&P, are considered by the Fund to have investment quality comparable to securities receiving ratings within the four highest grades. Debt securities rated Baa or BBB are considered medium-grade obligations with speculative characteristics and adverse economic conditions or changing circumstances may weaken the issuers' capacity to pay interest and repay principal. The Fund will diversify its investments among a number of industry groups without concentration in any particular industry. The Fund's investments, and consequently its net asset value, will be subject to the market fluctuations and risks inherent in all securities. There is no assurance that the Fund will achieve its investment objective. Securities of domestic and foreign issuers. The Fund may invest in U.S. dollar-denominated securities of foreign and United States issuers that are issued in or outside of the U.S. Foreign companies may not be subject to accounting standards and government supervision comparable to U.S. companies, and there is often less publicly available information about their operations. Foreign markets generally provide less liquidity than U.S. markets (and thus potentially greater price volatility) and typically provide fewer regulatory protections for investors. Foreign securities can also be affected by political or financial instability abroad. It is anticipated that under normal conditions, the Fund will not invest more than 25% of its total assets in foreign securities (excluding U.S. dollar-denominated Canadian securities). Mortgage-Backed and Derivative Securities Mortgage-backed securities represent participation interests in pools of adjustable and fixed mortgage loans which are guaranteed by agencies or instrumentalities of the U.S. Government. Unlike conventional debt obligations, mortgage-backed securities provide monthly payments derived from the monthly interest and principal payments (including any prepayments) made by the individual borrowers on the pooled mortgage loans. The mortgage loans underlying mortgage-backed securities are generally subject to a greater rate of principal prepayments in a declining interest rate environment and to a lesser rate of principal prepayments in an increasing interest rate environment. Under certain interest and prepayment rate scenarios, the Fund may fail to recover the full amount of its investment in mortgage-backed securities 5 notwithstanding any direct or indirect governmental or agency guarantee. Since faster than expected prepayments must usually be invested in lower yielding securities, mortgage-backed securities are less effective than conventional bonds in "locking in" a specified interest rate. In a rising interest rate environment, a declining prepayment rate may extend the average life of many mortgage-backed securities. Extending the average life of a mortgage-backed security increases the risk of depreciation due to future increases in market interest rates. The Fund's investments in mortgage-backed securities may include conventional mortgage passthrough securities and certain classes of multiple class collateralized mortgage obligations ("CMOs"). In order to reduce the risk of prepayment for investors, CMOs are issued in multiple classes, each having different maturities, interest rates, payment schedules and allocations of principal and interest on the underlying mortgages. Senior CMO classes will typically have priority over residual CMO classes as to the receipt of principal and/or interest payments on the underlying mortgages. The CMO classes in which the Fund may invest include but are not limited to sequential and parallel pay CMOs, including planned amortization class ("PAC") and target amortization class ("TAC") securities. Risks of Mortgage-Backed Securities. Different types of mortgage-backed securities are subject to different combinations of prepayment, extension, interest rate and/or other market risks. Conventional mortgage passthrough securities and sequential pay CMOs are subject to all of these risks, but are typically not leveraged. PACs, TACs and other senior classes of sequential and parallel pay CMOs involve less exposure to prepayment, extension and interest rate risk than other mortgage-backed securities, provided that prepayment rates remain within expected prepayment ranges or "collars." [sidebar] The Fund may invest in structured debt obligations indexed to various financial assets or rates. Structured Securities. The Fund may invest in structured notes, bonds or debentures, the value of the principal of and/or interest on which is to be determined by reference to changes in the value of specific currencies, interest rates, commodities, indices or other financial indicators (the "Reference") or the relative change in two or more References. The interest rate or the principal amount payable upon maturity or redemption may be increased or decreased depending upon changes in the applicable Reference. The terms of the structured securities may provide that in certain circumstances no principal is due at maturity and, therefore, may result in the loss of the Fund's investment. Structured securities may be positively or negatively indexed, so that appreciation of the Reference may produce an increase or decrease in the interest rate or value of the security at maturity. In addition, the change in interest rate or the value of the security at maturity may be a multiple of the change in the value of the Reference. Consequently, structured securities entail a greater degree of market risk than other types of debt obligations. Structured securities may also be more volatile, less liquid and more difficult to accurately price than less complex fixed income investments. Futures and Option Contracts. The Fund may engage in transactions in futures contracts and options on futures contracts for hedging and speculative purposes. The Fund's ability to hedge successfully will depend on the ability of John Hancock Advisers, Inc. (the "Adviser") to predict accurately the future direction of interest rate changes, the degree of correlation between the futures and securities markets and other market fac- 6 tors. 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. 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 exceeds 5% of the Fund's net assets. Lower-Rated Securities. The Fund may invest up to 25% of the value of its total assets in fixed income securities rated below Baa by Moody's, or below BBB by S&P, or in securities which are unrated. The Fund may invest in securities rated as low as Ca by Moody's or CC by S&P, which may indicate that the obligations are highly speculative and in default. Lower rated securities are generally referred to as junk bonds. See the Appendix attached to this Prospectus and the Statement of Additional Information, respectively, for the distribution of securities in the various ratings categories and a description of the characteristics of the 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 Fund may invest in 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 market price and liquidity of lower rated fixed income securities generally respond to short-term economic, corporate and market developments to a greater extent than do higher rated securities. In the case of lower-rated securities, 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. 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 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 the high yield bonds. To the extent that the Fund invests in these securities, the achievement of the Fund's objective will depend more on the Adviser's judgment and analysis than would otherwise be the case. In addition, the Fund's investments in high yield securities may be susceptible to adverse publicity and investor perceptions, whether or not the perceptions are justified by fundamental factors. In the past, economic downturns and increases in interest rates have caused a higher incidence of default by the issuers of lower-rated securities and may do so in the future, particularly with respect to highly leveraged issuers. 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 7 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. The Fund accrues income on these securities for tax and accounting purposes, which is required to be distributed to shareholders. Because no cash is received while income accrues on these securities, the Fund may be forced to liquidate other investments to make the distributions. The Fund may acquire individual securities of any maturity and is not subject to any limits as to the average maturity of its overall portfolio. The longer the Fund's average portfolio maturity, the more the value of the portfolio and the net asset value of the Fund's shares will fluctuate in response to changes in interest rates. An increase in interest rates will generally reduce the value of the Fund's portfolio securities and the Fund's shares, while a decline in interest rates will generally increase their value. 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 Trustees will monitor the Fund's investments in these securities, focusing on certain factors, including valuation, liquidity and availability of information. Purchases of other restricted securities are subject to an investment restriction limiting all the Fund's illiquid securities to not more than 15% of its 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 and interests in money market funds. 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 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 issuer 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. Short-term Trading. Short-term trading means the purchase and subsequent sale of a security after it has been held for a relatively brief period of time. The Fund engages in short-term trading in response to changes in interest rates or other economic trends and developments, or to realize capital gain or improve income by taking advantage of yield disparities between various fixed-income securities. 8 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 nonfundamental. The investment objective and fundamental investment restrictions may not be changed without shareholder approval. All other investment policies and restrictions are nonfundamental and can be changed by a vote of the Trustees without shareholder approval. Portfolio turnover rates of the Fund for recent years are shown in the section "The Fund's Financial Highlights." [sidebar] Brokers are chosen 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 Trustees, the Adviser may place securities transactions with brokers affiliated with the Adviser. These brokers include Tucker Anthony Incorporated, John Hancock Distributors, Inc. and Sutro & Company, Inc. They 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 [sidebar] The Trustees elect officers and retain the investment adviser who is responsible for the day- to-day operations of the Fund, subject to the Trustees' policies and supervision. The Fund is a diversified open-end management investment company organized as a Maryland corporation in 1973 and reorganized as a Massachusetts business trust in 1984. The Fund has an unlimited number of authorized shares of beneficial interest. The Fund's Declaration of Trust permits the Trustees, without shareholder approval, to create and classify shares of beneficial interest into separate series of the Fund. As of the date of this Prospectus, the Trustees have not authorized the creation of any new series of the Fund. Additional series may be added in the future. The Trust's Declaration of Trust also permits the Trustees to classify and reclassify any series or portfolio of shares into one or more classes. Accordingly, the Trustees have authorized the issuance of two classes of the Fund, designated Class A and Class B. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights as to voting, redemption, dividends and liquidation. However, each class bears different distribution fees, and Class A and Class B shareholders have exclusive voting rights with respect to their distribution plans. Shareholders have certain rights to remove Trustees. The Fund is not required to hold annual shareholder meetings, although special meetings may be held for such purposes as electing or removing Trustees, changing fundamental investment restrictions or approving a management contract. The Fund, under certain circumstances, will assist in shareholder communications with other shareholders. [sidebar] 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. The Adviser provides the Fund, and other investment companies in the John Hancock group of funds, with investment research and portfolio management services. John Hancock Funds, Inc. ("John Hancock Funds"), an indirect subsidiary of the Life Company, distributes shares for all of the John Hancock funds through selected broker-dealers ("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 9 a deferred compensation plan for its independent Trustees which allows Trustees' fees to be invested by the Fund in other John Hancock funds. James Ho is primarily responsible for the management of the Fund. Mr. Ho is assisted by a team of portfolio managers and analysts. Mr. Ho also directs all taxable fixed-income investment management for the Adviser and has been associated with the Adviser since 1985. 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 [sidebar] An alternative purchase plan allows you to choose the method of payment that is best for you. You can purchase shares of the Fund at a price equal to their net asset value per share, plus a sales charge. At your election, this charge may be imposed either at the time of the purchase (see "Initial Sales Charge Alternative--Class A Shares") or on a contingent deferred basis (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. [sidebar] 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." [sidebar] 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. 