-----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, L9jx5Fy0FrkV43iFDyEp/RanrNANQpBIjtQeeNMbi4OYivWp/aZRxTfKuNIh0CpP yWjfcjNIz0RS0PQkzVxoPw== 0001010521-96-000107.txt : 19960626 0001010521-96-000107.hdr.sgml : 19960626 ACCESSION NUMBER: 0001010521-96-000107 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19960625 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: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-48925 FILM NUMBER: 96585127 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 485APOS 1 JOHN HANCOCK SOVEREIGN BOND FUND FILE NOS. 2-48925 811-2402 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A --------- REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X) Pre-Effective Amendment No. ( ) Post-Effective Amendment No. 41 (X) REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X) Amendment No. 24 (X) --------- 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) (Zip Code) Registrant's Telephone Number, (617) 375-1700 --------- THOMAS H. DROHAN Vice President and Secretary John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199 (Name and Address of Agent for Service) --------- It is proposed that this filing will become effective: ( ) immediately upon filing pursuant to paragraph (b) of Rule 485 ( ) on (date) pursuant to paragraph (b) of Rule 485 ( ) 60 days after filing pursuant to paragraph (a) of Rule 485 (X) on August 30, 1996 pursuant to paragraph (a) of Rule 485 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. A Rule 24f-2 Notice for the Registrant's most recent fiscal year was filed on February 26, 1996.
Item Number Form N-1A, Statement of Additional Part A Prospectus Caption Information Caption ------ ------------------ ------------------- 1 Front Cover Page * 2 Overview; Investor Expenses; * 3 Financial Highlights * 4 Overview; Goal and Strategy; Portfolio * Securities; Risk Factors; Business Structure; More About Risk 5 Overview; Business Structure; * Manager/Subadviser; Investor Expenses 6 Choosing a Share Class; Buying Shares; * Selling Shares; Transaction Policies; Dividends and Account Policies; Additional Investor Services 7 Choosing a Share Class; How Sales Charges * are Calculated; Sales Charge Deductions and Waivers; Opening an Account; Buying Shares; Transaction Policies; Additional Investor Services 8 Selling Shares; Transaction Policies; * Dividends and Account Policies 9 Not Applicable * 10 * Front Cover Page 11 * Table of Contents 12 * Organization of the Fund 13 * Investment Objectives and Policies; Certain Investment Practices; Investment Restrictions 14 * Those Responsible for Management 15 * Those Responsible for Management 16 * Investment Advisory; Subadvisory 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 INCOME FUNDS [JOHN HANCOCK'S GRAPHIC LOGO. A CIRCLE, DIAMOND, TRIANGLE AND A CUBE] - -------------------------------------------------------------------------------- PROSPECTUS AUGUST 30, 1996 This prospectus gives vital information about these funds. For your own benefit and protection, please read it before you invest, and keep it on hand for future reference. Please note that these funds: - - are not bank deposits - - are not federally insured - - are not endorsed by any bank or government agency - - are not guaranteed to achieve their goal(s) Some of these funds may invest up to 100% in junk bonds; read risk information carefully. Like all mutual fund shares, 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. GOVERNMENT INCOME FUND HIGH YIELD BOND FUND INTERMEDIATE MATURITY GOVERNMENT FUND LIMITED-TERM GOVERNMENT FUND SOVEREIGN BOND FUND SOVEREIGN U.S. GOVERNMENT INCOME FUND STRATEGIC INCOME FUND [JOHN HANCOCK FUNDS LOGO] 101 Huntington Avenue, Boston, Massachusetts 02199-7603 CONTENTS - -------------------------------------------------------------------------------- A fund-by-fund look at GOVERNMENT INCOME FUND 4 goals, strategies, risks, expenses and financial HIGH YIELD BOND FUND 6 history. INTERMEDIATE MATURITY GOVERNMENT FUND 8 LIMITED-TERM GOVERNMENT FUND 10 SOVEREIGN BOND FUND 12 SOVEREIGN U.S. GOVERNMENT INCOME FUND 14 STRATEGIC INCOME FUND 16 Policies and instructions YOUR ACCOUNT for opening, maintaining and closing an account in Choosing a share class 18 any income fund. How sales charges are calculated 18 Sales charge reductions and waivers 19 Opening an account 20 Buying shares 21 Selling shares 22 Transaction policies 24 Dividends and account policies 24 Additional investor services 25 Details that apply to the FUND DETAILS income funds as a group. Business structure 26 Sales compensation 27 More about risk 29 Types of investment risk 29 FOR MORE INFORMATION BACK COVER OVERVIEW - -------------------------------------------------------------------------------- GOAL OF THE INCOME FUNDS John Hancock income funds seek current income, but not at the expense of total return. Some of the funds also invest for stability of principal. Each fund employs its own strategy and has its own risk/reward profile. Because you could lose money by investing in these funds, be sure to read all risk disclosure carefully before investing. WHO MAY WANT TO INVEST John Hancock income funds may be appropriate for investors who: - - are seeking a regular stream of income - - are seeking higher potential returns than money market funds and are willing to accept moderate risk of volatility - - want to diversify their portfolios - - are seeking a mutual fund for the income portion of an asset allocation portfolio - - are in or nearing retirement Income funds may NOT be appropriate if you: - - are investing for maximum return over a long time horizon - - require absolute stability of your principal THE MANAGEMENT FIRM All John Hancock income funds are managed by John Hancock Advisers, Inc. Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock Mutual Life Insurance Company and manages more than $19 billion in assets. FUND INFORMATION KEY Concise fund-by-fund descriptions begin on the next page. Each description provides the following information: [A GRAPHIC IMAGE OF A BULLSEYE WITH AN ARROW IN THE MIDDLE OF IT] GOAL AND STRATEGY The fund's particular investment goals and the strategies it intends to use in pursuing those goals. [A GRAPHIC IMAGE OF A BLACK FOLDER THAT CONTAINS A COUPLE SHEETS OF PAPER] PORTFOLIO SECURITIES The primary types of securities in which the fund invests. Secondary investments are described in "More about risk" at the end of the prospectus. [A GRAPHIC IMAGE OF A LINE CHART WITH A SINGLE LINE THAT DEPICTS SOME PEAKS AND VALLEYS] RISK FACTORS The major risk factors associated with the fund. [A GRAPHIC IMAGE OF A GENERIC PERSON] PORTFOLIO MANAGEMENT The individual or group (including subadvisers, if any) designated by the investment adviser to handle the fund's day-to-day management. [A GRAPHIC IMAGE OF A PERCENT SYMBOL] EXPENSES The overall costs borne by an investor in the fund, including sales charges and annual expenses. [A GRAPHIC IMAGE OF A DOLLAR SIGN] FINANCIAL HIGHLIGHTS A table showing the fund's financial performance for up to ten years, by share class. There is also a bar graph of year-by-year total return, which is intended to show the fund's volatility in recent years. GOVERNMENT INCOME FUND REGISTRANT NAME: JOHN HANCOCK BOND TRUST TICKER SYMBOL CLASS A: JHGIX CLASS B: TSGIX - -------------------------------------------------------------------------------- GOAL AND STRATEGY [A GRAPHIC IMAGE OF A BULLSEYE WITH AN ARROW IN THE MIDDLE OF IT] The fund seeks to earn a high level of current income consistent with preservation of capital. To pursue this goal, the fund invests primarily in U.S. Government and agency securities of any maturity, as described below. Stability of share price is a secondary goal. PORTFOLIO SECURITIES [A GRAPHIC IMAGE OF A BLACK FOLDER THAT CONTAINS A COUPLE SHEETS OF PAPER] Under normal circumstances, the fund invests at least 80% of assets in securities that are issued, or guaranteed as to principal and interest, by the U.S. Government, its agencies or instrumentalities. These may include Treasuries, mortgage-backed securities such as Ginnie Maes and Fannie Maes, and repurchase agreements and forward commitments involving these securities. For liquidity and flexibility, the fund may place up to 20% of net assets in investment-grade short-term securities. In abnormal market conditions, it may invest more assets in these securities as a defensive tactic. The fund also may invest in certain other investments, including asset-backed securities, foreign government securities and leveraged investments, and may engage in other investment practices. Investments in asset-backed and foreign government securities must be in the two highest and four highest categories, respectively, or if unrated, be of comparable quality. Up to 10% of assets may be invested in bonds rated as low as B. RISK FACTORS [A GRAPHIC IMAGE OF A LINE CHART WITH A SINGLE LINE THAT DEPICTS SOME PEAKS AND VALLEYS] As with most income funds, the value of your investment in the fund will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the market value of debt securities (including U.S. Government and mortgage-backed securities). To the extent that the fund invests in mortgage-backed securities, it may also be subject to extension and prepayment risks. These risks are defined in "More about risk" starting on page 29. Other factors may affect the market price and yield of the fund's securities, including investor demand and domestic and worldwide economic conditions. The U.S. Government does not guarantee the market value or the current yield of government securities, nor does the government's guarantee in any way extend to the fund itself. Please read "More about risk" carefully before investing. PORTFOLIO MANAGEMENT [A GRAPHIC IMAGE OF A GENERIC PERSON] Barry H. Evans, leader of the fund's portfolio management team since 1995, is a senior vice president of the adviser. He joined John Hancock Funds in 1986. - -------------------------------------------------------------------------------- INVESTOR EXPENSES [A GRAPHIC IMAGE OF A PERCENT SYMBOL] Fund investors pay various expenses, either directly or indirectly. The figures below show the expenses for the past year, adjusted to reflect any changes. Future expenses may be greater or less.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B ================================================================================ 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(1) 5.00% - -------------------------------------------------------------------------------- Redemption fee(2) none none - -------------------------------------------------------------------------------- Exchange fee none none - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS) ================================================================================ Management fee 0.63% 0.63% - -------------------------------------------------------------------------------- 12b-1 fee(3) 0.25% 1.00% - -------------------------------------------------------------------------------- Other expenses 0.27% 0.27% - -------------------------------------------------------------------------------- Total fund operating expenses 1.15% 1.90% - --------------------------------------------------------------------------------
EXAMPLE The table below shows what you would pay if you invested $1,000 over the various time frames indicated. The example assumes you reinvested all dividends and that the average annual return was 5%.
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10 ================================================================================ Class A shares $56 $80 $105 $178 - -------------------------------------------------------------------------------- Class B shares - -------------------------------------------------------------------------------- Assuming redemption at end of period $69 $90 $123 $203 - -------------------------------------------------------------------------------- Assuming no redemption $19 $60 $103 $203 - --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the fund's actual expenses and returns, either past or future. (1) Except for investments of $1 million or more; see "How sales charges are calculated." (2) Does not include wire redemption fee (currently $4.00). (3) May include carry-over of reimbursable costs from previous year(s). Amounts shown are the fund's current annual maximums for 12b-1 fees. Because of the 12b-1 fee, long-term shareholders may indirectly pay more than the equivalent of the maximum permitted front-end sales charge. 4 GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS [A GRAPHIC IMAGE OF A DOLLAR SIGN] The figures below have been audited by the fund's independent auditors, Ernst & Young LLP. VOLATILITY, AS INDICATED BY CLASS B YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 1988 2.40 1989 10.22 1990 3.71 1991 14.38 1992 8.81 1993 9.86 1994 (6.42) 1995 14.49
CLASS A - YEAR ENDED OCTOBER 31, 1994(1) 1995(2) ================================================================================ PER SHARE OPERATING PERFORMANCE - -------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.85 $ 8.75 - -------------------------------------------------------------------------------- Net investment income (loss) 0.06 0.72 - -------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.10) 0.57 - -------------------------------------------------------------------------------- Total from investment operations (0.04) 1.29 - -------------------------------------------------------------------------------- Less distributions: - -------------------------------------------------------------------------------- Dividends from net investment income (0.06) (0.72) - -------------------------------------------------------------------------------- Net asset value, end of period $ 8.75 $ 9.32 - -------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3,4) (%) (0.45) 15.32 - -------------------------------------------------------------------------------- Total adjusted investment return at net asset value(5) (%) (0.46) 15.28 - -------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 223 470,569 - -------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 0.12 1.19 - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 0.71 7.38 - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 92 102 - -------------------------------------------------------------------------------- Debt outstanding at end of period (000s omitted) ($) 0.0 N/A - -------------------------------------------------------------------------------- Average daily amount of debt outstanding during the period (000s omitted) ($) 349 N/A - -------------------------------------------------------------------------------- Average monthly number of shares outstanding during the period (000s omitted) ($) 28,696 N/A - -------------------------------------------------------------------------------- Average daily amount of debt outstanding per share during the period ($) 0.01 N/A - -------------------------------------------------------------------------------- Average brokerage commission rate ($)(6) N/A N/A - --------------------------------------------------------------------------------
CLASS B - YEAR ENDED OCTOBER 31, 1988(1) 1989 1990 1991 1992 =================================================================================================================== PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.58 $ 10.01 $ 9.98 $ 9.37 $ 9.79 - ------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 0.69(7) 0.98 0.88 0.89 0.80 - ------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.45) (0.01) (0.54) 0.40 0.03 - ------------------------------------------------------------------------------------------------------------------- Total from investment operations 0.24 0.97 0.34 1.29 0.83 - ------------------------------------------------------------------------------------------------------------------- Less distributions: - ------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.64) (1.00) (0.95) (0.87) (0.79) - ------------------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold (0.17) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------- Total distributions (0.81) (1.00) (0.95) (0.87) (0.79) - ------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.01 $ 9.98 $ 9.37 $ 9.79 $ 9.83 - ------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3,4) (%) 2.40 10.22 3.71 14.38 8.81 - ------------------------------------------------------------------------------------------------------------------- Total adjusted investment return at net asset value(5) (%) -- -- -- -- 8.66 - ------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------- Net assets end of period (000s omitted) ($) 6,966 26,568 64,707 129,014 225,540 - ------------------------------------------------------------------------------------------------------------------- Ratio of operating expenses to average net assets (%) 2.76 2.82 2.04 2.00 2.00 - ------------------------------------------------------------------------------------------------------------------- Ratio of interest expense to average net assets (%) -- -- -- -- 0.15 - ------------------------------------------------------------------------------------------------------------------- Ratio of total expenses to average net assets (%) 2.76 2.82 2.04 2.00 2.15 - ------------------------------------------------------------------------------------------------------------------- Ratio of expense reimbursement to average net assets (%) (1.38) (0.82) (0.04) -- -- - ------------------------------------------------------------------------------------------------------------------- Ratio of net expenses to average net assets (%) 1.38 2.00 2.00 2.00 2.15 - ------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 6.34 9.64 9.22 9.09 8.03 - ------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 174 151 83 162 112 - ------------------------------------------------------------------------------------------------------------------- Debt outstanding at end of period (000s omitted)(8) ($) -- -- -- -- 0 - ------------------------------------------------------------------------------------------------------------------- Average daily amount of debt outstanding during the period (000s omitted)(8) ($) -- -- -- -- 6,484 - ------------------------------------------------------------------------------------------------------------------- Average monthly number of shares outstanding during the period (000s omitted) ($) -- -- -- -- 18,572 - ------------------------------------------------------------------------------------------------------------------- Average daily amount of debt outstanding per share during the period(8) ($) -- -- -- -- 0.35 - ------------------------------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(6) N/A N/A N/A N/A N/A - -------------------------------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED OCTOBER 31, 1993 1994 1995(2) =============================================================================================== PER SHARE OPERATING PERFORMANCE - ----------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.83 $ 10.05 $ 8.75 - ----------------------------------------------------------------------------------------------- Net investment income (loss) 0.70 0.65 0.65 - ----------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.24 (1.28) 0.57 - ----------------------------------------------------------------------------------------------- Total from investment operations 0.94 (0.63) 1.22 - ----------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------- Dividends from net investment income (0.72) (0.65) (0.65) - ----------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold -- (0.02) -- - ----------------------------------------------------------------------------------------------- Total distributions (0.72) (0.67) (0.65) - ----------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.05 $ 8.75 $ 9.32 - ----------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3,4) (%) 9.86 (6.42) 14.49 - ----------------------------------------------------------------------------------------------- Total adjusted investment return at net asset value(5) (%) 9.85 (6.43) 14.47 - ----------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------- Net assets end of period (000s omitted) ($) 293,413 241,061 226,954 - ----------------------------------------------------------------------------------------------- Ratio of operating expenses to average net assets (%) 2.00 1.93 1.89 - ----------------------------------------------------------------------------------------------- Ratio of interest expense to average net assets (%) 0.01 0.01 0.02 - ----------------------------------------------------------------------------------------------- Ratio of total expenses to average net assets (%) 2.01 1.94 1.91 - ----------------------------------------------------------------------------------------------- Ratio of expense reimbursement to average net assets (%) -- -- -- - ----------------------------------------------------------------------------------------------- Ratio of net expenses to average net assets (%) 2.01 1.94 1.91 - ----------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 7.06 6.98 7.26 - ----------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 138 92 102 - ----------------------------------------------------------------------------------------------- Debt outstanding at end of period (000s omitted)(8) ($) 0 0 0 - ----------------------------------------------------------------------------------------------- Average daily amount of debt outstanding during the period (000s omitted)(8) ($) 503 349 N/A - ----------------------------------------------------------------------------------------------- Average monthly number of shares outstanding during the period (000s omitted) ($) 26,378 28,696 N/A - ----------------------------------------------------------------------------------------------- Average daily amount of debt outstanding per share during the period(8) ($) 0.02 0.01 N/A - ----------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(6) N/A N/A N/A - -----------------------------------------------------------------------------------------------