10 Factors to Consider in Choosing an Alternative [sidebar] You should consider which class of shares will 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 you expect to hold your shares and other circumstances. You should consider whether, during the anticipated life of your Fund investment, the CDSC and the accumulated fees on Class B shares would be less than the initial sales charge and accumulated fees on Class A shares purchased at the same time, and to what extent this differential would be offset by the Class A shares' lower expenses. To help you make this determination, the table under the caption "Expense Information" on the inside cover page of this Prospectus shows examples of the charges applicable to each class of shares. Class A shares will normally be more beneficial if you qualify for 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 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, the expenses will be paid from the proceeds of the ongoing distribution and service fees, as well as from the CDSC incurred upon redemption within six years of purchase. The purpose and function of the Class B shares' CDSC and ongoing distribution and service fees are the same as those of the Class A shares' initial sales charge and ongoing distribution and service fees. Sales personnel distributing the Fund's shares may receive different compensation for selling each class of shares. Dividends, if any, on Class A and Class B shares will be calculated in the same manner, at the same time and on the same day. They will also be in the same amount, except for differences resulting from each class bearing only its own distribution and service fees and shareholder meeting expenses. See "Dividends and Taxes." THE FUND'S EXPENSES For managing its investment and business affairs, the Fund pays a fee to the Adviser which for the 1995 fiscal year, was 0.50% of the Fund's average daily net asset value. [sidebar] The Fund pays distribution and service fees for marketing and sales-related shareholder servicing. The Class A and Class B shareholders have adopted distribution plans (each a "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). Under these Plans, the Fund will pay distribution and service fees at an aggregate annual rate of up to 0.30% of the Class A shares' average daily net assets and an aggregate annual 11 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. The distribution fees will be used to reimburse John Hancock Funds for its distribution expenses, including but not limited to: (i) initial and ongoing sales compensation to Selling Brokers and others (including affiliates of John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing, promotional and overhead expenses incurred in connection with the distribution of Fund shares; and (iii) with respect to Class B shares only, interest expenses on unreimbursed distribution expenses. The service fees are paid to compensate Selling Brokers and others 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 $2,970,686 of distribution expenses, or 4.64% 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. 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. DIVIDENDS AND TAXES Dividends. Dividends from the Fund's net investment income are generally declared daily and distributed monthly. 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 in additional shares 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 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 may be paid in January of a given year, but may be taxable as if you received them the previous December. 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 Internal Revenue Code of 1986, as amended (the "Code"). As a regulated investment company, the Fund will not be subject to Fed- 12 eral 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 this 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. Non-U.S. shareholders and tax-exempt shareholders are subject to a different tax treatment not described above. 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. You should consult your tax adviser for specific advice. PERFORMANCE [sidebar] 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 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 your shares or the income reported in the Fund's financial statements. Total return shows the overall dollar or percentage change in value of a hypothetical investment in the Fund, assuming the reinvestment of all dividends. Cumulative total return shows the Fund's performance over a period of time. Average annual total return shows the cumulative return divided over the number of years included in the period. Because average annual total return tends to smooth out variations in the Fund's performance, you should recognize that it is not the same as actual year-to-year results. Both total return and yield calculations for Class A shares generally include the effect of paying the maximum sales charge (except as shown in "The Fund's Financial Highlights"). Investments at a lower sales charge would result in higher performance figures. Yield and total return for the Class B shares reflect the deduction of the applicable CDSC imposed on a redemption of shares held for the applicable period. All calculations assume that all dividends are reinvested at net asset value on the reinvestment dates during the periods. Total return and yield of Class A and Class B shares will be calculated separately and, because each class is subject to different expenses, the yield or total return with respect to each 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 both classes in any advertisement or promotional materials including the Fund's performance data. The value of the Fund's 13 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. See "Factors to Consider in Choosing an Alternative." HOW TO BUY SHARES [sidebar] Opening an account 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 you are investing in Class A shares. By Check 1. Make your check payable to John Hancock Investor Services Corporation. P.O. Box 9115 Boston, MA 02205-9115 2. Deliver the completed application and check to your registered representative or Selling Broker, or mail it directly to Investor Services. By Wire 1. Obtain an account number by contacting your registered representative or Selling Broker, or by calling 1-800-225-5291. 2. Instruct your bank to wire funds to: First Signature Bank & Trust John Hancock Deposit Account No. 900000260 ABA Routing No. 211475000 For credit to: John Hancock Sovereign Bond 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. [sidebar] Buying additional Class A and Class B shares Monthly Automatic Accumulation Program (MAAP) 1. Complete the "Automatic Investing" and "Bank Information" sections on the Account Privileges Application, designating a bank account from which 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 or 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. 14 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. 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 Bond Fund (Class A or Class B shares) Your Account Number Name(s) under which account is registered Other Requirements: All purchases must be made in U.S. dollars. Checks written on foreign banks will delay purchases until U.S. funds are received, and a collection charge may be imposed. Shares of the Fund are priced at the offering price based on the net asset value computed after John Hancock Funds receives notification of the dollar equivalent from the Fund's custodian bank. Wire purchases normally take two or more hours to complete and, to be accepted the same day, must be received by 4:00 p.m., New York time. Your bank may charge a fee to wire funds. Telephone transactions are recorded to verify information. Certificates are not issued unless a request is made in writing to Investor Services. [sidebar] You will receive account statements that you should keep to help with your personal recordkeeping. You will receive a statement of your account after any transaction that affects your share balance or registration (statements related to reinvestment of dividends and automatic investment/withdrawal plans will be sent to you quarterly). A tax information statement will be mailed to you by January 31 of each year. SHARE PRICE [sidebar] The offering price of your shares is their net asset value plus a sales charge, if appli- cable, 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 Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which the Board of Trustees has determined to approximate market value. Foreign securities are valued on the basis of quotations from the primary market in which they are traded. 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 Trustees believe accurately reflects fair value. The NAV is calculated once daily as of the close of regular trading on the New York Stock Exchange (generally at 4:00 P.M., New York time) on each day that the Exchange is open. Shares of the Fund are sold at the offering price based on the NAV computed after your investment request is received in good order by John Hancock Funds. If you buy shares of the Fund through a Selling Broker, the Selling Broker must receive your investment before the close of regular trading on the New York Stock Exchange, and transmit it to John Hancock Funds before its close of business, to receive that day's offering price. 15 Initial Sales Charge Alternative--Class A Shares. The offering price you pay for Class A shares of the Fund equals the NAV plus a sales charge as follows:
Combined Sales Sales Reallowance Charge Charge and Service Reallowance as a as a Fee as a to Selling Percentage Percentage Percentage Brokers as a Amount invested of of the of Percentage of (Including Sales Offering Amount Offering Offering Charge) Price Invested Price(+) Price(*) - --------------------- --------- ----------- ----------- ------------- Less than $100,000 4.50% 4.71% 4.00% 3.76% $100,000 to $249,999 3.75% 3.90% 3.25% 3.01% $250,000 to $499,999 2.75% 2.83% 2.30% 2.06% $500,000 to $999,999 2.00% 2.04% 1.75% 1.51% $1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
(*) 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 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 within one year of purchase. (***) John Hancock Funds may pay a commission and 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. 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 the accounts attributable to these brokers. Under certain circumstances described below, investors in Class A shares may be entitled to pay reduced sales charges. See "Qualifying For a Reduced Sales Charge." Contingent Deferred Sales Charge--Investments of $1 Million or More in Class A Shares. Purchases of $1 million or more of the Fund's 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: 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 the Life Company who were group annuity contract holders as of September 1, 1994, and participant directed defined contribution plans 16 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 Charges." [sidebar] 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 $100,000 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 $80,000 and, subsequently, invest $20,000 in Class A shares of the Fund, the sales charge on this subsequent investment would be 3.75% and not 4.50%. This is the rate that would otherwise be applicable to investments of less than $100,000. See "Initial Sales Charge Alternative--Class A Shares." [sidebar] Class A shares may be avail- able 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: (bullet) A Trustee or officer of the Trust; 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.* 17 (bullet) A bank, trust company, credit union, savings institution or other type of depository institution, its trust departments or common trust funds if it is purchasing $1 million or more for non-discretionary customers or accounts.* (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 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 or 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 entire 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 reinvestments. 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:
(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
18 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 in connection with 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 determining this holding period, any payment you make during the month will be aggregated and deemed to have been made on the last day of the month. Contingent Deferred Sales Year In Which Class B Shares Charge As a Percentage of Redeemed 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: 3% for redemptions during the third year after purchase, 2.5% for redemptions during the fourth year, 2% for redemptions during the fifth year, 1% for redemptions during the sixth year, and no CDSC for the seventh year and thereafter. [sidebar] Under certain circumstances, the CDSC on Class B and Class A share redemptions will be waived. Waiver of Contingent Deferred Sales Charge. 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. (bullet) Redemptions made to effect mandatory distributions under the Code after age 70-1/2 from a tax-deferred retirement plan. 19 (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 into Class A shares of the Fund should not 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 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. 20 [sidebar] 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 30 days. A check will be mailed to the exact name(s) and address shown on the account. If reasonable procedures, such as those described above, are not followed, the Fund may be liable for any loss due to unauthorized or fraudulent telephone instructions. In all other cases, neither the Fund nor Investor Services will be liable for any loss or expense for acting upon telephone instructions made according to the telephone transaction procedures mentioned above. Telephone redemption is not available for IRAs or other tax-qualified retirement plans or shares of the Fund that are in certificated form. During periods of extreme economic conditions or market changes, telephone requests may be difficult to implement due to a large volume of calls. During these times, you should consider placing redemption requests in writing or 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 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, Custodial A letter of instruction signed (with titles where applicable) (Uniform Gifts or Transfer to by all persons authorized to sign for the account, exactly as Minors Act), General Partners. it is 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 the signature(s) guaranteed. (If the Trustee's name is not registered on your account, also provide a copy of the trust document, certified within the last 60 days.)