(1) Class A and Class B shares commenced operations on September 30, 1994 and February 23, 1988, respectively. Financial highlights, including total return, have not been annualized. (2) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund. (3) Assumes dividend reinvestment and does not reflect the effect of sales charges. (4) Excludes interest expense, which equals 0.04% for Class A for the year ended October 31, 1995 and 0.15%, 0.01%, 0.01% and 0.02% for Class B for the years ended October 31, 1992, 1993, 1994 and 1995, respectively. (5) An estimated total return calculation which takes into consideration fee reductions by the adviser during the periods shown. (6) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later. (7) Based on the average of the shares outstanding at the end of each month. (8) Debt outstanding consists of reverse repurchase agreements entered into during the year. GOVERNMENT INCOME FUND 5 HIGH YIELD BOND FUND REGISTRANT NAME: JOHN HANCOCK BOND TRUST TICKER SYMBOL CLASS A: N/A CLASS B: TSHYX - -------------------------------------------------------------------------------- GOAL AND STRATEGY [A GRAPHIC IMAGE OF A BULLSEYE WITH AN ARROW IN THE MIDDLE OF IT] The fund seeks to maximize current income without assuming undue risk. To pursue this goal, the fund invests primarily in junk bonds, i.e. lower-rated, higher-yielding debt securities. Because the performance of junk bonds has historically been influenced by economic conditions, the fund may rotate securities selection by business sector according to the economic outlook. The fund also seeks capital appreciation, but only when consistent with its primary goal. PORTFOLIO SECURITIES [A GRAPHIC IMAGE OF A BLACK FOLDER THAT CONTAINS A COUPLE SHEETS OF PAPER] Under normal circumstances, the fund invests at least 65% of assets in securities rated lower than BBB/Baa, or if unrated, of equivalent quality. No more than 10% of assets may be invested in securities rated as low as CC/Ca. Up to 40% of assets may be invested in the securities of issuers in the electric utility and telephone industries. For all other industries, the limitation is 25% of assets. Types of securities include, but are not limited to, domestic and foreign corporate bonds, debentures, notes, convertible securities, preferred stocks, municipal obligations and government obligations. For liquidity and flexibility, the fund may place up to 35% of net assets in investment-grade short-term securities. In abnormal market conditions, it may invest more assets in these securities as a defensive tactic. The fund also may invest in certain other investments and may engage in other investment practices. RISK FACTORS [A GRAPHIC IMAGE OF A LINE CHART WITH A SINGLE LINE THAT DEPICTS SOME PEAKS AND VALLEYS] Investors should expect greater fluctuations in share price, yield and total return compared to less aggressive bond funds. These fluctuations, whether positive or negative, may be sharp and unanticipated. Issuers of junk bonds are typically in weak financial health and their ability to repay interest or principal is uncertain. Compared to issuers of investment-grade bonds, they are more likely to encounter financial difficulties and to be materially affected by these difficulties when they do encounter them. Junk bond markets may react strongly to adverse news about an issuer or the economy, or to the perception or expectation of adverse news. Before you invest, please read "More about risk" starting on page 29. PORTFOLIO MANAGEMENT [A GRAPHIC IMAGE OF A GENERIC PERSON] Arthur N. Calavritinos, leader of the fund's portfolio management team since 1995, is a second vice president of the adviser. He joined John Hancock Funds in 1988. - -------------------------------------------------------------------------------- INVESTOR EXPENSES [A GRAPHIC IMAGE OF A PERCENT SYMBOL] Fund investors pay various expenses, either directly or indirectly. The figures below show the expenses for the past year, adjusted to reflect any changes. Future expenses may be greater or less.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B ================================================================================ 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(1) 5.00% - -------------------------------------------------------------------------------- Redemption fee(2) none none - -------------------------------------------------------------------------------- Exchange fee none none - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS) ================================================================================ Management fee 0.58% 0.58% - -------------------------------------------------------------------------------- 12b-1 fee(3) 0.25% 1.00% - -------------------------------------------------------------------------------- Other expenses 0.35% 0.35% - -------------------------------------------------------------------------------- Total fund operating expenses 1.18% 1.93% - --------------------------------------------------------------------------------
EXAMPLE The table below shows what you would pay if you invested $1,000 over the various time frames indicated. The example assumes you reinvested all dividends and that the average annual return was 5%.
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10 ================================================================================ Class A shares $56 $81 $107 $182 - -------------------------------------------------------------------------------- Class B shares - -------------------------------------------------------------------------------- Assuming redemption at end of period $70 $91 $124 $206 - -------------------------------------------------------------------------------- Assuming no redemption $20 $61 $104 $206 - --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the fund's actual expenses and returns, either past or future. (1) Except for investments of $1 million or more; see "How sales charges are calculated." (2) Does not include wire redemption fee (currently $4.00). (3) May include carry-over of reimbursable costs from previous year(s). Amounts shown are the fund's current annual maximums for 12b-1 fees. Because of the 12b-1 fee, long-term shareholders may indirectly pay more than the equivalent of the maximum permitted front-end sales charge. 6 HIGH YIELD BOND FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS [A GRAPHIC IMAGE OF A DOLLAR SIGN] The figures below have been audited by the fund's independent auditors, Ernst & Young LLP. VOLATILITY, AS INDICATED BY CLASS B YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 1987 (0.10) 1988 9.77 1989 (4.51) 1990 (8.04) 1991 34.21 1992 11.56 1993 21.76 1994 (1.33) 1995 7.97
CLASS A - YEAR ENDED OCTOBER 31, 1993(1) 1994 1995(2) ============================================================================================= PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.10 $ 8.23 $ 7.33 - --------------------------------------------------------------------------------------------- Net investment income (loss) 0.33 0.80(3) 0.72 - --------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.09 (0.83) (0.12) - --------------------------------------------------------------------------------------------- Total from investment operations 0.42 (0.03) 0.60 - --------------------------------------------------------------------------------------------- Less distributions: - --------------------------------------------------------------------------------------------- Dividends from net investment income (0.29) (0.82) (0.73) - --------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold -- (0.05) -- - --------------------------------------------------------------------------------------------- Total distributions (0.29) (0.87) (0.73) - --------------------------------------------------------------------------------------------- Net asset value, end of period $ 8.23 $ 7.33 $ 7.20 - --------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4,5) (%) 4.96 (0.59) 8.83 - --------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 2,344 11,696 26,452 - --------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 0.91(7) 1.16 1.16 - --------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 12.89(7) 10.14 10.23 - --------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 204 153 98 - --------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(8) N/A N/A N/A - ---------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED OCTOBER 31, 1987(1) 1988 1989 1990 1991 1992 =========================================================================================================================== PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.95 $ 9.94 $ 9.70 $ 8.14 $ 6.45 $ 7.44 - --------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 0.01 1.07(3) 1.16 1.09 0.98 0.87 - --------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.02) (0.14) (1.55) (1.68) 1.06 (0.04) - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations (0.01) 0.93 (0.39) (0.59) 2.04 0.83 - --------------------------------------------------------------------------------------------------------------------------- Less distributions: - --------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income -- (1.17) (1.14) (1.09) (0.98) (0.84) - --------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold -- -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Distributions from capital paid-in -- -- (0.03) (0.01) (0.07) -- - --------------------------------------------------------------------------------------------------------------------------- Total distributions -- (1.17) (1.17) (1.10) (1.05) (0.84) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 9.94 $ 9.70 $ 8.14 $ 6.45 $ 7.44 $ 7.43 - --------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) (0.10)(6) 9.77 (4.51) (8.04) 34.21 11.56 - --------------------------------------------------------------------------------------------------------------------------- Total adjusted investment return at net asset value(4,5) (%) (0.41)(6) 9.01 (4.82) (8.07) -- -- - --------------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 110 20,852 33,964 37,097 72,023 98,560 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 0.03(6) 2.00 2.20 2.22 2.24 2.25 - --------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(9) (%) 0.34(6) 2.76 2.51 2.25 -- -- - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 0.09(6) 10.97 12.23 14.59 13.73 11.09 - --------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted net investment income (loss) to average net assets(9) (%) (0.22)(6) 10.21 11.92 14.56 -- -- - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 0 60 100 96 93 206 - --------------------------------------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(8) N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED OCTOBER 31, 1993 1994 1995(2) ================================================================================================ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 7.43 $ 8.23 7.33 - ------------------------------------------------------------------------------------------------ Net investment income (loss) 0.80 0.74(3) 0.67 - ------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 0.75 (0.83) (0.13) - ------------------------------------------------------------------------------------------------ Total from investment operations 1.55 (0.09) 0.54 - ------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------ Dividends from net investment income (0.75) (0.76) (0.67) - ------------------------------------------------------------------------------------------------ Distributions from net realized gain on investments sold -- (0.05) -- - ------------------------------------------------------------------------------------------------ Distributions from capital paid-in -- -- -- - ------------------------------------------------------------------------------------------------ Total distributions (0.75) (0.81) (0.67) - ------------------------------------------------------------------------------------------------ Net asset value, end of period $ 8.23 $ 7.33 7.20 - ------------------------------------------------------------------------------------------------ TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 21.76 (1.33) 7.97 - ------------------------------------------------------------------------------------------------ Total adjusted investment return at net asset value(4,5) (%) -- -- -- - ------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------ Net assets, end of period (000s omitted) ($) 154,214 160,739 180,586 - ------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%) 2.08 1.91 1.89 - ------------------------------------------------------------------------------------------------ Ratio of adjusted expenses to average net assets(9) (%) -- -- -- - ------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average net assets (%) 10.07 9.39 9.42 - ------------------------------------------------------------------------------------------------ Ratio of adjusted net investment income (loss) to average net assets(9) (%) -- -- -- - ------------------------------------------------------------------------------------------------ Portfolio turnover rate (%) 204 153 98 - ------------------------------------------------------------------------------------------------ Average brokerage commission rate ($)(8) N/A N/A N/A - ------------------------------------------------------------------------------------------------
(1) Class A and Class B shares commenced operations on June 30, 1993 and October 26, 1987, respectively. Financial highlights, including total return, have not been annualized. (2) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund. (3) Based on the average of the shares outstanding at the end of each month. (4) Assumes dividend reinvestment and does not reflect the effect of sales charges. (5) An estimated total return calculation which takes into consideration fee reductions by the adviser during the periods shown. (6) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later. (7) Unreimbursed, without fee reduction. HIGH YIELD BOND FUND 7 INTERMEDIATE MATURITY GOVERNMENT FUND REGISTRANT NAME: JOHN HANCOCK BOND TRUST TICKER SYMBOL CLASS A: TAUSX CLASS B: TSUSX - -------------------------------------------------------------------------------- GOAL AND STRATEGY [A GRAPHIC IMAGE OF A BULLSEYE WITH AN ARROW IN THE MIDDLE OF IT] The fund seeks to earn a high level of current income consistent with preservation of capital and maintenance of liquidity. To pursue this goal, the fund invests primarily in U.S. Government securities of any maturity, as described below. The fund's weighted average maturity is typically between three and ten years. PORTFOLIO SECURITIES [A GRAPHIC IMAGE OF A BLACK FOLDER THAT CONTAINS A COUPLE SHEETS OF PAPER] Under normal circumstances, the fund invests at least 65% of assets in securities that are issued, or guaranteed as to principal and interest, by the U.S. Government, its agencies or instrumentalities. These may include Treasuries and mortgage-backed securities such as Ginnie Maes and Fannie Maes. The fund may invest up to 5% of assets in U.S. Government securities denominated in a foreign currency. For liquidity and flexibility, the fund may place up to 35% of net assets in investment-grade short-term securities. In abnormal market conditions, it may invest more assets in these securities as a defensive tactic. The fund also may invest in certain other investments, including corporate bonds and leveraged investments, and may engage in other investment practices. RISK FACTORS [A GRAPHIC IMAGE OF A LINE CHART WITH A SINGLE LINE THAT DEPICTS SOME PEAKS AND VALLEYS] As with most income funds, the value of your investment in the fund will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the market value of debt securities (including U.S. Government and mortgage-backed securities). To the extent that the fund invests in mortgage-backed securities, it may also be subject to extension and prepayment risks. These risks are defined in "More about risk" starting on page 29. Other factors may affect the market price and yield of the fund's securities as well, including investor demand and domestic and worldwide economic conditions. The U.S. Government does not guarantee the market value or the current yield of government securities, nor does the government's guarantee in any way extend to the fund itself. Please read "More about risk" carefully before investing. PORTFOLIO MANAGEMENT [A GRAPHIC IMAGE OF A GENERIC PERSON] Roger Hamilton, leader of the fund's portfolio management team since 1992, is a second vice president of the adviser. He has worked in the investment business since 1980. - -------------------------------------------------------------------------------- INVESTOR EXPENSES [A GRAPHIC IMAGE OF A PERCENT SYMBOL] Fund investors pay various expenses, either directly or indirectly. The figures below show the expenses for the past year, adjusted to reflect any changes. Future expenses may be greater or less.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B ================================================================================ Maximum sales charge imposed on purchases (as a percentage of offering price) 3.00% none - -------------------------------------------------------------------------------- Maximum sales charge imposed on reinvested dividends none none - -------------------------------------------------------------------------------- Maximum deferred sales charge none(1) 3.00% - -------------------------------------------------------------------------------- Redemption fee(2) none none - -------------------------------------------------------------------------------- Exchange fee none none - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (AS A % OF NET ASSETS) ================================================================================ Management fee (after expense limitation)(3) 0.00% 0.00% - -------------------------------------------------------------------------------- 12b-1 fee(4) 0.25% 0.90% - -------------------------------------------------------------------------------- Other expenses 0.50% 0.50% - -------------------------------------------------------------------------------- Total fund operating expenses(4) 0.75% 1.40% - --------------------------------------------------------------------------------
(1) Except for investments of $1 million or more; see "How sales charges are calculated." (2) Does not include wire redemption fee (currently $4.00). EXAMPLE The table below shows what you would pay if you invested $1,000 over the various time frames indicated. The example assumes you reinvested all dividends and that the average annual return was 5%.