If you do not fall into any of these registration categories, please call 1-800-225-5291 for further instructions. 21 [sidebar] Who may guarantee your signature A signature guarantee is a widely accepted way to protect you and the Fund by verifying the signature on your request. It may not be provided by a notary public. If the net asset value of the shares redeemed is $100,000 or less, John Hancock Funds may guarantee the signature. The following institutions may provide you with a signature guarantee, provided that the institution meets credit standards established by Investor Services: (i) a bank; (ii) a securities broker or dealer, including a government or municipal securities broker or dealer, that is a member of a clearing corporation or meets certain net capital requirements; (iii) a credit union having authority to issue signature guarantees; (iv) a savings and loan association, a building and loan association, a cooperative bank, a federal savings bank or association; or (v) a national securities exchange, a registered securities exchange or a clearing agency. Through Your Broker Your broker may be able to initiate the redemption. Contact your broker for instructions. [sidebar] Additional information about redemptions 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 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 any dividend reinvestments exceeds the number of shares redeemed, repeated redemptions from a smaller account may eventually trigger this policy. ADDITIONAL SERVICES AND PROGRAMS [sidebar] You may exchange shares of the Fund for shares of the same class of another John Hancock fund. Exchange Privilege If your investment objective changes, or if you wish to achieve further diversification, John Hancock offers other funds with a wide range of investment goals. Contact your registered representative or Selling Broker and request a prospectus for the John Hancock fund that interests 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 that are subject to a CDSC may be exchanged into Class B shares of another John Hancock fund without incurring the CDSC; however these shares will be subject to the CDSC schedule of the shares acquired (except that exchanges into John Hancock Short-Term Strategic Income Fund, John Hancock Intermediate Maturity Government Fund and John Hancock Limited-Term Government Fund will be subject to the initial fund's CDSC). For purposes of computing the CDSC payable upon redemption of shares acquired in an exchange, the holding period of the original shares is added to the holding period of the shares acquired in an exchange. However if you exchange Class B shares purchased prior to January 1, 1994 for Class B shares of any other John Hancock fund, you will continue to be subject to the CDSC schedule in effect on your initial purchase date. 22 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 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 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 Fund shares, you authorize exchanges automatically by telephone unless you check the box indicating that you do not wish to authorize telephone exchanges. 2. Call 1-800-225-5291. Have the account number of your current fund and the exact name in which it is registered available to give to the telephone representative. 3. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. 23 In Writing 1. In a letter request an exchange and list the following: --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 [sidebar] If you redeem shares of the Fund, you may be able to reinvest all or part of the proceeds in shares of this 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 of 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, for purposes of computing the CDSC payable upon a subsequent redemption, will include the holding period of the redeemed shares. 2. Any portion of your redemption may be reinvested in Fund shares or in shares of 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. Systematic Withdrawal Plan [sidebar] 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 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 24 initial sales charge on your purchases of Class A shares or to a CDSC on your redemptions of Class B shares. In addition, your redemptions are taxable events. 6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver your checks, or if deposits to a bank account are returned for any reason. Monthly Automatic Accumulation Program (MAAP) [sidebar] You can make automatic investments and simplify your investing. 1. You can authorize an investment to be withdrawn automatically each month on your bank, for investment in Fund shares, under the "Automatic Investing" and "Bank Information" sections of the Account Privileges Application. 2. You can also authorize automatic investing through payroll deduction by completing the "Direct Deposit Investing" section of the Account Privileges Application. 3. You can terminate your Monthly Automatic Accumulation Program at any time. 4. There is no charge to you for this program, and there is no cost to the Fund. 5. If you have payments withdrawn from a bank account and we are notified that the account has been closed, your withdrawals will be discontinued. Group Investment Program [sidebar] Organized groups of at least four persons may establish accounts. 1. An individual account will be established for each participant, but the initial sales charge for Class A shares will be based on the aggregate dollar amount of all participants' investments. To determine how to qualify for this program, contact your registered representative or call 1-800-225-5291. 2. The initial aggregate investment of all participants in the group must be at least $250. 3. There is no additional charge for this program. There is no obligation to make investments beyond the minimum, and you may terminate the program at any time. Retirement Plans 1. You may use the Fund for various types of retirement plans, such as 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, 401(k) and Section 457 plans will be accepted without an initial minimum investment. 25 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 are well safeguarded during both good and bad times over the future. Uncertainty of position characterizes 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 represent 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. S&P 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 C 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. 26 Quality Distribution The average weighted quality distribution of the portfolio for the fiscal year ended December 31, 1995:
Rating Assigned Rating Average % of by % of Assigned % of Security Ratings Value Portfolio Adviser Portfolio by Service Portfolio - ---------------------- ------------ -------- --------- -------- ------------ ---------- AAA $ 620,385,611 42.2% 0 0.0% $ 620,385,611 42.2% AA 133,553,602 9.1% 0 0.0% 133,553,602 9.1% A 215,842,868 14.6% 0 0.0% 215,842,868 14.6% BAA 183,805,094 12.5% 0 0.0% 183,805,094 12.5% BA 163,250,899 11.1% 0 0.0% 163,250,899 11.1% B 114,575,945 7.8% 0 0.0% 114,575,945 7.8% CAA 2,710,769 0.2% 0 0.0% 2,710,769 0.2% 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% ---------- ------ ------- ------ ---------- -------- Debt Securities 1,434,124,788 97.5% 0 0.0% $1,434,124,788 97.5% Equity Securities 0 0.0% Short-Term Securities 36,605,154 2.5% ---------- ------ Total Portfolio 1,470,729,942 100.0% Other Assets--Net 17,450,847 ---------- Net Assets $1,488,180,789 ==========
27 JOHN HANCOCK SOVEREIGN BOND 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 Telephone Exchange call 1-800-225-5291 Investment-by-Phone Telephone Redemption TDD call 1-800-554-6713 JHD 2100P 5/96 JOHN HANCOCK SOVEREIGN BOND FUND Class A and B Shares Prospectus May 1, 1996 A mutual fund seeking to generate a high level of current income consistent with pru- dent investment risk through investment in a diversified portfolio of freely marketable debt securities. 101 Huntington Avenue Boston, Massachusetts 02199-7603 Telephone 1-800-225-5291 [recycle symbol] Printed on recycled paper JOHN HANCOCK SOVEREIGN BOND 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 Bond Fund (the "Fund") in addition to the information that is contained in the Fund's Class A and Class B Prospectus (the "Prospectus") dated May 1, 1996. 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 OBJECTIVE AND POLICIES 2 CERTAIN INVESTMENT PRACTICES 3 INVESTMENT RESTRICTIONS 8 THOSE RESPONSIBLE FOR MANAGEMENT 11 INVESTMENT ADVISORY AND OTHER SERVICES 17 DISTRIBUTION CONTRACT 19 NET ASSET VALUE 21 INITIAL SALES CHARGE ON CLASS A SHARES 22 DEFERRED SALES CHARGE ON CLASS B SHARES 23 SPECIAL REDEMPTIONS 24 ADDITIONAL SERVICES AND PROGRAMS 24 DESCRIPTION OF THE FUND'S SHARES 25 TAX STATUS 26 CALCULATION OF PERFORMANCE 30 BROKERAGE ALLOCATION 32 TRANSFER AGENT SERVICES 33 CUSTODY OF PORTFOLIO 34 INDEPENDENT AUDITORS 34 FINANCIAL STATEMENTS -- ORGANIZATION OF THE FUND John Hancock Sovereign Bond Fund (the "Fund") is a diversified open-end management investment company organized as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts. The Fund was organized in 1984 by John Hancock Advisers, Inc. (the "Adviser") as the successor to John Hancock Bond Fund, Inc., a Maryland corporation organized in 1973 by the Adviser. The Adviser is an indirect wholly-owned subsidiary of John Hancock Mutual Life Insurance Company (the "Life Company"), a Massachusetts life insurance company chartered in 1862, with national headquarters at John Hancock Place, Boston, Massachusetts. INVESTMENT OBJECTIVE AND POLICIES The Fund's investment objective is to generate a high level of current income, consistent with prudent investment risk, for distribution to its shareholders through investment in a diversified portfolio of freely marketable debt securities. The Fund's investments will be subject to the market fluctuations and risks inherent in all securities. There is no assurance that the Fund will achieve its investment objective. See "Investment Objective and Policies" in the Fund's Prospectus. The Fund will invest primarily in debt securities within the four highest investment ratings and unrated securities considered by the Adviser to be of comparable investment quality. The Fund will, when feasible, purchase debt securities which are non-callable. The Fund may purchase corporate debt securities bearing fixed or fixed and contingent interest as well as those which carry certain equity features, such as conversion or exchange rights or warrants for the acquisition of stock of the same or a different issuer, or participations based on revenues, sales or profits. The Fund will not exercise any such conversion, exchange or purchase rights if, at the time, the value of all equity interests so owned would exceed 10% of the Fund's total assets taken at market value. The market value of debt 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. Similarly, when such yields increase, the market value of a portfolio already invested 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. The Fund intends to use short-term trading of securities as a means of managing its portfolio to achieve its investment objective. The Fund, in reaching a decision to sell one security and purchase another security at approximately the same time, will take into account a number of factors, including the quality ratings, interest rates, yields, maturity dates, call prices, and refunding and sinking fund provisions of the securities under consideration, as well as historical 2 yield spreads and current economic information. The success of short-term trading will depend upon the ability of the Fund to evaluate particular securities, to anticipate relevant market factors, including trends of interest rates and earnings and variations from such trends, to obtain relevant information, to evaluate it promptly, and to take advantage of its evaluations by completing transactions on a favorable basis. It is expected that the expenses involved in short-term trading, which would not be incurred by an investment company which does not use this portfolio technique, will be significantly less than the profits and other benefits which will accrue to shareholders. The portfolio turnover rate will depend on a number of factors, including the fact that the Fund intends to continue to qualify as a regulated investment company under the Internal Revenue Code. Accordingly, the Fund intends to limit its short-term trading so that less than 30% of the Fund's gross annual income (including all dividend and interest income and gross realized capital gains, both short and long-term, without being offset for realized capital losses) will be derived from gross realized gains on the sale or other disposition of securities held for less than three months. This limitation, which must be met by all mutual funds in order to obtain such Federal tax treatment, at certain times may prevent the Fund from realizing capital gains on some securities held for less than three months. 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 yet been issued. No payment is made with respect to a when-issued transaction, until delivery is due, often a month or more after the purchase. The Fund may engage in when-issued transactions with respect to securities purchased for its portfolio in order to obtain an advantageous price and yield at the time of the transactions. When the Fund engages in a when-issued transaction, it relies on the seller to consummate the transaction. The failure of the issuer or seller to consummate the transaction may result in the Fund losing the opportunity to obtain a price and yield considered to be advantageous. 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 (i.e., securities rated in one of the top three ratings categories by Moody's Investors Service, Inc.("Moody's") or Standard & Poor's Ratings Group ("S&P) equal in value to the when-issued commitment. These assets will be valued daily at market, and additional cash or liquid, high grade debt 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 commitment. 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 the Fund enters into repurchase agreements. The Fund has established a procedure providing that the securities serving as collateral for each repurchase agreement must be delivered 3 to the Fund's custodian either physically or in book-entry form and that the collateral must be marked to market daily to ensure that each repurchase agreement is fully collateralized at all times. In the event of bankruptcy or other default by a seller of a repurchase agreement, the Fund could experience delays in liquidating the underlying securities and could experience losses, including the possible decline in the value of the underlying securities during the period which the Fund seeks to enforce its rights thereto, possible subnormal levels of income and lack of access to income during this period, and the expense of enforcing its rights. Restricted Securities. The Fund may invest in restricted securities, including those 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, OTC options, securities that are not readily marketable and restricted securities. However, if the Board of Trustees 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 Trustees 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. 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 if qualified institutional buyers become for a time uninterested in purchasing these restricted securities. Financial Futures Contracts. The Fund may hedge its portfolio by selling or purchasing financial futures contracts as an offset against the effects of changes in interest rates or in security or foreign currency values. Although other techniques could be used to reduce the Fund's exposure to interest rate fluctuations, the Fund may be able to hedge its exposure more effectively and perhaps at a lower cost by using financial futures contracts. The Fund may enter into financial futures contracts for hedging and speculative purposes to the extent permitted by regulations of the Commodity Futures Trading Commission ("CFTC"). Financial futures contracts have been designed by boards of trade which have been designated "contract markets" by the CFTC. Futures contracts are traded on these markets in a manner that is similar to the way a stock is traded on a stock exchange. The boards of trade, through their clearing corporations, guarantee that the contracts will be performed. Currently, financial futures contracts are based on interest rate instruments such as long-term U.S. Treasury bonds, U.S. Treasury notes, Government National Mortgage Association ("GNMA") modified pass-through mortgage-backed securities, three-month U.S. Treasury bills, 90-day commercial paper, bank certificates of deposit and Eurodollar certificates of deposit. It is expected that if other financial futures contracts are developed and traded the 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 4 security and delivery month). Other financial futures contracts, such as futures contracts on securities indices, by their terms call for cash settlements. If the offsetting purchase price is less than 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," ranging upward from 1.1% of the value of the financial futures contract being traded. The margin required for a financial futures contract is set by the board of trade or exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the financial futures contract which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. The 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 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 market its open financial futures positions. Successful hedging depends on a strong correlation between the market for the underlying securities and the futures contract market for those securities. There are several factors that may prevent this correlation from being perfect and even a correct forecast of general interest rate trends may not result in a successful hedging transaction. There are significant differences between the securities and futures markets which could create an imperfect correlation between the markets and which could affect the success of a given hedge. The degree of imperfection will be affected by variations in speculative market demand for financial futures and debt securities, including technical influences in futures trading. Differences between the financial instruments being hedged and the instruments underlying the standard financial futures contracts available for trading will be affected by interest rate levels, maturities and creditworthiness of issuers. The degree of imperfection may be increased where the underlying debt securities are lower-rated and, therefore, subject to greater fluctuation in price than higher-rated securities. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. The 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 in the Fund's portfolio and the hedging vehicle so that the Fund's return might 5 have been better had hedging not been attempted. However, in the absence of the ability to hedge, the Adviser might have taken portfolio actions in anticipation of the same market movements with similar investment results but, presumably, at greater transaction costs. The low margin deposits required for futures transactions permit an extremely high degree of leverage. A relatively small movement in a futures contract may result in losses or gains in excess of the amount invested. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount the price of a futures contract may vary either up or down from the previous day's settlement price, at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and, therefore, does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. Finally, although the 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 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 it paid for the option. Other Considerations. The Fund will engage in futures transactions for bona fide hedging or speculative purposes to the extent permitted by CFTC regulations. The Fund will determine that the price fluctuations in the futures contracts and options on futures used for hedging purposes are substantially related to price fluctuations in securities held by the Fund or which it expects to purchase. Except as stated below, the Fund's futures transactions will be entered into for traditional hedging purposes -- i.e., futures contracts will be sold to protect against decline in the price of securities that the Fund owns, or futures contracts will be purchased to protect the Fund against an increase in the price of securities or the currency in which they are denominated it intends to purchase. As evidence of this hedging intent, the Fund expects that on 75% or more of 6 the occasions on which it takes a long futures or option position (involving the purchase of futures contracts), the Fund will have purchased, or will be in the process of purchasing equivalent amounts of related securities or assets denominated in the related currency in the cash market at the time when the futures or option position is closed out. However, in particular cases, when it is economically advantageous for the Fund to do so, a long futures position may be terminated or an option may expire without the corresponding purchase of securities or other assets. As an alternative to literal compliance with the bona fide hedging definition, a CFTC regulation permits the Fund to elect to comply with a different test, under which the aggregate initial margin and premiums required to establish speculative positions in futures contracts and options on futures will not exceed 5% of the net asset value of the Fund's portfolio, after taking into account unrealized profits and losses on any such positions and excluding the amount by which such options were in-the-money at the time of purchase. The Fund will engage in transactions in futures contracts only to the extent such transactions are consistent with the requirements of the Internal Revenue Code for maintaining its qualification as a regulated investment company for Federal income tax purposes. When the Fund purchases a financial futures contract, or writes a put option or purchases a call option thereon, cash and high grade liquid debt securities will be deposited in a segregated account with the Fund's custodian in an amount that, together with the amount of initial and variation margin held in the account of its broker, equals the market value of the futures contract. Lower Rated High Yield Debt Obligations. The Fund may invest in high yielding, fixed income securities rated Baa or lower by Moody's or BBB or lower by S&P. The Fund will not invest in securities rated below Ca by Moody's or CC by S&P. 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. To the extent the Fund invests in securities in the lower rating 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 in securities in the higher rated categories. 7 INVESTMENT RESTRICTIONS Fundamental Investment Restrictions. The following investment restrictions (as well as the Fund's investment objective) will not be changed without approval of a majority of the Fund's outstanding voting securities which, as used in the Prospectus 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 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 following fundamental restrictions: The Fund may not: (1) Issue senior securities, except as permitted by paragraphs (2), (6) and (7) below. For purposes of this restriction, the issuance of shares of beneficial interest in multiple classes or series, the purchase or sale of options, futures contracts and options on future contracts, forward commitments, forward foreign exchange contracts and repurchase agreements entered into in accordance with the Fund's investment policy, 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, except from banks as a temporary measure for extraordinary emergency purposes in amounts not to exceed 33 1/3% of the Fund's total assets (including the amount borrowed) taken at market value. The Fund will not use leverage to attempt to increase income. The Fund will not purchase securities while outstanding borrowings exceed 5% of the Fund's total assets. (3) Pledge, mortgage, or hypothecate its assets, except to secure indebtedness permitted by paragraph (2) above and then only if such pledging, mortgaging or hypothecating does not exceed 33 1/3% 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, except that the Fund may invest in securities of corporate or governmental entities secured by real estate or marketable interest therein or issued by companies that invest in real estate or interests therein. (6) Make loans, except that the Fund (1) may lend portfolio securities in accordance with the Fund's investment policies up to 33 1/3% 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 publicly distributed 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. 8 (7) Invest in commodities or commodity contracts or in puts, calls, or combinations of both, except interest rate futures contracts, options on securities, securities indices, currency and other financial instruments and options on such futures contracts, forward foreign currency exchange contracts, forward commitments, 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 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 (a) Such purchase would cause more than 5% of the Fund's total assets taken at market value to be invested in the securities of such issuer, or (b) 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 by cash or securities of the U.S. Government or its agencies or instrumentalities and the Fund's custodian must take possession of the collateral either physically or in book entry form. Any cash collateral will consist of short-term high quality debt instruments. Securities used as collateral must be marked to market daily. Nonfundamental Investment Restrictions The following restrictions are designated as nonfundamental and may be changed by the Board of Trustees without shareholder 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 securities trading account. (b) Purchase securities on margin or make short sales, except margin deposits in connection with transactions in options, futures contracts, options on futures contracts and other arbitrage transactions or 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 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 and in connection with transactions involving forward foreign currency exchange transactions. 9 (c) Purchase a security if, as a result, (i) more than 10% of the Fund's total assets would be invested in securities of closed-end investment companies, (ii) such purchase would result in more than 3% of the total outstanding voting securities of any one such closed-end investment company being held by the Fund, or (iii) more than 5% of the Fund's total assets would be invested in any one such closed-end investment company. The Fund will not invest in the securities of any open-end investment company. (d) Purchase securities of any issuer which, together with any predecessor, has a record of less than three years' continuous operations prior to the purchase 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. (e) Invest for the purpose of exercising control over or management of any company. (f) 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 value, but warrants acquired by the Fund in units with or attached to debt securities shall be deemed to be without value. (g) Knowingly purchase or retain securities of an issuer if one or more of the Trustees 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 0.5%, and together own beneficially more than 5%, of the securities of such issuer. (h) Purchase interests in oil, gas or other mineral leases or 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) Invest more than (i) 10% of its total assets in securities which are restricted under the Securities Act of 1933 (the "1933 Act") (excluding restricted securities that are eligible for resale pursuant to Rule 144A under the 1933 Act) or (ii) 15% of the Fund's total assets in such restricted securities (including restricted securities eligible for resale pursuant to Rule 144A). (j) Purchase interests in real estate limited partnerships. (k) Purchase any security, including any repurchase agreement maturing in more than seven 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 considers over-the-counter options to be illiquid securities subject to the 15% limit.) (l) Notwithstanding any investment restriction to the contrary, the Fund may, in connection with the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees/Directors, purchase securities of other investment companies within the John Hancock 10 Group of Funds provided that, as a result, (i) no more than 10% of the Fund's assets would be invested in securities of all other investment companies, (ii) such purchase would not result in more than 3% of the total outstanding voting securities of any one such investment company being held by the Fund and (iii) no more that 5% of the Fund's assets would be invested in any one such investment company. In order to permit the sale of shares of the Fund in certain states, the Trustees may, in their sole discretion, adopt restrictions on investment policy more restrictive than those described above. Should the Trustees 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 Trustees may revoke such restrictive policy. Moreover, if the states involved shall no longer require any such restrictive policy, the Trustees may, at their sole discretion, revoke such policy. 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. THOSE RESPONSIBLE FOR MANAGEMENT The business of the Fund is managed by its Trustees, who elect officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Trustees. Several of the officers and Trustees of the Fund are also officers and directors of the Adviser or officers and 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: 11
Positions Held Principal Occupation(s) Name and Address With The Fund During the Past Five Years - ---------------- ------------- -------------------------- *Edward J. Boudreau, Jr. Chairman and Chief Chairman and Chief Executive 101 Huntington Avenue Executive Officer (1,2) Officer, the Adviser and The Boston, Massachusetts Berkeley Financial Group ("The Berkeley Group"); Chairman, NM Capital Management, Inc. ("NM Capital"); John Hancock Advisers International Limited ("Advisers International"); John Hancock Funds, Inc., ("John Hancock 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 are 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. (until April, 1994).
- -------------- * An "interested person" of the Fund, as such term is defined in the Investment Company Act of 1940, as amended (the "Investment Company Act:). (1) A Member of the Executive Committee. (2) A Member of Investment Committee of the Adviser. (3) An Alternate Member of the Executive Committee. (4) A Member of the Audit and Administration Committees. 12
Positions Held Principal Occupation(s) Name and Address With The Fund During the Past Five Years - ---------------- ------------- -------------------------- Dennis S. Aronowitz Trustee (4) Professor of Law, Boston University Boston University School of Law; Trustee, Brookline Boston, Massachusetts Savings Bank. Richard P. Chapman, Jr. Trustee (4) President, Brookline Savings Bank; 160 Washington Street Director, Federal Home Loan Bank of Brookline, Massachusetts Boston (lending); Director, Lumber Insurance Companies (fire and casualty insurance); Trustee, Northeastern University (education); Director, Depositors Insurance Fund, Inc. (insurance). William J. Cosgrove Trustee (4) Vice President, Senior Banker and 20 Buttonwood Place Senior Credit Officer, Citibank, Saddle River, New Jersey N.A. (retired September 1991); Executive Vice President, Citadel Group Representatives, Inc.; Trustee, the Hudson City Savings Bank. Gail D. Fosler Trustee (4) Vice President and Chief Economist, 4104 Woodbine Street The Conference Board (non-profit Chevy Chase, MD economic and business research). Bayard Henry Trustee (4) Corporate Advisor; Director, 31 Milk Street Fiduciary Trust Company (a trust Boston, Massachusetts company); Director, Groundwater Technology, Inc. (remediation); Samuel Cabot, Inc.; Advisor, Kestrel Venture Management. *Anne C. Hodsdon Trustee and President (1,2) President and Chief Operating 101 Huntington Avenue Officer, the Adviser; Executive Boston, Massachusetts Vice President, the Adviser (until December 1994); Senior Vice President; the Adviser (until December 1993); Vice President, the Adviser, until 1991.