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10 ================================================================================ Class A shares $37 $53 $70 $120 - -------------------------------------------------------------------------------- Class B shares - -------------------------------------------------------------------------------- Assuming redemption at end of period $44 $64 $69 $118 - -------------------------------------------------------------------------------- Assuming no redemption $14 $44 $69 $118 - --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the fund's actual expenses and returns, either past or future. (3) Reflects the investment adviser's temporary agreement to limit expenses (except for 12b-1 and other class-specific expenses). Without this limitation, management fees would have been 0.40% for each class, other expenses would have been 0.72% for each class, and total fund operating expenses would have been 1.37% for Class A and 2.02% for Class B. (4) May include carry-over of reimbursable costs from previous year(s). Amounts shown are the fund's current annual maximums for 12b-1 fees. Class B fee may be increased from 0.90% to 1.00% after December 31, 1996. Because of the 12b-1 fee, long-term shareholders may indirectly pay more than the equivalent of the maximum permitted front-end sales charge. 8 INTERMEDIATE MATURITY GOVERNMENT FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS [A GRAPHIC IMAGE OF A DOLLAR SIGN] The figures below have been audited by the fund's independent auditors, Ernst & Young LLP. VOLATILITY, AS INDICATED BY CLASS A YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 1992 1.96(5) 1993 6.08 1994 2.51 1995 3.98 1996 5.58
CLASS A - YEAR ENDED MARCH 31, 1992(1) 1993 1994 1995(2) 1996 ========================================================================================================================== PER SHARE OPERATING PERFORMANCE - -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.00(3) $ 10.03 $ 10.05 $ 9.89 $ 9.79 - -------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 0.17 0.58 0.41 0.49 0.62 - -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.03 0.02 (0.16) (0.11) (0.08) - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations 0.20 0.60 0.25 0.38 0.54 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: - -------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.17) (0.58) (0.41) (0.48) (0.64) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69 - -------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 1.96(5) 6.08 2.51 3.98 5.58 - -------------------------------------------------------------------------------------------------------------------------- Total adjusted investment return at net asset value(4,6) 0.84(5) 5.53 2.27 3.43 4.81 - -------------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 13,775 33,273 24,310 12,950 29,024 - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets(7) (%) 0.50(8) 0.50 0.80 0.75 0.75 - -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(7,9) (%) 1.62(8) 1.05 0.35 1.50 1.45 - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 6.47(8) 5.47 4.09 4.91 6.49 - -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted net investment income (loss) to average assets(9) (%) 5.35(8) 4.92 3.85 4.36 5.79 - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 1 186 244 341 423 - -------------------------------------------------------------------------------------------------------------------------- Fee reduction per share ($) 0.11(8) 0.06 0.02 0.05 0.07 - -------------------------------------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(10) N/A N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED MARCH 31, 1992(1) 1993 1994 1995(2) 1996 ========================================================================================================================= PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00(3) $ 10.03 $ 10.05 $ 9.89 $ 9.79 - ------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 0.15 0.51 0.34 0.43 0.57 - ------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.03 0.02 (0.16) (0.11) (0.10) - ------------------------------------------------------------------------------------------------------------------------- Total from investment operations 0.18 0.53 0.18 0.32 0.47 - ------------------------------------------------------------------------------------------------------------------------- Less distributions: - ------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.15) (0.51) (0.34) (0.42) (0.57) - ------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69 - ------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 1.80(5) 5.40 1.85 3.33 4.92 - ------------------------------------------------------------------------------------------------------------------------- Total adjusted investment return at net asset value(4,6) 0.68(5) 4.85 1.61 2.78 4.15 - ------------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 1,630 13,753 11,626 9,506 8,532 - ------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets(7) (%) 1.15(8) 1.15 1.40 1.45 1.40 - ------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(7,9) (%) 2.27(8) 1.70 1.64 2.00 2.10 - ------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 5.85(8) 4.82 3.44 4.26 5.80 - ------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted net investment income (loss) to average assets(9) (%) 4.73(8) 4.27 3.20 3.71 5.10 - ------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 1 186 244 341 423 - ------------------------------------------------------------------------------------------------------------------------- Fee reduction per share ($) 0.11(8) 0.06 0.02 0.05 0.08 - ------------------------------------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(10) N/A N/A N/A N/A N/A - -------------------------------------------------------------------------------------------------------------------------
(1) Class A and Class B shares commenced operations on December 31, 1991. (2) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund. (3) Initial price at commencement of operations. (4) Assumes dividend reinvestment and does not reflect the effect of sales charges. (5) Not annualized. (6) An estimated total return calculation which takes into consideration fee reductions by the adviser during the periods shown. (7) Beginning on December 31, 1991 (commencement of operations) through March 31, 1995, the expenses used in the ratios represented the expenses of the Fund plus expenses incurred indirectly from the Adjustable U.S. Government Fund (the "Portfolio"), the mutual fund in which the Fund invested all of its assets. The expenses used in the ratios for the fiscal year ended March 31, 1996 include the expenses of the Portfolio through September 22, 1995. (8) Annualized. (9) Unreimbursed, without fee reduction. (10) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later. INTERMEDIATE MATURITY GOVERNMENT FUND 9 LIMITED-TERM GOVERNMENT FUND REGISTRANT NAME: JOHN HANCOCK LIMITED-TERM GOVERNMENT FUND TICKER SYMBOL CLASS A: JHNLX CLASS B: JHLBX - -------------------------------------------------------------------------------- GOAL AND STRATEGY [A GRAPHIC IMAGE OF A BULLSEYE WITH AN ARROW IN THE MIDDLE OF IT] The fund seeks to provide current income and security of principal. To pursue this goal, the fund invests primarily in U.S. Government and agency securities, as described below. The fund's securities may be of any maturity, although a substantial portion will typically have maturities of ten years or less. PORTFOLIO SECURITIES [A GRAPHIC IMAGE OF A BLACK FOLDER THAT CONTAINS A COUPLE SHEETS OF PAPER] Under normal circumstances, the fund invests at least 80% of assets in securities that are issued, or guaranteed as to principal and interest, by the U.S. Government, its agencies or instrumentalities. These may include Treasuries and mortgage-backed securities such as Ginnie Maes and Fannie Maes. For liquidity and flexibility, the fund may place up to 20% of net assets in investment-grade short-term securities. In abnormal market conditions, it may invest more assets in these securities as a defensive tactic. The fund also may invest in certain other investments and may engage in other investment practices. RISK FACTORS [A GRAPHIC IMAGE OF A LINE CHART WITH A SINGLE LINE THAT DEPICTS SOME PEAKS AND VALLEYS] In seeking to maintain a relatively stable share price, the fund may sacrifice opportunities for higher yields. At the same time, its share price will fluctuate to some extent with changes in interest rates. To the extent that the fund invests in mortgage-backed securities, it may also be subject to extension and prepayment risks. These risks are defined in "More about risk" starting on page 29. The U.S. Government does not guarantee the market value or the current yield of government securities, nor does the government's guarantee in any way extend to the fund itself. Please read "More about risk" carefully before investing. PORTFOLIO MANAGEMENT [A GRAPHIC IMAGE OF A GENERIC PERSON] Barry H. Evans, leader of the fund's portfolio management team since 1995, is a senior vice president of the adviser. He joined John Hancock Funds in 1986. - -------------------------------------------------------------------------------- INVESTOR EXPENSES [A GRAPHIC IMAGE OF A PERCENT SYMBOL] Fund investors pay various expenses, either directly or indirectly. The figures below show the expenses for the past year, adjusted to reflect any changes. Future expenses may be greater or less.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B ================================================================================ Maximum sales charge imposed on purchases (as a percentage of offering price) 3.00% none - -------------------------------------------------------------------------------- Maximum sales charge imposed on reinvested dividends none none - -------------------------------------------------------------------------------- Maximum deferred sales charge none(1) 3.00% - -------------------------------------------------------------------------------- Redemption fee(2) none none - -------------------------------------------------------------------------------- Exchange fee none none - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS) ================================================================================ Management fee 0.60% 0.60% - -------------------------------------------------------------------------------- 12b-1 fee(3) 0.30% 1.00% - -------------------------------------------------------------------------------- Other expenses 0.47% 0.47% - -------------------------------------------------------------------------------- Total fund operating expenses 1.37% 2.07% - --------------------------------------------------------------------------------
EXAMPLE The table below shows what you would pay if you invested $1,000 over the various time frames indicated. The example assumes you reinvested all dividends and that the average annual return was 5%.
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10 ================================================================================ Class A shares $44 $72 $103 $190 - -------------------------------------------------------------------------------- Class B shares - -------------------------------------------------------------------------------- Assuming redemption at end of period $51 $85 $111 $198 - -------------------------------------------------------------------------------- Assuming no redemption $21 $65 $111 $198 - --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the fund's actual expenses and returns, either past or future. (1) Except for investments of $1 million or more; see "How sales charges are calculated." (2) Does not include wire redemption fee (currently $4.00). (3) May include carry-over of reimbursable costs from previous year(s). Amounts shown are the fund's current annual maximums for 12b-1 fees. Because of the 12b-1 fee, long-term shareholders may indirectly pay more than the equivalent of the maximum permitted front-end sales charge. 10 LIMITED-TERM GOVERNMENT FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS [A GRAPHIC IMAGE OF A DOLLAR SIGN] The figures below have been audited by the fund's independent auditors, Ernst & Young LLP. VOLATILITY, AS INDICATED BY CLASS A YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 1986 14.59 1987 (0.49) 1988 5.67 1989 11.59 1990 7.75 1991 12.54 1992 4.19 1993 7.13 1994 (1.31) 1995 11.23
CLASS A - YEAR ENDED DECEMBER 31, 1986 1987 1988 1989 1990 1991 ================================================================================================================================ PER SHARE OPERATING PERFORMANCE - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.24 $ 9.71 $ 8.83 $ 8.56 $ 8.73 $ 8.61 - -------------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 0.83 0.78 0.77 0.79 0.74 0.67 - -------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.47 (0.83) (0.28) 0.18 (0.11) 0.36 - -------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.30 (0.05) 0.49 0.97 0.63 1.03 - -------------------------------------------------------------------------------------------------------------------------------- Less distributions: - -------------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.83) (0.83) (0.76) (0.80) (0.75) (0.67) - -------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold -- -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.83) (0.83) (0.76) (0.80) (0.75) (0.67) - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 9.71 $ 8.83 $ 8.56 $ 8.73 $ 8.61 $ 8.97 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(2) (%) 14.59 (0.49) 5.67 11.59 7.75 12.54 - -------------------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 201,293 202,924 192,315 179,065 176,329 211,322 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 0.90 0.97 1.02 1.01 1.53 1.44 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 8.82 8.52 8.71 8.98 8.56 7.72 - -------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 6 7 12 26 75 134 - -------------------------------------------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(3) N/A N/A N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------------
CLASS A - YEAR ENDED DECEMBER 31, 1992 1993 1994 1995 ============================================================================================================ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 8.97 $ 8.77 $ 8.80 $ 8.31 - ------------------------------------------------------------------------------------------------------------ Net investment income (loss) 0.54 0.48 0.38(1) 0.50(1) - ------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (0.18) 0.14 (0.49) 0.42 - ------------------------------------------------------------------------------------------------------------ Total from investment operations 0.36 0.62 (0.11) 0.92 - ------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------ Dividends from net investment income (0.54) (0.48) (0.38) (0.50) - ------------------------------------------------------------------------------------------------------------ Distributions from net realized gain on investments sold (0.02) (0.11) -- -- - ------------------------------------------------------------------------------------------------------------ Total distributions (0.56) (0.59) (0.38) (0.50) - ------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 8.77 $ 8.80 $ 8.31 $ 8.73 - ------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENT RETURN AT NET ASSET VALUE(2) (%) 4.19 7.13 (1.31) 11.23 - ------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------ Net assets, end of period (000s omitted) ($) 259,170 262,903 218,846 198,681 - ------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%) 1.55 1.51 1.41 1.36 - ------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average net assets (%) 6.13 5.34 4.39 5.76 - ------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (%) 185 175 155 105 - ------------------------------------------------------------------------------------------------------------ Average brokerage commission rate ($)(3) N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED DECEMBER 31, 1994(4) 1995 ===================================================================================== PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.77(5) $ 8.31 - ------------------------------------------------------------------------------------- Net investment income (loss) 0.30(1) 0.45(1) - ------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment (0.46) 0.42 - ------------------------------------------------------------------------------------- Total from investment operations (0.16) 0.87 - ------------------------------------------------------------------------------------- Less distributions: - ------------------------------------------------------------------------------------- Dividends from net investment income (0.30) (0.45) - ------------------------------------------------------------------------------------- Net asset value, end of period $ 8.31 $ 8.73 - ------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(2) (%) (1.84)(6) 10.60 - ------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 7,111 10,765 - ------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.12(7) 1.93 - ------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 3.70(7) 5.21 - ------------------------------------------------------------------------------------- Portfolio turnover rate (%) 155 105 - ------------------------------------------------------------------------------------- Average brokerage commission rate ($)(3) N/A N/A - -------------------------------------------------------------------------------------
(1) Based on the average of the shares outstanding at the end of each month. (2) Assumes dividend reinvestment and does not reflect the effect of sales charges. (3) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later. (4) Class B shares commenced operations on January 3, 1994. (5) Initial price at commencement of operations. (6) Not annualized. (7) Annualized. LIMITED-TERM GOVERNMENT FUND 11 SOVEREIGN BOND FUND REGISTRANT NAME: SOVEREIGN BOND FUND TICKER SYMBOL CLASS A: JHNBX CLASS B: JHBBX - -------------------------------------------------------------------------------- GOAL AND STRATEGY [A GRAPHIC IMAGE OF A BULLSEYE WITH AN ARROW IN THE MIDDLE OF IT] The fund seeks to generate a high level of current income consistent with prudent investment risk. To pursue this goal, the fund invests in a diversified portfolio of marketable debt securities. These securities are primarily investment grade. The fund does not concentrate its investments in any particular industry. PORTFOLIO SECURITIES [A GRAPHIC IMAGE OF A BLACK FOLDER THAT CONTAINS A COUPLE SHEETS OF PAPER] Under normal circumstances, the fund invests at least 65% of assets in bonds or debentures. Typically, at least three-quarters of these debt securities (excluding commercial paper) will be: o securities rated among the four highest Moody's or S&P rating categories at the time of purchase o if unrated, the equivalent of the above o bank securities o U.S. Government and agency securities For liquidity and flexibility, the fund may place up to 35% of its net assets in investment-grade short-term securities. In abnormal market conditions, it may invest more assets in these securities as a defensive tactic. The fund also may invest in certain other investments, including dollar-denominated foreign securities, asset-backed securities, junk bonds and leveraged investments, and may engage in other investment practices. RISK FACTORS [A GRAPHIC IMAGE OF A LINE CHART WITH A SINGLE LINE THAT DEPICTS SOME PEAKS AND VALLEYS] Investors should expect fluctuations in share price, yield and total return, particularly with changes in interest rates. Typically, a rise in interest rates causes a decline in the market value of debt securities. To the extent that the fund invests in mortgage-backed securities, it may also be subject to extension and prepayment risks. These risks are defined in "More about risk" starting on page 29. The longer the fund's average weighted maturity, the more it is likely to be affected by a change in interest rates. Other factors that can affect performance are economic news, investor demand and world political and economic conditions. Please read "More about risk" carefully before investing. PORTFOLIO MANAGEMENT [A GRAPHIC IMAGE OF A GENERIC PERSON] James K. Ho, leader of the fund's portfolio management team since 1988, is an executive vice president and the senior fixed-income officer of the adviser. He joined John Hancock Funds in 1985. - -------------------------------------------------------------------------------- INVESTOR EXPENSES [A GRAPHIC IMAGE OF A PERCENT SYMBOL] Fund investors pay various expenses, either directly or indirectly. The figures below show the expenses for the past year, adjusted to reflect any changes. Future expenses may be greater or less.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B ================================================================================ 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(1) 5.00% - -------------------------------------------------------------------------------- Redemption fee(2) none none - -------------------------------------------------------------------------------- Exchange fee none none - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS) ================================================================================ Management fee 0.50% 0.50% - -------------------------------------------------------------------------------- 12b-1 fee(3) 0.30% 1.00% - -------------------------------------------------------------------------------- Other expenses 0.35% 0.35% - -------------------------------------------------------------------------------- Total fund operating expenses 1.15% 1.85% - --------------------------------------------------------------------------------
EXAMPLE The table below shows what you would pay if you invested $1,000 over the various time frames indicated. The example assumes you reinvested all dividends and that the average annual return was 5%.
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10 ================================================================================ Class A shares $56 $80 $105 $178 - -------------------------------------------------------------------------------- Class B shares - -------------------------------------------------------------------------------- Assuming redemption at end of period $69 $88 $120 $199 - -------------------------------------------------------------------------------- Assuming no redemption $19 $58 $100 $199 - --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the fund's actual expenses and returns, either past or future. (1) Except for investments of $1 million or more; see "How sales charges are calculated." (2) Does not include wire redemption fee (currently $4.00). (3) May include carry-over of reimbursable costs from previous year(s). Amounts shown are the fund's current annual maximums for 12b-1 fees. Because of the 12b-1 fee, long-term shareholders may indirectly pay more than the equivalent of the maximum permitted front-end sales charge. 12 SOVEREIGN BOND FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS [A GRAPHIC IMAGE OF A DOLLAR SIGN] The figures below have been audited by the fund's independent auditors, Ernst & Young LLP. VOLATILITY, AS INDICATED BY CLASS A YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 1986 13.67 1987 1.58 1988 9.82 1989 12.13 1990 6.71 1991 16.59 1992 8.08 1993 11.80 1994 (2.75) 1995 19.40
CLASS A - YEAR ENDED DECEMBER 31, 1986 1987 1988 1989 1990 1991 1992 ================================================================================================================================== PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $15.85 $15.89 $14.53 $14.51 $14.77 $14.33 $15.31 - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 1.55 1.40 1.44 1.43 1.32 1.29 1.20 - ---------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments and financial futures contracts 0.52 (1.17) (0.06) 0.27 (0.40) 0.98 (0.01) - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 2.07 0.23 1.38 1.70 0.92 2.27 1.19 - ---------------------------------------------------------------------------------------------------------------------------------- Less distributions: - ---------------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (1.53) (1.53) (1.40) (1.44) (1.35) (1.29) (1.21) - ---------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold and financial futures contracts (0.50) (0.06) -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Distributions from capital paid-in -- -- -- -- (0.01) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (2.03) (1.59) (1.40) (1.44) (1.36) (1.29) (1.21) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $15.89 $14.53 $14.51 $14.77 $14.33 $15.31 $15.29 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(1) (%) 13.67 1.58 9.82 12.13 6.71 16.59 8.08 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 1,152,407 1,095,208 1,103,691 1,110,394 1,103,391 1,249,980 1,386,260 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 0.72 0.82 0.82 0.80 1.31 1.27 1.44 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 9.65 9.32 9.77 9.68 9.18 8.81 7.89 - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 163 159 66 64 92 90 87 - ---------------------------------------------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(2) N/A N/A N/A N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------------------
CLASS A - YEAR ENDED DECEMBER 31, 1993 1994 1995 ========================================================================================= PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------------------- Net asset value, beginning of period $15.29 $15.53 $13.90 - --------------------------------------------------------------------------------------------- Net investment income (loss) 1.14 1.12 1.12 - --------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments and financial futures contracts 0.62 (1.55) 1.50 - --------------------------------------------------------------------------------------------- Total from investment operations 1.76 (0.43) 2.62 - --------------------------------------------------------------------------------------------- Less distributions: - --------------------------------------------------------------------------------------------- Dividends from net investment income (1.14) (1.12) (1.12) - --------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold and financial futures contracts (0.38) (0.08) -- - --------------------------------------------------------------------------------------------- Distributions from capital paid-in -- -- -- - --------------------------------------------------------------------------------------------- Total distributions (1.52) (1.20) (1.12) - --------------------------------------------------------------------------------------------- Net asset value, end of period $15.53 $13.90 $15.40 - --------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(1) (%) 11.80 (2.75) 19.40 - --------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 1,505,754 1,326,058 1,535,204 - --------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.41 1.26 1.13 - --------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 7.18 7 .74 7.58 - --------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 107 85 103 - --------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(2) N/A N/A N/A - ---------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED DECEMBER 31, 1993(2) 1994 1995 ============================================================================================= PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------------------- Net asset value, beginning of period $15.90(4) $ 15.52 $ 13.90 - --------------------------------------------------------------------------------------------- Net investment income (loss) 0.11 1.04 1.02 - --------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments and financial futures contracts -- (1.54) 1.50 - --------------------------------------------------------------------------------------------- Total from investment operations 0.11 (0.50) 2.52 - --------------------------------------------------------------------------------------------- Less distributions: - --------------------------------------------------------------------------------------------- Dividends from net investment income (0.11) (1.04) (1.02) - --------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold and financial futures contracts (0.38) (0.08) -- - --------------------------------------------------------------------------------------------- Total distributions (0.49) (1.12) (1.02) - --------------------------------------------------------------------------------------------- Net asset value, end of period $15.52 $ 13.90 $ 15.40 - --------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(1) (%) 0.90(5) (3.13) 18.66 - --------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 4,125 40,299 98,739 - --------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.63(6) 1.78 1.75 - --------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 0.57(6) 7.30 6.87 - --------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 107 85 103 - --------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(2) N/A N/A N/A - ---------------------------------------------------------------------------------------------
(1) Assumes dividend reinvestment and does not reflect the effect of sales charges. (2) Per portfolio share traded. Required for fiscal years that began Spetember 1, 1995 or later. (3) Class B shares commenced operations on November 23, 1993. (4) Initial price at commencement of operations. (5) Not annualized. (6) Annualized. SOVEREIGN BOND FUND 13 SOVEREIGN U.S. GOVERNMENT INCOME FUND REGISTRANT NAME: JOHN HANCOCK STRATEGIC SERIES TICKER SYMBOL CLASS A: JHSGX CLASS B: FGOPX - -------------------------------------------------------------------------------- GOAL AND STRATEGY [A GRAPHIC IMAGE OF A BULLSEYE WITH AN ARROW IN THE MIDDLE OF IT] The fund seeks to provide as high level of income as is consistent with long-term total return. To pursue this goal, the fund invests in U.S. Government and agency securities, as described below. PORTFOLIO SECURITIES [A GRAPHIC IMAGE OF A BLACK FOLDER THAT CONTAINS A COUPLE SHEETS OF PAPER] Under normal circumstances, the fund invests at least 65% of assets in securities that are issued, or guaranteed as to principal and interest, by the U.S. Government, its agencies or instrumentalities. These may include Treasuries and mortgage-backed securities such as Ginnie Maes and Fannie Maes. For liquidity and flexibility, the fund may place up to 35% of net assets in investment-grade short-term securities. In abnormal market conditions, it may invest more assets in these securities as a defensive tactic. The fund also may invest in certain other investments, including leveraged investments, and may engage in other investment practices. RISK FACTORS [A GRAPHIC IMAGE OF A LINE CHART WITH A SINGLE LINE THAT DEPICTS SOME PEAKS AND VALLEYS] As with most income investments, the value of your investment in the fund will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the market value of debt securities (including U.S. Government and mortgage-backed securities). To the extent that the fund invests in mortgage-backed securities, it may also be subject to extension and prepayment risks. These risks are defined in "More about risk" starting on page 29. Other factors may affect the market price and yield of the fund's securities, including investor demand and economic conditions. The U.S. Government does not guarantee the market value or the current yield of government securities, nor does the government's guarantee in any way extend to the fund itself. Please read "More about risk" carefully before investing. PORTFOLIO MANAGEMENT [A GRAPHIC IMAGE OF A GENERIC PERSON] Barry H. Evans, leader of the fund's portfolio management team since 1995, is a senior vice president of the adviser. He joined John Hancock Funds in 1986. - -------------------------------------------------------------------------------- INVESTOR EXPENSES [A GRAPHIC IMAGE OF A PERCENT SYMBOL] Fund investors pay various expenses, either directly or indirectly. The figures below show the expenses for the past year, adjusted to reflect any changes. Future expenses may be greater or less.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B ================================================================================ 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(1) 5.00% - -------------------------------------------------------------------------------- Redemption fee(2) none none - -------------------------------------------------------------------------------- Exchange fee none none - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS) ================================================================================ Management fee 0.50% 0.50% - -------------------------------------------------------------------------------- 12b-1 fee(3) 0.30% 1.00% - -------------------------------------------------------------------------------- Other expenses 0.32% 0.32% - -------------------------------------------------------------------------------- Total fund operating expenses 1.12% 1.82% - --------------------------------------------------------------------------------
EXAMPLE The table below shows what you would pay if you invested $1,000 over the various time frames indicated. The example assumes you reinvested all dividends and that the average annual return was 5%.