- -------------- * An "interested person" of the Fund, as such term is defined in the Investment Company Act of 1940, as amended (the "Investment Company Act:). (1) A Member of the Executive Committee. (2) A Member of Investment Committee of the Adviser. (3) An Alternate Member of the Executive Committee. (4) A Member of the Audit and Administration Committees. 13
Positions Held Principal Occupation(s) Name and Address With The Fund During the Past Five Years - ---------------- ------------- -------------------------- *Richard S. Scipione Trustee (1) General Counsel, the Life Company; John Hancock Place Director, the Adviser, the P.O. Box 111 Affiliated Companies, John Hancock Boston, Massachusetts Distributors, Inc., JH Networking Insurance Agency, Inc., John Hancock Subsidiaries, Inc., SAMCorp, NM Capital and John Hancock Property and Casualty Insurance and its affiliates (until November, 1993); Trustee, The Berkeley Group. Edward J. Spellman, CPA Trustee (4) Partner, KPMG Peat Marwick LLP 259C Commercial Bld. (retired June 1990). Lauderdale, FL *Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief Investment 101 Huntington Avenue Investment Officer (2) Officer, the Adviser; President, Boston, Massachusetts the Adviser (until December 1994). *Thomas H. Drohan Senior Vice President and Senior Vice President and 101 Huntington Avenue Secretary Secretary, the Adviser. Boston, Massachusetts
- ------------------ * An "interested person" of the Fund, as such term is defined in the Investment Company Act. (1) A Member of the Executive Committee. (2) A Member of Investment Committee of the Adviser. (3) An Alternate Member of the Executive Committee. (4) A Member of the Audit and Administration Committees. 14
Positions Held Principal Occupation(s) Name and Address With The Fund During the Past Five Years - ---------------- ------------- -------------------------- *James B. Little Senior Vice President and Senior Vice President the Adviser. 101 Huntington Avenue Chief Financial Officer Boston, Massachusetts *John A. Morin Vice President Vice President, the Adviser; 101 Huntington Avenue Counsel, the Life Company (until Boston, Massachusetts 1995). *Susan S. Newton Vice President, Assistant Vice President and Assistant 101 Huntington Avenue Secretary and Compliance Secretary, the Adviser. Boston, Massachusetts Officer *James J. Stokowski Vice President and Treasurer Vice President, the Adviser. 101 Huntington Avenue Boston, Massachusetts
- ------------------ * An "interested person" of the Fund, as such term is defined in the Investment Company Act. (1) A Member of the Executive Committee. (2) A Member of Investment Committee of the Adviser. (3) An Alternate Member of the Executive Committee. (4) A Member of the Audit and Administration Committees. 15 All of the officers listed are officers or employees of the Adviser or the Affiliated Companies. Some of the Trustees and officers may also be officers and/or directors and/or trustees of one or more of the other funds for which the Adviser serves as investment adviser. The following table provides information regarding the compensation paid by the Fund and the other investment companies in the John Hancock Fund Complex to the Independent Trustees for their services. The three non-Independent Trustees, Messrs. Boudreau, Scipione and Ms. Hodsdon and each of the officers of the Fund are interested persons of the Adviser, are compensated by the Adviser and/or its affiliates and receive no compensation from the Fund for their services.
Pension or Total Compensation Retirement From the Fund and Aggregate Benefits Accrued Estimated John Hancock Fund Compensation From as Part of the Annual Benefits Complex to Trustees(1) Independent Trustees the Fund* Fund's Expenses* Upon Retirement (Total of 19 Funds) - -------------------- --------- ---------------- --------------- ------------------- Dennis S. Aronowitz $20,323 $ $ $ 61,050 Richard P. Chapman 5,554 15,440 - 62,800 William J. Cosgrove 5,554 14,769 - 61.050 Gail D. Fosler` 20,323 - - 60,800 Bayard Henry 19,605 - - 58,850 Edward J. Spellman 20,323 - - 61,050 ------- ------- ------- -------- $91,682 $30,209 $ - $365,600
* Compensation for the fiscal year ended December 31, 1995. (1) The total compensation paid by the John Hancock Fund Complex to the Independent Trustees is as of the calendar year ended December 31, 1995. The nominess of the Funds may at times be the record holders of in excess of 5% of shares of any one or more Funds by virtue of holding shares in "street name". As of March 13, 1996, the officers and trustees of the Trusts as a group owned less than 1% of the outstanding shares of each class of each of the Funds. 16 As of March 13, 1996, the following shareholders beneficially owned 5% of or more of the outstanding shares of the Funds listed below:
Percentage of Number of shares total outstanding Fund and Class of beneficial share of the class Name and Address of Shareholder of Shares interest owned of the Fund Merrill Lynch Pierce Fenner & Smith, Inc. Class B shares 603,562 8.57% Attn Mutual Fund Operations 4800 Deer Lake Drive East Jacksonville, FL 32246-6484
INVESTMENT ADVISORY AND OTHER SERVICES As described in the Prospectus, the Fund receives its investment advice from the Adviser. Investors should refer to the Prospectus for a description of certain information concerning the investment management contract. Each of the Trustees and principal officers of 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 and the Adviser. As described in the Prospectus under the caption "Organization and Management of the Fund," the Fund has entered into an investment management contract with the Adviser. Under 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 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 its affiliates 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 other funds or clients are selling the same security. If opportunities for the purchase or sale of securities by the Adviser or for other funds or clients, for which the Adviser renders investment advice, arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds or clients in a manner deemed equitable to all of them. To the extent that transactions on behalf of more than one client of the 17 Adviser or its affiliates may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price. No person other than the Adviser and its directors and employees regularly furnishes advice to the Fund with respect to the desirability of the Fund'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 Trustees 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 provided by the investment management contract, the Fund pays the Adviser monthly an investment management fee, which is based on a stated percentage of the Fund's average of the daily net assets as follows: Net Asset Value Annual Rate --------------- ----------- First $1,500,000,000 0.50% Next $500,000,000 0.45% Next $500,000,000 0.40% Amount over $2,500,000,000 0.35% 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. On December 31, 1995, the net assets of the Fund were $1,633,942,540. For the years ended December 31, 1993, 1994, and 1995 the Adviser received fees of $6,488,835 and $7,116,092 and $7,406,635, respectively. The 1992 and 1993 advisory fee figures reflect the different advisory fee schedule that was in effect before January 1, 1994. If the total of all ordinary business expenses of the Fund for any fiscal year exceeds limitations prescribed by any state in which shares of the Fund are qualified for sale, the fee payable to the Adviser will be reduced to the extent required by these limitations. At this time, the most restrictive limit on expenses imposed by a state requires that expenses charged to the Fund in any fiscal year not exceed 2 1/2% of the first $30,000,000 of the Fund's average net 18 assets, 2% of the next $70,000,000 of such net assets, and 1 1/2% of the remaining average net assets. When calculating the above limit, the Fund may exclude interest, brokerage commissions and extraordinary expenses. Pursuant to its investment management contract, the Adviser is not liable to the Fund or its shareholders for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which 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 by the Adviser 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 presently has more than $16 billion in assets under management in its capacity as investment adviser to the Fund and the other mutual funds and publicly traded investment companies in the John Hancock 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 $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'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 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 investment management contract continues in effect from year to year if approved annually by vote of a majority of the Trustees who are not interested persons of one of the parties to the contract, cast in person at a meeting called for the purpose of voting on such approval, and by either the Trustees or the holders of a majority of the Fund's outstanding voting securities. The contract automatically terminates upon assignment and may be terminated without penalty on 60 days' notice at the option of either party to the contract or by vote of a majority of the outstanding voting securities of the Fund. DISTRIBUTION CONTRACT The Fund has a distribution contract with John Hancock Funds. Under the contract, John Hancock Funds is obligated to use its best efforts to sell shares 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 19 determined plus any applicable sales charge. In connection with the sale of Class A and 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 the 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 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. Accordinlgy, 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 these 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 these expenditures were made. The Trustees review these reports on a quarterly basis. During the fiscal year ended December 31, 1995 the Fund paid John Hancock Funds the following amounts of expenses with respect to the Class A shares and Class B shares of the Fund:
Expense Items Printing and Mailing of Expenses of Interest Carrying Prospectus to Compensation to John Hancock or Other Finance Advertising New Shareholders Selling Brokers Funds Charges Other ----------- ---------------- --------------- ----- ------------- Sovereign Bond - -------------- Class A shares $379,227 $35,983 $3,009,477 $826,733 $ - Class B shares 99,399 9,008 183,614 185,850 160,723
Each of the Plans provides that it will continue in effect only so long as its continuance is approved at least annually by a majority of both the Trustees and the Independent Trustees. Each of the Plans provides that it may be terminated without penalty (a) by vote of a majority of the Independent Trustees, (b) by a majority of the Fund's outstanding shares of the applicable class in each case upon 60 days' written notice to John Hancock Funds, and (c) automatically in the event 20 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. And finally, each of the Plans provides that no material amendment to the Plan will, in any event, be effective unless it is approved by a vote of the Trustees and the Independent Trustees 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 Trustees 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 Trustee to fill a vacancy or as a nominee for election by shareholders, the selection or nomination of the Independent Trustee is, under resolutions adopted by the Trustees contemporaneously with their adoption of the Plans, committed to the discretion of the Committee on Administration of the Trustees. The members of the Committee on Administration are all Independent Trustees and are identified in this Statement of Additional Information under the heading "Those Responsible for Management." NET ASSET VALUE For purposes of calculating the net asset value ("NAV") of 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. 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. 21 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 of the Fund owned by the investor, the investor is entitled to accumulate 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, John Hancock Investor Services Inc. (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 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 Charges. As described in the Prospectus, Class A shares of the Fund may be sold without a sales charge to certain persons described in the Prospectus. Accumulation Privilege. Investors (including investors combining purchases) who are already Class A shareholders may also obtain the benefit of the reduced sales charge by taking into account not only the amount then being invested but also the purchase price or 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 (the "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 specified 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, SEP, SARSEP, TSA, 401(k), 403(b) and Section 457 plans. Such an investment (including accumulations and combinations) must aggregate $100,000 or more invested during the specified period from the date of the LOI or from a date within ninety (90) days prior thereto, upon written request to Investor Services. 