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10 ================================================================================ Class A shares $56 $79 $104 $175 - -------------------------------------------------------------------------------- Class B shares - -------------------------------------------------------------------------------- Assuming redemption at end of period $68 $87 $119 $195 - -------------------------------------------------------------------------------- Assuming no redemption $18 $57 $ 99 $195 - --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the fund's actual expenses and returns, either past or future. (1) Except for investments of $1 million or more; see "How sales charges are calculated." (2) Does not include wire redemption fee (currently $4.00). (3) May include carry-over of reimbursable costs from previous year(s). Amounts shown are the fund's current annual maximums for 12b-1 fees. Because of the 12b-1 fee, long-term shareholders may indirectly pay more than the equivalent of the maximum permitted front-end sales charge. 14 SOVEREIGN U.S. GOVERNMENT FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS [A GRAPHIC IMAGE OF A DOLLAR SIGN] The figures below have been audited by the fund's independent accountants, Price Waterhouse LLP. VOLATILITY, AS INDICATED BY CLASS B YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 1987(5) 2.61 1987(6) 3.70(8) 1988 11.53(8) 1989 11.52(8) 1990 6.24(8) 1991 14.46 1992 7.58 1993 12.66 1994 (7.05) 1995 15.27
CLASS A - YEAR ENDED OCTOBER 31, 1992(1) 1993 1994 1995 =============================================================================================================== PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.51 $ 10.29 $ 10.89 $ 9.24 - --------------------------------------------------------------------------------------------------------------- Net investment income (loss) 0.64 0.68(2) 0.65 0.65 - --------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments and financial futures contracts (0.22) 0.61 (1.34) 0.77 - --------------------------------------------------------------------------------------------------------------- Total from investment operations 0.42 1.29 (0.69) 1.42 - --------------------------------------------------------------------------------------------------------------- Less distributions: - --------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.64) (0.68) (0.65) (0.65) - --------------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold -- (0.01) (0.31) -- - --------------------------------------------------------------------------------------------------------------- Total distributions (0.64) (0.69) (0.96) (0.65) - --------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.29 $ 10.89 $ 9.24 $ 10.01 - --------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 5.33(4) 12.89 (6.66) 15.90 - --------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 350,907 375,416 315,372 370,966 - --------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.06(4) 1.30 1.23 1.17 - --------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 7.11(4) 6.47 6.62 6.76 - --------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 140 273 127 94 - --------------------------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(5) N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED OCTOBER 31, 1987(6) 1987(7) 1988 1989 1990 =============================================================================================================================== PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.00 $ 10.28 $ 9.45 $ 9.73 $ 10.01 - ------------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 0.56 0.48 0.78 0.81 0.85 - ------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments and financial futures contracts 0.36 (0.75) 0.28 0.25 (0.25) - ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 0.92 (0.27) 1.06 1.06 0.60 - ------------------------------------------------------------------------------------------------------------------------------- Less distributions: - ------------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.57) (0.48) (0.77) (0.77) (0.78) - ------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold (0.07) (0.08) (0.01) (0.01) -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.64) (0.56) (0.78) (0.78) (0.78) - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.28 $ 9.45 $ 9.73 $ 10.01 $ 9.83 - ------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 2.61 3.70(8) 11.53(8) 11.52(8) 6.24(8) - ------------------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 164,001 170,030 161,163 144,756 133,778 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.26(4) 1.24 1.29 1.35 1.54 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets (%) N/A 1.32(4,8) 1.35(8) 1.58(8) 1.55(8) - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 7.56(4) 7.94(4) 8.09 8.34 8.54 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted net investment income (loss) to average net assets(9) (%) N/A 7.86(4) 8.03 8.11 8.53 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 108(4) 83(4) 79 45 63 - ------------------------------------------------------------------------------------------------------------------------------- Fee reduction per share ($) N/A 0.01 0.01 0.02 0.01 - ------------------------------------------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(5) N/A N/A N/A N/A N/A - -------------------------------------------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED OCTOBER 31, 1991 1992 1993 1994 1995 ======================================================================================================================= PER SHARE OPERATING PERFORMANCE - ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.83 $ 10.29 $ 10.28 $ 10.88 $ 9.23 - ----------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 0.85 0.76 0.66(2) 0.61 0.60 - ----------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments and financial futures contracts 0.51 -- 0.61 (1.34) 0.77 - ----------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.36 0.76 1.27 (0.73) 1.37 - ----------------------------------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.90) (0.77) (0.66) (0.61) (0.60) - ----------------------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold -- -- (0.01) (0.31) -- - ----------------------------------------------------------------------------------------------------------------------- Total distributions (0.90) (0.77) (0.67) (0.92) (0.60) - ----------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.29 $ 10.28 $ 10.88 $ 9.23 $ 10.00 - ----------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 14.46 7.58 12.66 (7.05) 15.27 - ----------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 164,347 197,032 244,133 196,899 130,824 - ----------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.51 1.55 1.51 1.64 1.72 - ----------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets (%) N/A N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 8.53 7.35 6.23 6.19 6.24 - ----------------------------------------------------------------------------------------------------------------------- Ratio of adjusted net investment income (loss) to average net assets(9) (%) N/A N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 62 140 273 127 94 - ----------------------------------------------------------------------------------------------------------------------- Fee reduction per share ($) N/A N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(5) N/A N/A N/A N/A N/A - -----------------------------------------------------------------------------------------------------------------------
(1) Class A shares commenced operations on January 3, 1992. (2) Based on the average of the shares outstanding at the end of each month. (3) Assumes dividend reinvestment and does not reflect the effect of sales charges. (4) Annualized. (5) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later. (6) For the period June 5, 1986 (commencement of operations) to March 31, 1987. (7) For the period April 1, 1987 to October 31, 1987. (8) Without reimbursement total return would have been lower. (9) Unreimbursed, without fee reduction. SOVEREIGN U.S. GOVERNMENT FUND 15 STRATEGIC INCOME FUND REGISTRANT NAME: JOHN HANCOCK STRATEGIC SERIES TICKER SYMBOL CLASS A: JHFIX CLASS B: STIBX - -------------------------------------------------------------------------------- GOAL AND STRATEGY [A GRAPHIC IMAGE OF A BULLSEYE WITH AN ARROW IN THE MIDDLE OF IT] The fund seeks a high level of current income. To pursue this goal, the fund invests primarily in three sectors: o foreign government and corporate debt securities o U.S. Government and agency securities o junk bonds, i.e lower-rated, higher-yielding debt securities Under normal circumstances, the fund's assets will be invested in all three sectors. However, the weighting of assets among sectors will be adjusted to reflect current or anticipated market behavior, and the fund reserves the right to invest up to 100% of assets in any sector. PORTFOLIO SECURITIES [A GRAPHIC IMAGE OF A BLACK FOLDER THAT CONTAINS A COUPLE SHEETS OF PAPER] The fund may invest in debt securities of all maturities and types, including bonds, debentures, notes, preferred stock, mortgage-backed and asset-backed securities and others. The fund may also invest up to 10% of its net assets in U.S. or foreign equities. For liquidity and flexibility, the fund may invest in investment-grade short-term securities. In abnormal market conditions, it may invest more assets in these securities as a defensive tactic. The fund also may invest in certain other investments, including leveraged investments, and may engage in other investment practices. RISK FACTORS [A GRAPHIC IMAGE OF A LINE CHART WITH A SINGLE LINE THAT DEPICTS SOME PEAKS AND VALLEYS] Investors should expect fluctuations in share price, yield, and total return that are above-average for bond funds. Typically, a rise in interest rates causes a decline in the market value of debt securities. A fall in interest rates can result in net lower yields from assets invested in mortgage-backed securities. The longer the fund's average weighted maturity, the more it is likely to be affected by a change in interest rates. Junk bond markets may react strongly to adverse news about an issuer or the economy, or to the perception or expectation of adverse news. To the extent that the fund invests in these types of securities, it assumes the various risks associated with each one. In addition, there is the risk that the asset weightings chosen by the fund managers may result in share price declines or lost opportunities for gains. Before you invest, please read "More about risk" starting on page 29. PORTFOLIO MANAGEMENT [A GRAPHIC IMAGE OF A GENERIC PERSON] Frederick L. Cavanaugh, Jr., leader of the fund's portfolio management team since 1986, is a senior vice president of the adviser. He joined John Hancock Funds in 1986 and has worked in the investment business since 1973. - -------------------------------------------------------------------------------- INVESTOR EXPENSES [A GRAPHIC IMAGE OF A PERCENT SYMBOL] Fund investors pay various expenses, either directly or indirectly. The figures below show the expenses for the past year, adjusted to reflect any changes. Future expenses may be greater or less.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B ================================================================================ 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(1) 5.00% - -------------------------------------------------------------------------------- Redemption fee(2) none none - -------------------------------------------------------------------------------- Exchange fee none none - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (AS A % OF NET ASSETS) ================================================================================ Management fee 0.46% 0.46% - -------------------------------------------------------------------------------- 12b-1 fee(3) 0.30% 1.00% - -------------------------------------------------------------------------------- Other expenses 0.34% 0.34% - -------------------------------------------------------------------------------- Total fund operating expenses 1.10% 1.80% - --------------------------------------------------------------------------------
EXAMPLE The table below shows what you would pay if you invested $1,000 over the various time frames indicated. The example assumes you reinvested all dividends and that the average annual return was 5%.
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10 ================================================================================ Class A shares $56 $78 $103 $173 - -------------------------------------------------------------------------------- Class B shares - -------------------------------------------------------------------------------- Assuming redemption at end of period $68 $87 $117 $193 - -------------------------------------------------------------------------------- Assuming no redemption $18 $57 $ 97 $193 - --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the fund's actual expenses and returns, either past or future. (1) Except for investments of $1 million or more; see "How sales charges are calculated." (2) Does not include wire redemption fee (currently $4.00). (3) May include carry-over of reimbursable costs from previous year(s). Amounts shown are the fund's current annual maximums for 12b-1 fees. Because of the 12b-1 fee, long-term shareholders may indirectly pay more than the equivalent of the maximum permitted front-end sales charge. 16 STRATEGIC INCOME FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS [A GRAPHIC IMAGE OF A DOLLAR SIGN] The figures below have been audited by the fund's independent accountants, Price Waterhouse LLP. VOLATILITY, AS INDICATED BY CLASS A YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 1987(1) 4.81(6) 1988 6.89 1989 9.72 1990 (7.36) 1991 12.31 1992 19.92 1993 6.81 1994 4.54 1995 9.33 1995(2) 7.30(6)
CLASS A - YEAR ENDED MAY 31, 1987(1) 1988 1989 1990 1991 ========================================================================================================================== PER SHARE OPERATING PERFORMANCE - -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.00 $ 9.71 $ 9.24 $ 8.98 $ 7.33 - -------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 0.79(3) 1.13(3) 1.12(3) 1.04(3) 0.93 - -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments, foreign currency transactions and financial futures contracts (0.29) (0.47) (0.26) (1.65) (0.13) - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations 0.50 0.66 0.86 (0.61) 0.80 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: - -------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.79) (1.13) (1.12) (1.04) (0.93) - -------------------------------------------------------------------------------------------------------------------------- Distributions in excess of net investment income -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Distributions from capital paid-in -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (0.79) (1.13) (1.12) (1.04) (0.93) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 9.71 $ 9.24 $ 8.98 $ 7.33 $ 7.20 - -------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) 4.81(6) 6.89 9.72 (7.36) 12.31 - -------------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 30,260 67,140 95,430 80,890 79,272 - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.00(3,7) 1.09(3) 1.33(3) 1.53(3) 1.75 - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 10.87(3,7) 12.07(3) 12.28(3) 12.60(3) 13.46 - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 207 67 125 81 60 - -------------------------------------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(8) N/A N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------
CLASS A - YEAR ENDED MAY 31, 1992 1993 1994 1995 1995(2) ============================================================================================================================ PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.20 $ 7.78 $ 7.55 $ 7.17 $ 7.15 - ---------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 0.80 0.71 0.68 0.64 0.38 - ---------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments, foreign currency transactions and financial futures contracts 0.52 (0.22) (0.33) (0.02) 0.17 - ---------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.32 0.49 0.35 0.62 0.55 - ---------------------------------------------------------------------------------------------------------------------------- Less distributions: - ---------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.74)(4) (0.72) (0.58)(4) (0.55) (0.38) - ---------------------------------------------------------------------------------------------------------------------------- Distributions in excess of net investment income -- -- (0.05) -- -- - ---------------------------------------------------------------------------------------------------------------------------- Distributions from capital paid-in -- -- (0.10) (0.09) -- - ---------------------------------------------------------------------------------------------------------------------------- Total distributions (0.74) (0.72) (0.73) (0.64) (0.38) - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 7.78 $ 7.55 $ 7.17 $ 7.15 $ 7.32 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) 19.92 6.81 4.54 9.33 7.30(6) - ---------------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 153,568 262,137 335,261 327,876 349,782 - ---------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.69 1.58 1.32 1.09 1.03(7) - ---------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 10.64 9.63 8.71 9.24 9.40(7) - ---------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 80 97 91 55 44 - ---------------------------------------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(8) N/A N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED MAY 31, 1994(1) 1995 1995(2) ==================================================================================================== PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.58(9) $ 7.17 $ 7.15 - ---------------------------------------------------------------------------------------------------- Net investment income (loss) 0.40 0.60(10) 0.36 - ---------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments, foreign currency transactions and financial futures contracts (0.41) (0.02) 0.16 - ---------------------------------------------------------------------------------------------------- Total from investment operations (0.01) 0.58 0.52 - ---------------------------------------------------------------------------------------------------- Less distributions: - ---------------------------------------------------------------------------------------------------- Dividends from net investment income (0.32) (0.52) (0.35) - ---------------------------------------------------------------------------------------------------- Distributions in excess of net investment income (0.03) -- -- - ---------------------------------------------------------------------------------------------------- Distributions from capital paid-in (0.05) (0.08) -- - ---------------------------------------------------------------------------------------------------- Total distributions (0.40) (0.60) (0.35) - ---------------------------------------------------------------------------------------------------- Net asset value, end of period $ 7.17 $ 7.15 $ 7.32 - ---------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) (0.22)(6) 8.58 6.93(6) - ---------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 77,691 134,527 159,164 - ---------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.91(7) 1.76 1.71(7) - ---------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 8.12(7) 8.55 8.72(7) - ---------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 91 55 44 - ---------------------------------------------------------------------------------------------------- Average brokerage commission rate ($)(8) N/A N/A N/A - ----------------------------------------------------------------------------------------------------
(1) Class A and Class B shares commenced operations on August 18, 1986 and October 4, 1993, respectively. (2) Six months ended November 30, 1995. (Unaudited.) (3) Reflects expense limitations in effect during the years indicated. As a result of these limitations, the Fund's expenses for the years ended May 31 1987, 1988, 1989 and 1990 reflect reductions of $0.0856, $0.0373, $0.0128 and $0.0073, respectively. Absent from the limitations, for the years ended May 31, 1987, 1988, 1989 and 1990, the ratio of expenses to average net assets would have been 2.17%, 1.49%, 1.47% and 1.62%, respectively, and the ratio of net investment income to average net assets would have been 9.70%, 11.67%, 12.14% and 12.51% respectively. (4) The dividend policy of the Fund was changed, effective August 1, 1991, from one which utilized daily dividend declarations to one which declares dividends monthly. Additionally, the dividend policy of the Fund was changed, effective October 1, 1993, from one which declared dividends monthly to daily dividend declarations. (5) Assumes dividend reinvestment and does not reflect the effect of sales charges. (6) Not annualized. (7) Annualized. (8) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later. (9) Initial price at commencement of operations. (10) Based on the average of the shares outstanding at the end of each month. STRATEGIC INCOME FUND 17 YOUR ACCOUNT - -------------------------------------------------------------------------------- CHOOSING A SHARE CLASS All John Hancock income funds offer two classes of shares, Class A and Class B. Each class has its own cost structure, allowing you to choose the one that best meets your requirements. Your financial representative can help you decide. CLASS A - - Front-end sales charges, as described below. There are several ways to reduce these charges, also described below. - - Lower annual expenses than Class B shares. CLASS B - - No front-end sales charge; all your money goes to work for you right away. - - Higher annual expenses than Class A shares. - - A deferred sales charge, as described below. - - Automatic conversion to Class A shares after either five years (Group 1) or eight years (Group 2) (see below), thus reducing future annual expenses. For actual past expenses of Class A and B shares, see the fund-by-fund information earlier in this prospectus. - -------------------------------------------------------------------------------- HOW SALES CHARGES ARE CALCULATED Use the table below to find out which group the fund is in, then consult the sales charge information for that group. GROUP 1 - - Limited-Term Government - - Intermediate Maturity Government GROUP 2 - - Government Income - - High-Yield Bond - - Sovereign Bond - - Sovereign U.S. Government Income - - Strategic Income Class A Sales charges are as follows: CLASS A SALES CHARGES - GROUP 1
AS A % OF AS A % OF YOUR YOUR INVESTMENT OFFERING PRICE INVESTMENT - ---------------------------------------------------------- Up to $99,999 3.00% 3.09% - ---------------------------------------------------------- $100,000 - $499,999 2.50% 2.56% - ---------------------------------------------------------- $500,000 - $999,999 2.00% 2.04% - ---------------------------------------------------------- $1,000,000 and over See below - ----------------------------------------------------------
CLASS A SALES CHARGES - GROUP 2
AS A % OF AS A % OF YOUR YOUR INVESTMENT OFFERING PRICE INVESTMENT - ---------------------------------------------------------- Up to $99,999 4.50% 4.71% - ---------------------------------------------------------- $100,000 - $249,999 3.75% 3.90% - ---------------------------------------------------------- $250,000 - $499,999 2.75% 2.83% - ---------------------------------------------------------- $500,000 - $999,999 2.00% 2.04% - ---------------------------------------------------------- $1,000,000 and over See below - ----------------------------------------------------------
INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no front-end sales charge. However, there is a contingent deferred sales charge (CDSC) on any shares sold within one year of purchase, as follows: CDSC ON $1 MILLION+ INVESTMENTS (GROUPS 1 AND 2)
YOUR INVESTMENT CDSC ON SHARES BEING SOLD - --------------------------------------------------------- First $1M - $4,999,999 1.00% - --------------------------------------------------------- Next $1 - $5M above that 0.50% - --------------------------------------------------------- Next $1 or more above that 0.25% - ---------------------------------------------------------
For purposes of this CDSC, all purchases made during a calendar month are counted as having been made on the LAST day of that month. The CDSC is based on the lesser of the original purchase cost or the current market value of the shares being sold, and is not charged on shares you acquired by reinvesting your dividends. To keep your CDSC as low as possible, each time you place a request to sell shares we will first sell any shares in your account that are not subject to a CDSC. 18 YOUR ACCOUNT CLASS B Shares are offered at their net asset value per share, without any initial sales charge. However, you may be charged a contingent deferred sales charge (CDSC) on shares you sell within a certain time after you bought them, as described in the table below. There is no CDSC on shares acquired through reinvestment of dividends. The CDSC is based on the original purchase cost or the current market value of the shares being sold, whichever is less. The longer the time between the purchase and the sale of shares, the lower the rate of the CDSC: CLASS B DEFERRED CHARGES
YEARS AFTER CDSC ON GROUP 1 CDSC ON GROUP 2 PURCHASE SHARES BEING SOLD SHARES BEING SOLD - ---------------------------------------------------------- 1st year 3.0% 5.0% - ---------------------------------------------------------- 2nd year 2.0% 4.0% - ---------------------------------------------------------- 3rd year 2.0% 3.0% - ---------------------------------------------------------- 4th year 1.0% 3.0% - ---------------------------------------------------------- 5th year None 2.0% - ---------------------------------------------------------- 6th year None 1.0% - ---------------------------------------------------------- 7th or more years None None - ----------------------------------------------------------
For purposes of this CDSC, all purchases made during a calendar month are counted as having been made on the FIRST day of that month. CDSC calculations are based on the number of shares involved, not on the value of your account. To keep your CDSC as low as possible, each time you place a request to sell shares we will first sell any shares in your account that carry no CDSC. If there are not enough of these to meet your request, we will sell those shares that have the lowest CDSC. - -------------------------------------------------------------------------------- SALES CHARGE REDUCTIONS AND WAIVERS REDUCING YOUR CLASS A SALES CHARGES There are several ways you can combine multiple purchases of Class A shares in John Hancock funds to take advantage of the breakpoints in the sales charge schedule. The first three ways can be combined in any manner. - - Accumulation Privilege -- lets you add the value of any Class A shares you already own to the amount of your next Class A investment for purposes of calculating the sales charge. - - Letter of Intention -- lets you purchase Class A shares of a fund over a 13-month period and receive the same sales charge as if all shares had been purchased at once. - - Combination Privilege -- lets you combine Class A shares of multiple funds for purposes of calculating the sales charge. To utilize: complete the appropriate section on your application, or contact your financial representative or Investor Services to add these options to an existing account (see the back cover of this prospectus). GROUP INVESTMENT PROGRAM Allows established groups of four or more investors to invest as a group. Each has an individual account, but for sales charge purposes, their investments are lumped together, making the investors potentially eligible for reduced sales charges. There is no charge, no obligation to invest (although initial aggregate investments must be at least $250), and you may terminate the program at any time. To utilize: contact your financial representative or Investor Services to find out how to qualify. CDSC WAIVERS In general, the CDSC for either share class may be waived on shares you sell for the following reasons: - - to make payments through certain Systematic Withdrawal Plans - - to make certain distributions from a retirement plan - - because of shareholder death or disability To utilize: contact your financial representative or Investor Services, or consult the SAI (see the back cover of this prospectus). REINSTATEMENT PRIVILEGE If you sell shares in a John Hancock fund, you may invest some or all of the proceeds in the same share class of any John Hancock fund within 120 days without a sales charge. If you paid a CDSC when you sold your shares, you will be credited with the amount of the CDSC. All accounts involved must have the same registration. To utilize: contact your financial representative or Investor Services. YOUR ACCOUNT 19 WAIVERS FOR CERTAIN INVESTORS Class A shares may be offered without front-end sales charges or CDSCs to various individuals and institutions, including: - - government entities that are prohibited from paying mutual fund sales charges - - financial institutions or common trust funds investing $1 million or more for non-discretionary accounts - - selling brokers and their employees and sales representatives - - financial representatives utilizing fund shares in fee-based investment products under agreement with John Hancock Funds - - fund trustees and other individuals who are affiliated with these or other John Hancock funds - - individuals transferring assets to a John Hancock income fund from an employee benefit plan that has John Hancock funds - - member of an approved affinity group financial services plan - - in the case of Limited-Term Government Fund, anyone investing the proceeds from any non-John Hancock mutual fund, as long as that fund had sales charges and the investor paid them; investors must supply a copy of the redemption check or confirmation statement, and must remain invested in Limited-Term Government Fund for at least 15 days To utilize: if you think you may be eligible for a sales charge waiver, contact Investor Services or consult the SAI. - -------------------------------------------------------------------------------- OPENING AN ACCOUNT 1 Read this prospectus carefully. 2 Determine how much you want to invest. The minimum initial investments for the John Hancock funds are as follows: - non-retirement account: $1,000 - retirement account: $250 - group investments: $250 - Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest at least $25 a month 3 Complete the appropriate parts of the account application, carefully following the instructions. If you have questions, please contact your financial representative or call Investor Services at 1-800-225-5291. 4 Complete the appropriate parts of the account privileges application. By applying for privileges now, you can avoid the delay and inconvenience of having to file an additional application if you want to add privileges later on. 5 Make your initial investment using the table on the next page. You can initiate any purchase, exchange or sale of shares through your financial representative. 20 YOUR ACCOUNT BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT - ---------------------------------------------------------------------------------------------------------------------------- BY CHECK - ---------------------------------------------------------------------------------------------------------------------------- [A GRAPHIC IMAGE OF A BLANK CHECK.] - Make out a check for the investment - Make out a check for the investment amount, payable to "John Hancock amount payable to "John Hancock Investor Investor Services Corporation." Services Corporation." - Deliver the check and your completed - Fill out the detachable investment slip application to your financial from an account statement. If no slip is representative, or mail to Investor available, include a note specifying the Services (address below). fund name, your share class, your account number, and the name(s) in which the account is registered. - Deliver the check and your investment slip or note to your financial representative, or mail to Investor Services (address on below). - ---------------------------------------------------------------------------------------------------------------------------- BY EXCHANGE - ---------------------------------------------------------------------------------------------------------------------------- [A GRAPHIC IMAGE OF A WITHE ARROW - Call your financial representative or - Call Investor Services to request an OUTLINED IN BLACK THAT POINTS TO Investor Services to request an exchange. THE RIGHT ABOVE A BLACK THAT POINTS exchange. TO THE LEFT.] - ---------------------------------------------------------------------------------------------------------------------------- BY WIRE - ---------------------------------------------------------------------------------------------------------------------------- [A GRAPHIC IMAGE OF A JAGGED WHITE - Deliver your completed application to - Instruct your bank to wire the amount of ARROW OUTLINED IN BLACK THE POINTS your financial representative, or mail your investment to: UPWARDS AT A 45 DEGREE ANGLE] it to Investor Services. First Signature Bank & Trust - Obtain your account number by calling Account # 900000260 your financial representative or Routing # 211475000 Investor Services. Specify the fund name, your share class, your account number and the name(s) in - Instruct your bank to wire the amount of which the account is registered. Your your investment to: bank may charge a fee to wire funds. First Signature Bank & Trust Account # 900000260 Routing # 211475000 Specify the fund name, your choice of share class, the new account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds. - ---------------------------------------------------------------------------------------------------------------------------- BY PHONE - ---------------------------------------------------------------------------------------------------------------------------- [A GRAPHIC IMAGE OF A TELEPHONE.] See "By wire" and "By exchange." - Verify that your bank or credit union is a member of the Automated Clearing House (ACH) system. - Complete the "Invest-By-Phone" and "Bank Information" sections on your Account Privileges Application. - Call Investor Services to verify that these features are in place on your account. - Tell the Investor Services representative the fund name, your share class, your account number, the name(s) in which the account is registered and the amount of your investment.
ADDRESS JOHN HANCOCK INVESTOR SERVICES CORPORATION P.O. BOX 9116 BOSTON, MA 02205-9116 PHONE NUMBER 1-800-225-5291 OR CONTACT YOUR FINANCIAL REPRESENTATIVE FOR INSTRUCTIONS AND ASSISTANCE. To open or add to an account using the Monthly Automatic Accumulation Program, see "Additional investor services." YOUR ACCOUNT 21 SELLING SHARES
DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES - ---------------------------------------------------------------------------------------------------------------------------- BY LETTER - ---------------------------------------------------------------------------------------------------------------------------- [A GRAPHIC IMAGE OF THE BACK OF - Accounts of any type. - Write a letter of instruction or stock AN ENVELOPE.] power indicating the fund name, your - Sales of any amount. share class, your account number, the name(s) in which the account is registered and the dollar value or number of shares you wish to sell. - Include all signatures and any additional documents that may be required (see next page). - Mail the materials to Investor Services. - A check will be mailed to the name(s) and address in which the account is registered, or otherwise according to your letter of instruction. - ---------------------------------------------------------------------------------------------------------------------------- BY PHONE - ---------------------------------------------------------------------------------------------------------------------------- [A GRAPHIC IMAGE OF A TELEPHONE.] - Most accounts. - For automated service 24 hours a day using your Touch-Tone phone, call the - Sales of up to $100,000. John Hancock Funds EASI-Line at 1-800-338-8080. - To place your order with a representative at John Hancock Funds, call Investor Services between 8 A.M. and 4 P.M. on most business days. - ---------------------------------------------------------------------------------------------------------------------------- BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT) - ---------------------------------------------------------------------------------------------------------------------------- [A GRAPHIC IMAGE OF A JAGGED WHITE - Requests by letter to sell any amount - Fill out the "Telephone redemption" ARROW OUTLINED IN BLACK THE POINTS (accounts of any type). section of your new account application. UPWARDS AT A 45 DEGREE ANGLE.] - Requests by phone to sell up to $100,000 - To verify that the telephone redemption (accounts with telephone redemption privilege is in place on an account, or privileges). to request the forms to add it to an existing account, call Investor Services. - Amounts of $1,000 or more will be wired on the next business day. A $4 fee will be deducted from your account. - Amounts of less than $1,000 may be sent by EFT or by check. Funds from EFT transactions are generally available by the second business day. Your bank may charge a fee for this service. - ---------------------------------------------------------------------------------------------------------------------------- BY EXCHANGE - ---------------------------------------------------------------------------------------------------------------------------- [A GRAPHIC IMAGE OF A WITHE ARROW - Accounts of any type. - Obtain a current prospectus for the fund OUTLINED IN BLACK THAT POINTS TO into which you are exchanging by calling THE RIGHT ABOVE A BLACK THAT POINTS - Sales of any amount. your financial representative or TO THE LEFT.] Investor Services. - Call Investor Services to request an exchange. - ---------------------------------------------------------------------------------------------------------------------------- BY CHECK - ---------------------------------------------------------------------------------------------------------------------------- [A GRAPHIC IMAGE OF A BLANK CHECK.] - Government Income, Limited-Term - Request checkwriting on your new account Government, Sovereign U.S. Government application. and Strategic Income Funds only. - Verify that the shares to be sold were - Any account with checkwriting purchased more than 15 days earlier or privileges. were purchased by wire. - Sales of over $100. - Write a check for any amount over $100.
To sell shares through a systematic withdrawal plan, see "Additional investor services." ADDRESS JOHN HANCOCK INVESTOR SERVICES CORPORATION P.O. BOX 9116 BOSTON, MA 02205-9116 PHONE NUMBER 1-800-225-5291 OR CONTACT YOUR FINANCIAL REPRESENTATIVE FOR INSTRUCTIONS AND ASSISTANCE. 22 YOUR ACCOUNT SELLING SHARES IN WRITING In certain circumstances, you will need to make your request to sell shares in writing. You may need to include additional items with your request, as shown in the table below. You may also need to include a signature guarantee, which protects you against fraudulent orders. You will need a signature guarantee if: - - your address of record has changed within the past 30 days - - you are selling more than $100,000 worth of shares - - you are requesting payment other than by a check mailed to the address of record and payable to the registered owner(s) You can generally obtain a signature guarantee from the following sources: - - a broker or securities dealer - - a federal savings, cooperative or other type of bank - - a savings and loan or other thrift institution - - a credit union - - a securities exchange or clearing agency A notary public CANNOT provide a signature guarantee. [A GRAPHIC IMAGE OF THE BACK OF AN ENVELOPE.]