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 22 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 the sales charge applicable will not be higher than that which would have applied (including accumulations and combinations) had the LOI been for the amount actually invested. The LOI authorizes Investor Services to hold in escrow sufficient Class A shares (approximately 5% of the aggregate) to make up any difference in sales charges on the amount intended to be invested and the amount actually invested, until such investment is completed within the specified period, at which time the escrow 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 or her attorney-in-fact to redeem any escrowed Class A shares and adjust the sales charge, if necessary. A LOI does not constitute a binding commitment by an investor to purchase, or by the Fund to sell, any additional Class A shares and may be terminated at any time. DEFERRED SALES CHARGE ON CLASS B SHARES Investments in Class B shares are purchased at net asset value per share without the imposition of an initial sales charge so that the Fund will receive the full amount of the purchase payment. Contingent Deferred Sales Charge. Class B shares which are redeemed within six years of purchase will be subject to a contingent deferred sales charge ("CDSC") at the rates set forth in the Prospectus as a percentage of the dollar amount subject to the CDSC. The charge will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the 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 this number, all payments during a month will be aggregated and deemed to have been made on the last day of the month. Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or in part by John Hancock Funds to defray its expenses related to providing distribution-related services to the Fund in connection with the sale of the Class B shares, such as the payment of compensation to select Selling Brokers for selling Class B shares. The combination of the CDSC and the distribution and service fees facilitates the ability of the Fund to sell the Class B shares without a sales charge being deducted at the time of the purchase. See the Prospectus for additional information regarding the CDSC. 23 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. ADDITIONAL SERVICES AND PROGRAMS Exchange Privilege. As described more fully in the Prospectus, the Fund permits exchanges of shares of any class of the Fund for shares of the same class in any other John Hancock fund offering that class. Systematic Withdrawal Plan. As described briefly in the Prospectus, the Fund permits the establishment of a Systematic Withdrawal Plan. Payments under this plan represent proceeds from the redemption of Fund shares. Since the redemption price of the Fund shares may be more or less than the shareholder's cost, depending upon the market value of the securities owned by the Fund at the time of redemption, the distribution of cash pursuant to this plan may result in realization of gain or loss for purposes of Federal, state and local income taxes. The maintenance of a Systematic Withdrawal Plan concurrently with purchases of additional Class A or Class B shares of the Fund could be disadvantageous to a shareholder because of the initial sales charge payable on such purchases of Class A shares and the CDSC imposed on redemptions of Class B shares and because redemptions are taxable events. Therefore, a shareholder should not purchase Class A and Class B shares of the Fund at the same time 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 checks, is subject to the following conditions: The investments will be drawn on or about the day of the month indicated. The privilege of making investments through the Monthly Automatic Accumulation Program may be revoked by Investor Services without prior notice if any investment is not honored by the shareholder's bank. The bank shall be under no obligation to notify the shareholder as to the non-payment of any checks. 24 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 Fund shares may, within 120 days after the date of redemption, reinvest without payment of a sales charge any part of the redemption proceeds in shares of the same class of the Fund or in any other John Hancock fund, subject to the minimum investment limit of that fund. The proceeds from the redemption of Class A shares may be reinvested at net asset value without paying a sales charge in Class A shares of the Fund or in Class A shares of other John Hancock funds. If a CDSC was paid upon a redemption, a shareholder may reinvest the proceeds from this redemption at net asset value in additional shares of the class from which the redemption was made. The shareholder's account will be credited with the amount of any CDSC charged upon the prior redemption and the new shares will continue to be subject to the CDSC. The holding period of the shares acquired through reinvestment will, for purposes of computing the CDSC payable upon a subsequent redemption, include the holding period of the redeemed shares. The Fund may modify or terminate the reinvestment privilege at any time. A redemption or exchange of Fund shares is a taxable transaction for Federal income tax purposes even if the reinvestment privilege is exercised, and any gain or loss realized by a shareholder on the redemption or other disposition of Fund shares will be treated for tax purposes as described under the caption "Tax Status." DESCRIPTION OF THE FUND'S SHARES The Trustees of the Fund are responsible for the management and supervision of the Fund. The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest of the Fund without par value. Under the Declaration of Trust, the Trustees have the authority to create and classify shares of beneficial interest in separate series, without further action by shareholders. As of the date of this Statement of Additional Information, the Trustees have not authorized any additional series of the Fund, other than the Fund, although they may do so in the future. The Declaration of Trust also authorizes the Trustees to classify and reclassify the shares of the Fund, or any other series of the Fund, into one or more classes. As of the date of this Statement of Additional Information, the Trustees have authorized the issuance of two classes of shares of the Fund, designated as Class A and Class B shares. Class A and Class B shares of the Fund represent an equal proportionate interest in the aggregate net assets attributable to that class of the Fund. The holders of Class A shares and Class B shares have certain exclusive voting rights on matters relating to their respective Rule 12b-1 distribution plans. 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 25 exclusively by that 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 the conditions imposed by the Internal Revenue Service in issuing rulings to funds with 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 such 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, by the Fund, except as set forth below. Unless otherwise required by the Investment Company Act or the Declaration of Trust, the Fund has no intention of holding annual meetings of shareholders. Fund shareholders may remove a Trustee by the affirmative vote of at least two-thirds of the Fund's outstanding shares and the Trustees 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 Trustees holding office were elected by the shareholders, the Trustees will call a special meeting of shareholders for the purpose of electing Trustees. Under Massachusetts law, shareholders of a Massachusetts business trust could, under certain circumstances, be held personally liable for acts or obligations of the Fund. However, the Fund's Declaration of Trust contains an express disclaimer of shareholder liability for acts, obligations or affairs of the Fund. The Declaration of Trust also provides for indemnification out of the Fund's assets for all losses and expenses of any Fund shareholder held personally liable by reason of being or having been a shareholder. Liability is therefore limited to circumstances in which the Fund itself would be unable to meet its obligations, and the possibility of this occurrence is remote. TAX STATUS 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 for each taxable year. 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, if any) 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 non-deductible Federal excise tax on certain amounts not distributed (and not treated as having been distributed) on a timely basis in accordance with annual minimum distribution requirements. The Fund intends under normal circumstances to avoid liability for such tax by satisfying such distribution requirements. 26 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 distribution in cash, divided by the number of shares received. The amount of net realized capital gains, if any, in any given year will vary depending upon the Adviser's current investment strategy and whether the Adviser believes it to be in the best interest of the Fund to dispose of portfolio securities that will generate capital gains or to enter into options or futures transactions. At the time of an investor's purchase of Fund shares, a portion of the purchase price is often attributable to realized or unrealized appreciation in the Fund's portfolio or undistributed taxable income of the Fund. Consequently, subsequent distributions on these shares from such appreciation or income 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 ninety (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. This 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 sixty-one (61) days beginning thirty (30) days before and ending thirty (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 its 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 27 pro rata share of such excess, and he had paid his pro rata share of the taxes paid by the Fund and reinvested the remainder in the Fund. Accordingly, each shareholder would (a) include his pro rata share of such excess as long-term capital gain in his return for his taxable year in which the last day of the Fund's taxable year falls, (b) be entitled either to a tax credit on his return for, or to a refund of, his pro rata share of the taxes paid by the Fund, and (c) be entitled to increase the adjusted tax basis for his shares in the Fund by the difference between his pro rata share of this excess and the pro rata share of these taxes. For Federal income tax purposes, the Fund is permitted to carryforward 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 to shareholders. The Fund has $20,654,741 of capital loss carryforwards available to the extent provided by regulations, to offset future net realized capital gains. These carryforwards expire at various amounts and times from 1996 through 2002. Distributions from the Fund will not qualify for the dividends received deduction for corporations. 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 may be subject to withholding and other taxes imposed by foreign countries with respect to the Fund's investments in 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 is not expected to consist of stocks or securities of foreign corporations, the Fund will not be able to pass through such taxes to its shareholders (as additional income) along with a corresponding entitlement to a tax credit or deduction. The Fund will deduct such taxes in computing its investment company taxable income. 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. The Fund may invest in debt obligations that are in the lower rating categories or are unrated, including debt obligations of issuers not currently paying interest as well as issuers who are in default. 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 28 deductions may be taken for bad debts or worthless securities, how payments received on obligations in default should be allocated between principal and income, and whether exchanges of debt obligations in a workout context are taxable. These and other issues will be addressed by the Fund, in the event it invests in such securities, in order to reduce the risk of distributing insufficient income to preserve its status as a regulated investment company and seek to avoid becoming subject to Federal income or excise tax. Limitations imposed by the Code on regulated investment companies like the Fund may restrict the Fund's ability to enter into futures and options transactions. The options and futures transactions undertaken by the Fund may cause the Fund to recognize gains or losses from marking to market even though its positions have not been sold or terminated and affect the character as long-term or short-term and timing of some capital gains and losses realized by the Fund. Also, some of the Fund's losses on its transactions involving options and futures 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 thereafter affect the amount, timing and character of the Fund's distributions to shareholders. The Fund will take into account the special tax rules (including consideration of available elections) applicable to options and futures transactions 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. 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 29 substitute is on file, to 31% backup withholding on certain other payments from the Fund. Non-U.S. investors should consult their tax advisors regarding such treatment and the application of foreign taxes to an investment in the Fund. The Fund is not subject to Massachusetts corporate excise or franchise taxes. Provided that the Fund qualifies as a regulated investment company under the Code, it will also not be required to pay any Massachusetts income tax. CALCULATION OF PERFORMANCE For the 30-day period ended December 31, 1995, the annualized yield on Class A and Class B shares of the Fund was 5.88% and 5.46%, respectively. The average annual total return of the Class A shares of the Fund for the 1 year, 5 year and 10 year periods ended December 31, 1995 was 14.11%, 9.33% and 9.01%, respectively and reflect payment of the maximum sales charge of 4.50%. The average annual total return of Class B shares of the Fund for the 1 year period ended December 31, 1995 and since inception on November 19, 1993 was 13.71% and 5.96%, respectively. 