SELLER REQUIREMENTS FOR WRITTEN REQUESTS - -------------------------------------------------------------------------------- Owners of individual, joint, sole - Letter of instruction. proprietorship, UGMA/UTMA (custodial accounts for minors) or general partner - On the letter, the signatures and accounts. titles of all persons authorized to sign for the account, exactly as the account is registered. - Signature guarantee if applicable (see above). - -------------------------------------------------------------------------------- Owners of corporate or association - Letter of instruction. accounts. - Corporate resolution, certified within the past 90 days. - On the letter and the resolution, the signature of the person(s) authorized to sign for the account. - Signature guarantee if applicable (see above). - -------------------------------------------------------------------------------- Owners or trustees of trust accounts. - Letter of instruction. - On the letter, the signature(s) of the trustee(s). - If the names of all trustees are not registered on the account, please also provide a copy of the trust document certified within the past 60 days. - Signature guarantee if applicable (see above). - -------------------------------------------------------------------------------- Joint tenancy shareholders whose - Letter of instruction signed by co-tenants are deceased. surviving tenant. - Copy of death certificate. - Signature guarantee if applicable (see above). - -------------------------------------------------------------------------------- Executors of shareholder estates. - Letter of instruction signed by executor. - Copy of order appointing executor. - Signature guarantee if applicable (see above). - -------------------------------------------------------------------------------- Administrators, conservators, guardians - Call 1-800-225-5291 for instructions. and other sellers or account types not listed above. - --------------------------------------------------------------------------------
YOUR ACCOUNT 23 - -------------------------------------------------------------------------------- TRANSACTION POLICIES VALUATION OF SHARES The net asset value per share (NAV) for each fund and class is determined each business day at the close of regular trading on the New York Stock Exchange (typically 4 P.M. Eastern Time) by dividing a class' net assets by the number of its shares outstanding. BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable sales charges, as described earlier. When you sell shares, you receive the NAV minus any applicable deferred sales charges, as described earlier. EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock Exchange is open, typically Monday - Friday. Buy and sell requests are executed at the next NAV to be calculated after your request is accepted by Investor Services. At times of peak activity, it may be difficult to place requests by phone. During these times, consider using EASI-Line or sending your request in writing. In unusual circumstances, any fund may temporarily suspend the processing of sell requests, or may postpone payment of proceeds for up to three business days or longer, as allowed by federal securities laws. TELEPHONE TRANSACTIONS For your protection, telephone requests may be recorded in order to verify their accuracy. In addition, Investor Services will take measures to verify the identity of the caller, such as asking for name, account number, Social Security or taxpayer ID number and other relevant information. If these measures are not taken, Investor Services is responsible for any losses that may occur to any account due to an unauthorized telephone call. Also for your protection, telephone transactions are not permitted on accounts whose names or addresses have changed within the past 30 days. Proceeds from telephone transactions can only be mailed to the address of record. EXCHANGES You may exchange shares of your John Hancock fund for shares of the same class in any other John Hancock fund, generally without paying any additional sales charges. Class B shares will continue to age from the original date and will retain the same CDSC rate as they had before the exchange, except that the rate will change to that of the new fund if the new fund's rate is higher. A CDSC rate that has increased will drop again with a future exchange into a fund with a lower rate. To protect the interests of other investors in the fund, a fund may cancel the exchange privileges of any parties that, in the opinion of the fund, are using market timing strategies or making more than seven exchanges per owner or controlling party per calendar year. A fund may change or cancel its exchange privilege at any time, upon 60 days' notice to its shareholders. A fund may also refuse any exchange order. Merrill Lynch customers may exchange between Summit Cash Reserve accounts and Class B shares of any John Hancock fund. When selling Class B shares, CDSC calculations will be based only on the time their assets were invested in a John Hancock fund. CERTIFICATED SHARES Most shares are electronically recorded. If you wish to have certificates for your shares, please write to Investor Services. Certificated shares can only be sold by returning the certificates to Investor Services, along with a letter of instruction or a stock power and a signature guarantee. SALES IN ADVANCE OF PURCHASE PAYMENTS When you place a request to sell shares for which the purchase money has not yet been collected, the request will be executed in a timely fashion, but the fund will not release the proceeds to you until your purchase payment clears. This may take up to ten calendar days after the purchase. FOREIGN CURRENCIES Purchases must be made in U.S. dollars. Purchases in foreign currencies must be converted, which may result in a fee and delayed execution. ELIGIBILITY BY STATE You may only invest in, or exchange into, fund shares that are legally available in your state. - -------------------------------------------------------------------------------- DIVIDENDS AND ACCOUNT POLICIES ACCOUNT STATEMENTS In general, you will receive account statements as follows: - - after every transaction (except a dividend reinvestment) that affects your account balance - - after any changes of name or address of the registered owner(s) - - in all other circumstances, every quarter. Every year you should also receive, if applicable, a Form 1099 tax information statement, mailed by January 31. DIVIDENDS The funds generally declare dividends daily and pay them monthly. Short- and long-term capital gains, if any, are distributed annually, typically after the end of a fund's fiscal year. Your dividends begin accruing the day after payment is received by the fund and continue through the day your shares are actually sold. 24 YOUR ACCOUNT DIVIDEND REINVESTMENTS Most investors have their dividends reinvested in additional shares of the same fund and class. If you choose this option, or if you do not indicate any choice, your dividends will be reinvested on the dividend record date. Alternatively, you can choose to have a check for your dividends mailed to you. However, if the check is not deliverable, your dividends will be reinvested. TAXABILITY OF DIVIDENDS As long as a fund meets the requirements for being a tax-qualified regulated investment company, which each fund has in the past and intends to in the future, it pays no federal income tax on the earnings it distributes to shareholders. Consequently, dividends you receive from a fund, whether reinvested or taken as cash, are generally considered taxable. Dividends from a fund's long-term capital gains are taxable as capital gains; dividends from other sources are generally taxable as ordinary income. The Form 1099 that is mailed to you every January details your dividends and their federal tax category, although you should verify your tax liability with your tax professional. TAXABILITY OF TRANSACTIONS Any time you sell or exchange shares, it is considered a taxable event for you. Depending on the purchase price and the sale price of the shares you sell or exchange, you may have a gain or a loss on the transaction. You are responsible for any tax liabilities generated by your transactions. SMALL ACCOUNTS (NON-RETIREMENT ONLY) If you draw down a non-retirement account so that its total value is less than $1,000, you may be asked to purchase more shares within 30 days. If you do not take action, your fund may close out your account and mail you the proceeds. Alternatively, your fund's transfer agent may charge you $10 a year to maintain your account. You will not be charged a CDSC if your account is closed for this reason, and your account will not be closed if its drop in value is due to fund performance or the effects of sales charges. - -------------------------------------------------------------------------------- ADDITIONAL INVESTOR SERVICES MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) Lets you set up regular investments from your paycheck or bank account to the John Hancock fund(s) of your choice. You determine the frequency and amount of your investments, and you can terminate your program at any time. To establish: - - Complete the appropriate parts of your Account Privileges Application. - - If you are using MAAP to open an account, make out a check ($25 minimum) for your first investment amount payable to "John Hancock Investor Services Corporation." Deliver your check and application to your financial representative or Investor Services. SYSTEMATIC WITHDRAWAL PLAN May be used for routine bill payment or periodic withdrawals from your account. To establish: - - Make sure you have at least $5,000 worth of shares in your account. - - Make sure you are not planning to invest more money in this account (buying shares during a period when you are also selling shares of the same fund is not advantageous to you, because of sales charges). - - Specify the payee(s). The payee may be yourself or any other party, and there is no limit to the number of payees you may have, as long as they are all on the same payment schedule. - - Determine the schedule: monthly, quarterly, semi-annually, annually, or in certain selected months. - - Fill out the relevant part of the Account Privileges Application. To add a Systematic Withdrawal Plan to an existing account, contact your financial representative or Investor Services. RETIREMENT PLANS John Hancock Funds offers a range of qualified retirement plans, including IRAs, SEPs, SARSEPs, TSAs, 401(k) plans, 403(b) plans and other pension and profit-sharing plans. Using these plans, you can invest in any John Hancock fund with a low minimum investment of $250 or, for some group plans, no minimum investment at all. To find out more, call Investor Services at 1-800-225-5291. YOUR ACCOUNT 25 FUND DETAILS - -------------------------------------------------------------------------------- BUSINESS STRUCTURE HOW THE FUNDS ARE ORGANIZED Each John Hancock income fund is an open-end management investment company or a series of such a company. Each fund is supervised by a board of trustees or a board of directors, an independent body which has ultimate responsibility for the fund's activities. The board retains various companies to carry out the fund's operations, including the investment adviser, custodian, transfer agent and others (see diagram). The board has the right, and the obligation, to terminate the fund's relationship with any of these companies and to retain a different company if the board believes that it is in the shareholders' best interests. At a mutual fund's inception, the initial shareholder (typically the adviser) appoints the fund's board. Thereafter, the board and the shareholders determine the board's membership. The boards of the John Hancock income funds may include individuals who are affiliated with the investment adviser. However, the majority of board members must be independent. The funds do not hold annual shareholder meetings, but may hold special meetings for such purposes as electing or removing board members, changing fundamental policies, approving a management contract or approving a 12b-1 plan (12b-1 fees are explained in "Sales compensation"). [ A FLOW CHART THAT CONTAINS 8 RECTANGULAR-SHAPED BOXES AND ILLUSTRATES THE HIERACHY OF HOW THE FUNDS ARE ORGANIZED. WITHIN THE FLOWCHART, THERE ARE 5 TIERS. THE TIERS ARE CONNECTED BY SHADED LINES. SHAREHOLDERS REPRESENT THE FIRST TIER. THERE IS A SHADED VERTICAL ARROW ON THE LEFT-HAND SIDE OF THE PAGE. THE ARROW HAS ARROWHEADS ON BOTH ENDS AND IS CONTAINED WITHIN TWO HORIZONTAL, SHADED LINES. THIS IS MEANT TO HIGHLIGHT TIERS TWO AND THREE WHICH FOCUS ON DISTRIBUTION AND SHAREHOLDER SERVICES. FINANCIAL SERVICES FIRMS AND THEIR REPRESENTATIVES ARE SHOWN ON THE SECOND TIER. PRINCIPAL DISTRIBUTOR AND TRANSFER AGENT ARE SHOWN ON THE THIRD TIER. A SHADED VERTICAL ARROW ON THE RIGHT-HAND SIDE OF THE PAGE DENOTES THOSE ENTITIES INVOLVED IN THE ASSET MANAGEMENT. THE ARROW HAS ARROWHEADS ON BOTH ENDS AND IS CONTAINED WITHIN TWO HORIZONTAL, SHADED LINES. THIS FOURTH TIER INCLUDES THE SUBADVISOR, INVESTMENT ADVISOR AND THE CUSTODIAN. THE FIFTH TIER CONTAINS THE TRUSTEES/DIRECTORS.] 26 FUND DETAILS ACCOUNTING COMPENSATION The funds compensate the adviser for performing tax and financial management services. Annual compensation for 1996 is estimated to be 0.01875% of each fund's average net assets. PORTFOLIO TRADES In placing portfolio trades, the adviser may use brokerage firms that market the fund's shares or that are affiliated with John Hancock Mutual Life Insurance Company, but only when the adviser believes no other firm offers a better combination of quality execution (i.e., timeliness and completeness) and favorable price. ADVERTISEMENT OF PERFORMANCE The funds may include figures for yield (where appropriate) and total return in advertisements and other sales materials, as follows: DEFINITIONS OF PERFORMANCE MEASURES MEASURE DEFINITION Cumulative Overall dollar or percentage change of a hypothetical total return investment over the stated time period. Average Cumulative total return divided by the number of years in annual total the period. The result is an average and is not the same as return the actual year-to-year results. Yield A measure of income, calculated by taking the net investment income per share for a 30-day period, dividing it by the offering price per share on the last day of the period (if there is more than one offering price, the highest price is used) and annualizing the result. While this is the standard accounting method for calculating yield, it does not reflect the fund's actual bookkeeping; as a result, the income reported or paid by the fund may be different. All performance figures assume that dividends are reinvested, and show the effect of all applicable sales charges. Class A performance figures generally are calculated using the maximum sales charge. Because each share class has its own sales charge and fee structures, the classes have different performance results. INVESTMENT GOALS Except for Government Income Fund, High Yield Bond Fund and Intermediate Maturity Government Fund, each fund's investment goal is fundamental and may only be changed with shareholder approval. - -------------------------------------------------------------------------------- SALES COMPENSATION As part of their business strategies, the funds, along with John Hancock Funds, pay compensation to financial services firms that sell the funds' shares. These firms typically pass along a portion of this compensation to your financial representative. Compensation payments originate from two sources: from sales charges and from 12b-1 fees that are paid out of the fund in assets ("12b-1" refers to the federal securities regulation that authorizes annual fees of this type). The 12b-1 fee rates vary by fund and by share class, according to Rule 12b-1 plans adopted by the funds' respective boards. The sales charges and 12b-1 fees paid by investors are detailed in the fund-by-fund information. The portions of these expenses that are reallowed to financial services firms are shown on the next page. INITIAL COMPENSATION Whenever you make an investment in a fund or funds, the financial services firm receives either a reallowance from the initial sales charge or a commission, as described below. The firm also receives the first year's service fee at this time. From time to time, as an additional incentive to these firms, John Hancock Funds may increase the reallowance on Class A shares to as much as the entire front-end sales charge. ANNUAL COMPENSATION Beginning with the second year after an investment is made, the financial services firm receives an annual service fee of 0.25% of its total eligible net assets. This fee is paid quarterly in arrears. Firms affiliated with John Hancock, which include Tucker Anthony, Sutro & Company and John Hancock Distributors, may receive an additional fee of up to 0.05% a year of their total eligible net assets. FUND DETAILS 27 CLASS A INVESTMENTS