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: The Fund's yield is computed by dividing net investment income per share determined for a 30-day period by the maximum offering price per share (which includes the full sales charge) on the last day of the period, according to the following standard formula: Yield = 2 ([(a - b) + 1] 6 - 1) ----- cd Where: a = dividends and interest earned during the period. b = net expenses accrued during the period. c = the average daily number of fund shares outstanding during the period that would be entitled to receive dividends. d = the maximum offering price per share on the last day of the period (NAV where applicable). 30 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 hypothetical $1,000 investment made at the beginning of the 1 year, 5 year and life-of-fund periods. In the case of Class A shares or Class B shares, this calculation assumes the maximum sales charge of 4.5% and 5.0%, respectively, is included in the initial investment or the CDSC applied at the end of the period. This calculation also assumes that all dividends and distributions are reinvested at net asset value on the reinvestment dates during the period. 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 4.5% sales charge on Class A shares or the 5% 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. From time to time, in reports and promotional literature, the Fund's total return will be ranked or compared to indices of mutual funds such as Lipper Analytical Services, Inc.'s "Lipper -Mutual Performance Analysis," a monthly publication which tracks net assets, total return, and yield on equity mutual funds in the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are also used for comparison purposes, as well as the Russell and Wilshire indices. Performance rankings and ratings reported periodically in national financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET JOURNAL, MORNINGSTAR, and BARRON'S may also be utilized. 31 The performance of the Fund is not fixed or guaranteed. Performance quotations should not be considered to be representations of performance of the Fund for any period in the future. The performance of the Fund is a function of many factors including its earnings, expenses and number of outstanding shares. Fluctuating market conditions; purchases, sales and maturities of portfolio securities; sales and redemptions of shares of beneficial interest; and changes in operating expenses are all examples of items that can increase or decrease the Fund's performance. BROKERAGE ALLOCATION Decisions concerning the purchase and sale of portfolio securities and the allocation of brokerage commissions are made by the Adviser pursuant to recommendations made by its investment committee, which consists of officers and directors of the Adviser and affiliates, and officers and Trustees who are interested persons of the Fund. Orders for purchases and sales of securities are placed in a manner which, in the opinion of the Adviser, will offer the best price and market for the execution of each such transaction. Purchases from underwriters of portfolio securities may include a commission or commissions paid by the issuer and transactions with dealers serving as market makers reflect a "spread." Investments in debt securities are generally traded on a net basis through dealers acting for their own account as principals and not as brokers; no brokerage commissions are payable on such transactions. 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 Trustees may determine, the Adviser may consider sales of shares of the Fund as a factor in the selection of broker-dealers to execute the Fund's portfolio transactions. To the extent consistent with the foregoing, the Fund will be governed in the selection of brokers and dealers, and in 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, their 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 Trustees. For the 32 years ended on December 31, 1995, 1994, and 1993, no negotiated brokerage commissions were paid on portfolio transactions. As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund may pay to a broker which provides brokerage and research services to the Fund an amount of disclosed commission in excess of the commission which another broker would have charged for effecting that transaction. This practice is subject to a good faith determination by the Trustees that such price is reasonable in light of the services provided and to such policies as the Trustees may adopt from time to time. During the fiscal year ended December 31, 1995, the Fund did not pay commissions to compensate brokers for research services such as industry, economic and company reviews and evaluations of securities. The Adviser's indirect parent, the Life Company, is the indirect sole shareholder of John Hancock Freedom Securities Corporation and its subsidiaries, three of which, Tucker Anthony Incorporated, John Hancock Distributors, Inc. ("Distributors") and Sutro & Company, Inc., ("Sutro") each (an "Affiliated Broker"). Pursuant to procedures established by the Trustees and consistent with the above policy of obtaining best net results, the Fund may execute portfolio transactions with or through Affiliated Brokers. During the years 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 exchange transactions, subject, however, to the general policy of the Fund set forth above and the procedures adopted by the Trustees pursuant to the Investment Company Act. Commissions paid to an Affiliated Broker must be at least as favorable as those which the 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 of the Trustees who are not interested persons (as defined in the Investment Company Act) of the Fund, the Adviser or the Affiliated Broker. Because the Adviser, which is affiliated with the Affiliated Brokers, has, as an investment adviser to the Fund, the obligation to provide investment management services, which includes elements of research and related investment skills, such research and related skills will not be used by the Affiliated Brokers as a basis for negotiating commissions at a rate higher than that determined in accordance with the above criteria. The Fund will not effect principal transactions with Affiliated Brokers. TRANSFER AGENT SERVICES John Hancock Investor Services Corporation ("Investor Services"), P.O. Box 9116, Boston, MA 02205-9116, a wholly-owned indirect subsidiary of the Life Company, is the transfer and dividend paying agent of the Fund. The Fund pays an annual fee of $20.00 per shareholder for each Class A account and $22.50 for each Class B 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 relative net asset values. 33 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. Ernst & Young LLP audits and renders an opinion of the Fund's annual financial statements and prepares the Fund's annual Federal income tax return. 34 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. 811-2402 and 2-48925; accession number 0000950135-96-001142): John Hancock Sovereign Bond Fund -------------------------------- Statement of Assets and Liabilities as of December 31, 1995. Statement of Operations of the year ended December 31, 1995. Statement of Changes in Net Asset for each of the two years ended December 31. Notes to Financial Statements. Financial Highlights for each of the 10 years ended December 31, 1995. Schedule of Investments as of December 31, 1995. (b) Exhibits: The exhibits to this Registration Statement are listed in the Exhibit Index hereto and are incorporated herein by reference. Item 25. Persons Controlled by or under Common Control with Registrant No person is directly or indirectly controlled by or under common control with Registrant. Item 26. Number of Holders of Securities As of March 29, 1996, the number of record holders of shares of Registrant was as follows: Title of Class Number of Record Holders -------------- ------------------------ Class A Shares - 141,143 Class B Shares - 6,483 Item 27. Indemnification Section 4.3 of Registrant's Declaration of Trust provides that (i) every person who is, or has been, a Trustee, officer, employee or agent of the Trust (including any individual who serves at its request as director, officer, partner, trustee or the like of another organization in which it has any interest as a shareholder, creditor or otherwise) shall be indemnified by the Trust, or by one or more Series thereof if the claim arises from his or her conduct with C-1 respect to only such Series, to the fullest extent permitted by law against all liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer and against amounts paid or incurred by him in the settlement thereof; and that (ii) the words "claim," "action," "suit," or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal, or other, including appeals), actual or threatened; and the words "liability" and "expenses" shall include, without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities. However, no indemnification shall be provided to a Trustee or officer (i) against any liability to the Trust, a Series thereof or the Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office; (ii) with respect to any matter as to which he shall have been finally adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust or a Series thereof; (iii) in the event of a settlement or other disposition not involving a final adjudication resulting in a payment by a Trustee or officer, unless there has been a determination that such Trustee or officer did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office by (A) a court by (B) a majority of the Non- interested trustees or independent legal counsel, or (C) a vote of the majority of the Fund's outstanding shares. The rights of indemnification may be insured against by policies maintained by the Trust, shall be severable, shall not affect any other rights to which any Trustee or officer may now or hereafter be entitled, shall continue as to a person who has ceased to be such Trustee or officer and shall inure to the benefit of the heirs, executors, administrators and assigns of such a person. Nothing contained herein shall affect any rights to indemnification to which personnel of the Trust or any Series thereof other than Trustees and officers may be entitled by contract or otherwise under law. Expenses of preparation and presentation of a defense to any claim, action, suit or proceeding may be advanced by the Trust or a Series thereof before final disposition, if the recipient undertakes to repay the amount if it is ultimately determined that he is not entitled to indemnification, provided that either: (i) such undertaking is secured by a surety bond or some other appropriate security provided by the recipient, or the Trust or Series thereof shall be insured against losses arising out of any such advances; or (ii) a majority of the Non-interested Trustees acting on the matter (provided that a majority of the Non-interested Trustees act on the matter) or an independent legal counsel in a written opinion shall determine, based upon a review of readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the recipient ultimately will be found entitled to indemnification. C-2 For purposes of indemnification Non-interested Trustee" is one who (i) is not an "Interested Person" of the Trust (including anyone who has been exempted from being an "Interested Person" by any rule, regulation or order of the Commission), and (ii) is not involved in the claim, action, suit or proceeding. (b) Under the Distribution Agreement. Under Section 12 of the Distribution Agreement, John Hancock Funds, Inc. ("John Hancock Funds" ) has agreed to indemnify the Registrant and its Trustees, officers and controlling persons against claims arising out of certain acts and statements of John Hancock Funds. Section 9(a) 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 of the Insurance Company who serves as a Trustee 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 be 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 matter settled without final adjudication unless such settlement shall have been approved as in the best interests of the Insurance Company either by vote of the Board of Directors at a meeting composed of directors who have no interest in the outcome of such vote, or by vote of the policyholders. The Insurance Company may pay expenses incurred in defending an action or claim in advance of its final disposition, but only upon receipt of an undertaking by the person indemnified to repay such payment if he should be determined to be entitled to indemnification. Article IX of the respective By-Laws of John Hancock Funds and the Adviser provide 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 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." C-3 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 the Registrant's Amended and Restated Articles of Incorporation, Article 10.1 of the Registrant's By-Laws, The underwriting Agreement, the By-Laws of John Hancock Funds, the Adviser, or the Insurance Company or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 28. Business and other Connections of Investment Adviser 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 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. (b) Subadviser C-4
Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant ---------------- ---------------- --------------- Edward J. Boudreau, Jr. Director, Chairman, President and Chairman 101 Huntington Avenue Chief Executive Officer Boston, Massachusetts Robert H. Watts Director, ExecutiveVice President None John Hancock Place and Chief Compliance Officer P.O. Box 111 Boston, Massachusetts Robert G. Freedman Director Vice Chairman and Chief 101 Huntington Avenue Investment Officer Boston, Massachusetts Stephen M. Blair Executive Vice President None 101 Huntington Avenue Boston, Massachusetts Thomas H. Drohan Senior Vice President Senior Vice President and 101 Huntington Avenue Secretary Boston, Massachusetts James W. McLaughlin Senior Vice President None 101 Huntington Avenue and Boston, Massachusetts Chief Financial Officer David A. King Director None 101 Huntington Avenue Boston, Massachusetts James B. Little Senior Vice President Senior Vice President and 101 Huntington Avenue Chief Financial Officer Boston, Massachusetts John A. Morin Vice President and Secretary Vice President 101 Huntington Avenue Boston, Massachusetts C-5 Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant ---------------- ---------------- --------------- Susan S. Newton Vice President Vice President and 101 Huntington Avenue Assistant Secretary Boston, Massachusetts Christopher M. Meyer Second Vice President and None 101 Huntington Avenue Treasurer 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 William S. Nichols Senior Vice President None 101 Huntington Avenue Boston, Massachusetts Richard S. Scipione Director Trustee John Hancock Place P.O. Box 111 Boston, Massachusetts John Goldsmith Director None John Hancock Place P.O. Box 111 Boston, Massachusetts C-6 Name and Principal Positions and Offices Positions and Offices Business Address 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 James V. Bowhers Executive Vice President None 101 Huntington Avenue Boston, Massachusetts Charles H. Womack Senior Vice President None 6501 Americas Parkway Suite 950 Albuquerque, New Mexico Michael T. Carpenter Senior Vice President None 101 Huntington Avenue Boston, Massachusetts Anthony P. Petrucci Senior Vice President None 101 Huntington Avenue Boston, Massachusetts C-7 Keith Harstein Vice President None 101 Huntington Avenue Boston, Massachusetts Griselda Lyman Vice President None 101 Huntington Avenue Boston, Massachusetts
(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. 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 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) under 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 26th day of April, 1996. JOHN HANCOCK SOVEREIGN BOND FUND By:_____________________________ Edward J. Boudreau, Jr. Chairman Pursuant to the requirements of the Securities Act of 1933, the Registration has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- * Chairman Edward J. Boudreau, Jr. (Principal Executive Officer) /s/James B. Little James B. Little Senior Vice President and Chief April 26, 1996 Financial Officer (Principal Financial and Accounting Officer) * Trustee Dennis S. Aronowitz * Trustee Richard P. Chapman * Trustee William J. Cosgrove * Trustee Gail D. Fosler * Trustee Bayard Henry C-9 Signature Title Date --------- ----- ---- Trustee Anne C. Hodsdon * Trustee Richard S. Scipione * Trustee Edward J. Spellman *By: /s/Thomas H. Drohan ------------------- April 26, 1996 Thomas H. Drohan Attorney-in-Fact
C-10 John Hancock Sovereign Bond Fund EXHIBIT INDEX Exhibit No. Exhibit Description - ----------- ------------------- 99.B1 Amended and Restated Declaration of Trust of Registrant dated February 28, 1992.* 99.B1.1 Amendment to Declaration of Trust dated May 1, 1992.* 99.B1.2 Amendment to Declaration of Trust dated September 14, 1993.* 99.B1.3 Amendment to Declaration of Trust Agreement Abolition of Class C Shares of Beneficial Interest of John Hancock Sovereign Bond Fund dated May 1, 1995.+ 99.B1.4 Amendment to Declaration of Trust amending Number of Trustees and Appointing Individual to Fill a Vacancy dated March 5, 1996.+ 99.B2 Amended and Restated By-Laws of Registrant as adopted on December 8, 1993.* 99.B2.1 Amendment to By-Laws dated December 13, 1994.* 99.B2.2 Amendment to By-Laws dated March 6, 1996.+ 99.B4 Specimen share certificate for the Registrant.* 99.B5 Investment Management Contract between Registrant and John Hancock Advisers, Inc. dated January 1, 1994.* 99.B6 Distribution Agreement with Registrant and John Hancock Broker Distribution Services, Inc. dated August 1, 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 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 January 1, 1991.* 99.B9.1 Accounting and Legal Services Agreement between John Hancock Advisers, Inc. and the Registrant as of January 1, 1996.+ 99.B.10 None 99.B11 Auditor's Consent.+ 99.B12 Not Applicable 99.B13 None 99.B14 None 99.B15 Class A Distribution Plan between Registrant and John Hancock Broker Services, Inc.* 99.B15.1 Class B Distribution Plan between Registrant and John Hancock Broker Services, Inc.* 99.B16 Schedule for Computation of Yield and Total Return.* 99.B17 Powers of Attorney dated December 13, 1984, April 23, 1988, April 23, 1987, November 15, 1988, May 17, 1988, October 23, 1990, October 15, 1991, January 1 1994.* 99.27 Class A 99.27 Class B * Previously filed electronically with post-effective amendment number 39 (file nos. 811-2402 and 2-48925) on April 26, 1995, accession number 0000950146-95-000178. + Filed herewith. EX-99.B1.3 2 JOHN HANCOCK SOVEREIGN BOND FUND Abolition of Class C Shares of Beneficial Interest of John Hancock Sovereign Bond Fund (the "Fund") The undersigned, being a majority of the Trustees of John Hancock Sovereign Bond Fund, a Massachusetts business Trust (the "Trust"), acting pursuant to the Amended and Restated Declaration of Trust dated February 28, 1992 of the Trust, as amended from time to time (the "Declaration of Trust"), do hereby abolish the class of shares of beneficial interest of the Fund previously established and designated as "Class C Shares" and in connection therewith do hereby extinguish any and all rights and preferences of such Class C Shares as set forth in the Declaration of Trust and the Trust's Registration Statement on Form N-1A. The abolition of the Class C shares of the Fund is effective as of May 1, 1995. The Declaration of Trust is hereby amended to the extent necessary to reflect the abolition of Class C Shares. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Declaration of Trust. IN WITNESS WHEREOF, the undersigned have executed this instrument as of this 1st day of May, 1995. /s/Edward J. Boudreau, Jr. /s/Dennis S. Aronowitz Edward J. Boudreau, Jr. Dennis S. Aronowitz as Trustee, not individually as Trustee, not individually 34 Swan Road Boston University Winchester, MA 01890 Boston, Massachusetts /s/Richard P. Chapman, Jr. /s/Edward J. Spellman Richard P. Chapman, Jr. Edward J. Spellman as Trustee, not individually as Trustee, not individually 160 Washington Street 295C Commercial Bld. Brookline, Massachusetts Suite 200 Lauderdale by the Sea, FL /s/William J. Cosgrove /s/Gail D. Fosler William J. Cosgrove Gail D. Fosler as Trustee, not individually as Trustee, not individually 20 Buttonwood Place 4104 Woodbine Street Saddle River, New Jersey Chevy Chase, MD - ----------------- ---------------- Bayard Henry Richard S. Scipione as Trustees, not individually as Trustees, not individually 121 High Street John Hancock Place Boston, Massachusetts Boston, Massachusetts The Declaration, a copy of which, together with all amendments thereto, is on file in the office of the Secretary of State of The Commonwealth of Massachusetts, provides that no Trustee, officer, employee or agent of the Trust or any Series thereof shall be subject to any personal liability whatsoever to any Person, other than to the Trust or its shareholders, in connection with Trust Property or the affairs of the Trust, save only that arising from bad faith, willful misfeasance, gross negligence or reckless disregard of his duties with respect to such Person; and all such Persons shall look solely to the Trust Property, or to the Trust Property of one or more specific Series of the Trust if the claim arises from the conduct of such Trustee, officer, employee or agent with respect to only such Series, for satisfaction of claims of any nature arising in connection with the affairs of the Trust. EX-99.B1.4 3 JOHN HANCOCK SOVEREIGN BOND FUND Instrument Amending Number of Trustees and Appointing Individual to Fill a Vacancy The undersigned, constituting a majority of the Trustees of John Hancock Sovereign Bond Fund, a Massachusetts business trust (the "Trust"), acting pursuant to the Amended and Restated Declaration of Trust dated February 28, 1992 of the Trust, as amended from time to time, do hereby: a) amend Section 2.12, effective March 5, 1996, to read as follows: Section 2.12. Number of Trustees. The number of Trustees shall be such number as shall be fixed from time to time by a written instrument signed by a majority of the Trustees, provided, however, that the number of Trustees shall in no event be less than two (2). b) appoint Anne C. Hodsdon to fill a vacancy, such appointment to become effective upon such individual accepting in writing such appointment and agreeing to be bound by the terms of the Declaration of Trust and such individual to hold office until his successor is elected and qualified or until the earlier occurrence of any of the events specified in the first sentence of Section 2.15 of the Declaration of Trust. IN WITNESS WHEREOF, the undersigned being at least a majority of the Trustees of the Trust, have executed this amendment as of the 5th day of March, 1996. /s/Dennis S. Aronowitz _________________________ Dennis S. Aronowitz Gail D. Fosler /s/Edward J. Boudreau, Jr. _________________________ Edward J. Boudreau, Jr. Bayard Henry /s/Richard P. Chapman, Jr. /s/Richard S. Scipione Richard P. Chapman, Jr. Richard S. Scipione /s/Wiliam J. Cosgrove /s/Edward J. Spellman William J. Cosgrove Edward J. Spellman The Declaration, a copy of which, together with all amendments thereto, is on file in the office of the Secretary of State of The Commonwealth of Massachusetts, provides that no Trustee, officer, employee or agent of the Trust or any Series thereof shall be subject to any personal liability whatsoever to any Person, other than to the Trust or its shareholders, in connection with Trust Property or the affairs of the Trust, save only that arising from bad faith, willful misfeasance, gross negligence or reckless disregard of his/her duties with respect to such Person; and all such Persons shall look solely to the Trust Property, or to the Trust Property of one or more specific Series of the Trust if the claim arises from the conduct of such Trustee, officer, employee or agent with respect to only such Series, for satisfaction of claims of any nature arising in connection with the affairs of the Trust. COMMONWEALTH OF MASSACHUSETTS ) )ss COUNTY OF SUFFOLK ) Then personally appeared the above-named Edward J. Boudreau, Jr., Dennis S. Aronowitz, Richard P. Chapman, Jr., William J. Cosgrove, Richard S. Scipione, and Edward J. Spellman, who each acknowledged the foregoing instrument to be his or her fee act and deed, before me, this 5th day of March 1996. /s/Ann Marie Kalapinski Notary Public My Commission Expires: 10/20/00 EX-99.B2.2 4 John Hancock Capital Series John Hancock Income Securities Trust John Hancock Investors Trust John Hancock Limited Term Government Fund John Hancock Sovereign Bond Fund John Hancock Special Equities Fund John Hancock Strategic Series John Hancock Tax-Exempt Income Fund John Hancock World Fund CONSIDERATION OF PROPOSAL TO AMEND THE BY-LAWS, EFFECTIVE MARCH 6, 1996 RESOLVED, that the By-Laws of the Trust be and hereby are amended to delete Article IV, Sub-Section 5.1 of the By-Laws and replace it with the following: Executive Committees and Other Committees Section 5.1. How Constituted. The Trustees may, by resolution, designate one or more committees, including an Executive Committee, an Audit Committee and an Administration Committee, each consisting of at least two Trustees. The Trustees may, by resolution, designate one or more alternate members of any committee to serve in the absence of any member or other alternate member of such committee. Each member and alternate member of a committee shall be a Trustee and shall hold office at the pleasure of the Trustees. The Chairman of the Board shall be a member of the Executive Committee. EX-99.B9 5 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; (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. 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 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 EX-99.B11 6 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "The Fund's Financial Highlights" in the Class A and Class B Shares prospectus and "Independent Auditors" in the Class A and Class B Shares Statement of Additional Information and to the use of our report dated February 9, 1996, on the financial statements and financial highlights of the John Hancock Sovereign Bond Fund in this Post-Effective Amendment Number 40 to Registration Statement (Form N-1A No.2-48925) dated May 1, 1996. /s/ERNST & YOUNG LLP ERNST & YOUNG LLP Boston, Massachusetts April 25, 1996 EX-27 7
6 001 JOHN HANCOCK SOVEREIGN BOND FUND - CLASS A 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 1,603,019,688 1,645,916,849 30,063,310 133,644 42,821,623 1,676,038,265 40,189,661 0 1,906,064 42,095,725 0 1,599,608,475 99,691,440 95,399,448 0 0 (8,487,558) 0 42,821,623 1,633,942,540 0 128,984,162 0 17,183,825 111,800,337 9,875,400 140,081,956 261,757,693 0 107,383,916 0 0 13,537,727 14,896,492 5,650,757 265,915,334 0 (18,362,958) 0 0 7,406,635 0 17,183,825 1,485,396,657 13.90 1.12 1.50 1.12 0 0 15.40 1.13 0 0
EX-27 8
6 002 JOHN HANCOCK SOVEREIGN BOND FUND - CLASS B 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 1,603,019,688 1,645,916,849 30,063,310 133,644 42,821,623 1,676,038,265 40,189,661 0 1,906,064 42,095,725 0 1,599,608,475 6,411,647 2,898,886 0 0 (8,487,558) 0 42,821,623 1,633,942,540 0 128,984,162 0 17,183,825 111,800,337 9,875,400 140,081,956 261,757,693 0 4,389,308 0 0 4,013,184 681,957 181,534 265,915,334 0 (18,362,958) 0 0 7,406,635 0 17,183,825 1,485,396,657 13.90 1.02 1.50 1.02 0 0 15.40 1.75 0 0
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