MAXIMUM SALES CHARGE REALLOWANCE FIRST YEAR MAXIMUM PAID BY INVESTORS OR COMMISSION SERVICE FEE TOTAL COMPENSATION(1) (% OF OFFERING PRICE) (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE) - -------------------------------------------------------------------------------------------------------------------------- GROUP 1 FUNDS - -------------------------------------------------------------------------------------------------------------------------- Up to $99,999 3.00% 2.26% 0.25% 2.50% - -------------------------------------------------------------------------------------------------------------------------- $100,000 - $499,999 2.50% 2.01% 0.25% 2.25% - -------------------------------------------------------------------------------------------------------------------------- $500,000 - $999,999 2.00% 1.51% 0.25% 1.75% - -------------------------------------------------------------------------------------------------------------------------- GROUP 2 FUNDS - -------------------------------------------------------------------------------------------------------------------------- Up to $99,999 4.50% 3.76% 0.25% 4.00% - -------------------------------------------------------------------------------------------------------------------------- $100,000 - $249,999 3.75% 3.01% 0.25% 3.25% - -------------------------------------------------------------------------------------------------------------------------- $250,000 - $499,999 2.75% 2.06% 0.25% 2.30% - -------------------------------------------------------------------------------------------------------------------------- $500,000 - $999,999 2.00% 1.51% 0.25% 1.75% - -------------------------------------------------------------------------------------------------------------------------- REGULAR INVESTMENTS OF $1 MILLION OR MORE (GROUPS 1 AND 2) - -------------------------------------------------------------------------------------------------------------------------- First $1M - $4,999,999 -- 1.00% 0.25% 1.24% - -------------------------------------------------------------------------------------------------------------------------- Next $1 - $5M above that -- 0.50% 0.25% 0.74% - -------------------------------------------------------------------------------------------------------------------------- Next $1 and more above that -- 0.25% 0.25% 0.49% - -------------------------------------------------------------------------------------------------------------------------- Waiver investments(2) -- 0.00% 0.25% 0.25% - --------------------------------------------------------------------------------------------------------------------------
CLASS B INVESTMENTS
MAXIMUM REALLOWANCE MAXIMUM OR COMMISSION SERVICE FEE TOTAL COMPENSATION (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE) - ------------------------------------------------------------------------------------------ GROUP 1 FUNDS - ------------------------------------------------------------------------------------------ All amounts 2.75% 0.25% 3.00% - ------------------------------------------------------------------------------------------ GROUP 2 FUNDS - ------------------------------------------------------------------------------------------ All amounts 3.75% 0.25% 4.00% - ------------------------------------------------------------------------------------------
(1) Reallowance/commission percentages and service fee percentages are calculated from different amounts, and therefore may not equal total compensation percentages if combined using simple addition. (2) Refers to any investments made by municipalities, financial institutions, trusts and affinity group that take advantage of the sales charge waivers described earlier in this prospectus. CDSC revenues collected by John Hancock Funds may be used to fund commission payments when there is no initial sales charge. 28 FUND DETAILS - -------------------------------------------------------------------------------- MORE ABOUT RISK A fund's risk profile is largely defined by the fund's principal securities and investment practices. You may find the most concise description of each fund's risk profile in the fund-by-fund information. The funds are permitted to utilize -- within limits established by the trustees - -- certain other securities and investment practices that have higher risks and opportunities associated with them. To the extent a fund utilizes these securities or practices, its overall performance may be affected, either positively or negatively. On the following pages are brief descriptions of these higher risk securities and investment practices, along with the risks associated with them. The funds follow certain policies that may reduce these risks. As with any bond fund, there is no guarantee that a John Hancock income fund will earn income or show a positive total return over any period of time. - -------------------------------------------------------------------------------- TYPES OF INVESTMENT RISK CORRELATION RISK The risk that changes in the value of a hedging instrument will not match those of the asset being hedged (hedging is the use of one investment to offset the effects of another investment). Incomplete correlation can result in unanticipated risks. CREDIT RISK The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. CURRENCY RISK The risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. Adverse changes in exchange rates may erode or reverse any gains produced by foreign currency denominated investments, and may widen any losses. EXTENSION RISK The risk that an unexpected rise in interest rates will extend the life of a mortgage-backed security beyond the expected prepayment time, typically reducing the security's value. INTEREST RATE RISK The risk of market losses attributable to changes in interest rates. With fixed-rate securities, a rise in interest rates typically causes a fall in values, while a fall in rates typically causes a rise in values. LEVERAGE RISK Associated with securities or practices (such as borrowing) that multiply small index or market movements into large changes in value. - - HEDGED When a derivative (a security whose value is based on another security or index) is used as a hedge against an opposite position which the fund also holds, any loss generated by the derivative should be offset by gains on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. - - SPECULATIVE To the extent that a derivative is not used as a hedge, the fund is directly exposed to the risks of that derivative. Gains or losses from speculative positions in a derivative may be substantially greater than the derivative's original cost. LIQUIDITY RISK The risk that certain securities may be difficult or impossible to sell at the time and the price that the seller would like. The seller may have to lower the price, sell other securities instead, or forego an investment opportunity, any of which could have a negative effect on fund management or performance. MANAGEMENT RISK The risk that a strategy used by a fund's management may fail to produce the intended result. Common to all securities and practices. MARKET RISK The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably. Market risk may affect a single issuer, an industry, a sector of the bond market or the market as a whole. Common to all stocks and bonds and the mutual funds that invest in them. OPPORTUNITY RISK The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are tied up in other investments. POLITICAL RISK The risk of losses attributable to government or political actions, from changes in tax or trade statutes to governmental collapse and war. PREPAYMENT RISK The risk that unanticipated prepayments may occur, reducing the value of mortgage-backed securities. VALUATION RISK The risk that a fund has valued certain of its securities at a higher price than it can sell them for. FUND DETAILS 29 HIGHER RISK SECURITIES AND PRACTICES This table shows each fund's investment limitations as a percentage of portfolio assets. In each case the principal types of risk are listed (see previous page for definitions). 10 Percent of total assets (italic type) 10 Percent of net assets (roman type) X No policy limitation on usage; fund may be using currently # Permitted, but has not typically been used - -- Not permitted
GOVERNMENT INCOME HIGH YIELD BOND INTERMEDIATE MATURITY GOV'T - ------------------------------------------------------------------------------------------------------------------------------------ Investment practices BORROWING; REVERSE REPURCHASE AGREEMENTS The borrowing of money 33.3 33.3 33.3 from banks or through reverse repurchase agreements. Leverage, credit risks. MORTGAGE DOLLAR ROLL TRANSACTIONS The sale of mortgage-backed X X(1) X securities with the commitment to buy back similar securities at a future date. Credit, interest rate, leverage, market, opportunity risks. REPURCHASE AGREEMENTS The purchase of a security that must X X X later be sold back to the issuer at the same price plus interest. Credit risk. SECURITIES LENDING The lending of securities to financial 33 33 33.3 institutions, which provide cash or government securities as collateral. Credit risk. SHORT-TERM TRADING Selling a security soon after purchase. A X X X portfolio engaging in short-term trading will have higher turnover and transaction expenses. Market risk. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase or X X X sale of securities for delivery at a future date; market value may change before delivery. Market, opportunity, leverage risks. - ------------------------------------------------------------------------------------------------------------------------------------ CONVENTIONAL SECURITIES FOREIGN DEBT SECURITIES Debt securities issued by foreign -- X -- governments or companies. Credit, currency, interest rate, market, political risks. IN-KIND, DELAYED AND ZERO COUPON DEBT SECURITIES Securities X X X offering non-cash or delayed-cash payment. Their prices are typically more volatile than those of conventional debt securities. Credit, interest rate, market risks. RESTRICTED AND ILLIQUID SECURITIES Securities not traded on 10 10 15 the open market. May include illiquid Rule 144A securities. Liquidity, valuation, market risks. - ------------------------------------------------------------------------------------------------------------------------------------ UNLEVERAGED DERIVATIVE SECURITIES ASSET-BACKED SECURITIES Securities backed by unsecured debt, 35 X 35 such as credit card debt; these securities are often guaranteed or over-collateralized to enhance their credit quality. Credit, interest rate risks. MORTGAGE-BACKED SECURITIES Securities backed by pools of X X X mortgages, including passthrough certificates, PACs, TACs and other senior classes of collateralized mortgage obligations (CMOs). Credit, extension, prepayment, interest rate risks. PARTICIPATION INTERESTS Securities representing an interest -- 10(3) -- in another security or in bank loans. Credit, interest rate, liquidity, valuation risks. RIGHTS AND WARRANTS Securities offering the right, or 5 5 5 involving the promise, to buy or sell certain securities at a future date. Market risk. LIMITED-TERM GOVERNMENT SOVEREIGN BOND - ------------------------------------------------------------------------------------------------------------ Investment practices BORROWING; REVERSE REPURCHASE AGREEMENTS The borrowing of money 33.3 33.3 from banks or through reverse repurchase agreements. Leverage, credit risks. MORTGAGE DOLLAR ROLL TRANSACTIONS The sale of mortgage-backed X X securities with the commitment to buy back similar securities at a future date. Credit, interest rate, leverage, market, opportunity risks. REPURCHASE AGREEMENTS The purchase of a security that must X X later be sold back to the issuer at the same price plus interest. Credit risk. SECURITIES LENDING The lending of securities to financial 33.3 33 institutions, which provide cash or government securities as collateral. Credit risk. SHORT-TERM TRADING Selling a security soon after purchase. A X X portfolio engaging in short-term trading will have higher turnover and transaction expenses. Market risk. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase or X X sale of securities for delivery at a future date; market value may change before delivery. Market, opportunity, leverage risks. - ------------------------------------------------------------------------------------------------------------ CONVENTIONAL SECURITIES FOREIGN DEBT SECURITIES Debt securities issued by foreign -- 25 governments or companies. Credit, currency, interest rate, market, political risks. IN-KIND, DELAYED AND ZERO COUPON DEBT SECURITIES Securities X X offering non-cash or delayed-cash payment. Their prices are typically more volatile than those of conventional debt securities. Credit, interest rate, market risks. RESTRICTED AND ILLIQUID SECURITIES Securities not traded on 15 15 the open market. May include illiquid Rule 144A securities. Liquidity, valuation, market risks. - ------------------------------------------------------------------------------------------------------------ UNLEVERAGED DERIVATIVE SECURITIES ASSET-BACKED SECURITIES Securities backed by unsecured debt, 35 X such as credit card debt; these securities are often guaranteed or over-collateralized to enhance their credit quality. Credit, interest rate risks. MORTGAGE-BACKED SECURITIES Securities backed by pools of X X mortgages, including passthrough certificates, PACs, TACs and other senior classes of collateralized mortgage obligations (CMOs). Credit, extension, prepayment, interest rate risks. PARTICIPATION INTERESTS Securities representing an interest -- 15(3) in another security or in bank loans. Credit, interest rate, liquidity, valuation risks. RIGHTS AND WARRANTS Securities offering the right, or 5 5 involving the promise, to buy or sell certain securities at a future date. Market risk. SOVEREIGN U.S. GOV'T INCOME STRATEGIC INCOME - ---------------------------------------------------------------------------------------------------------------- Investment practices BORROWING; REVERSE REPURCHASE AGREEMENTS The borrowing of money 33.3 33.3 from banks or through reverse repurchase agreements. Leverage, credit risks. MORTGAGE DOLLAR ROLL TRANSACTIONS The sale of mortgage-backed X X securities with the commitment to buy back similar securities at a future date. Credit, interest rate, leverage, market, opportunity risks. REPURCHASE AGREEMENTS The purchase of a security that must X X later be sold back to the issuer at the same price plus interest. Credit risk. SECURITIES LENDING The lending of securities to financial 30 33.3 institutions, which provide cash or government securities as collateral. Credit risk. SHORT-TERM TRADING Selling a security soon after purchase. A X X portfolio engaging in short-term trading will have higher turnover and transaction expenses. Market risk. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase or X X sale of securities for delivery at a future date; market value may change before delivery. Market, opportunity, leverage risks. - ---------------------------------------------------------------------------------------------------------------- CONVENTIONAL SECURITIES FOREIGN DEBT SECURITIES Debt securities issued by foreign 5 X governments or companies. Credit, currency, interest rate, market, political risks. IN-KIND, DELAYED AND ZERO COUPON DEBT SECURITIES Securities X X offering non-cash or delayed-cash payment. Their prices are typically more volatile than those of conventional debt securities. Credit, interest rate, market risks. RESTRICTED AND ILLIQUID SECURITIES Securities not traded on 15 15 the open market. May include illiquid Rule 144A securities. Liquidity, valuation, market risks. - ---------------------------------------------------------------------------------------------------------------- UNLEVERAGED DERIVATIVE SECURITIES ASSET-BACKED SECURITIES Securities backed by unsecured debt, 35 X such as credit card debt; these securities are often guaranteed or over-collateralized to enhance their credit quality. Credit, interest rate risks. MORTGAGE-BACKED SECURITIES Securities backed by pools of X X mortgages, including passthrough certificates, PACs, TACs and other senior classes of collateralized mortgage obligations (CMOs). Credit, extension, prepayment, interest rate risks. PARTICIPATION INTERESTS Securities representing an interest -- 15(3) in another security or in bank loans. Credit, interest rate, liquidity, valuation risks. RIGHTS AND WARRANTS Securities offering the right, or # 5 involving the promise, to buy or sell certain securities at a future date. Market risk.
(1) Covered rolls only. (2) No more than 25% of the fund`s assets will be invested in government securities of any one foreign country. (3) Part of the 15% limitation on illiquid securities. (4) Applies to purchase options only. 30 FUND DETAILS HIGHER RISK SECURITIES AND PRACTICES (CONT'D)
GOVERNMENT INCOME HIGH YIELD BOND INTERMEDIATE MATURITY GOV'T - ------------------------------------------------------------------------------------------------------------------------------------ LEVERAGED DERIVATIVE SECURITIES CURRENCY CONTRACTS Contracts involving the right or obligation to buy or sell a given amount of foreign currency at a specified price and future date. - - HEDGED. Currency, hedged leverage, correlation, -- X -- liquidity, opportunity risks. - - SPECULATIVE. Currency, speculative leverage, -- -- -- liquidity risks. FINANCIAL FUTURES AND OPTIONS; SECURITIES AND INDEX OPTIONS Contracts involving the right or obligation to deliver or receive assets or money depending on the performance of one or more assets or an economic index. - - Futures and related options. Interest rate, X X X currency, market, hedged or speculative leverage, correlation, liquidity, opportunity risks. - - Options on securities and indices. Interest rate, 5(4) 5(4) 5(4) currency, market, hedged or speculative leverage, correlation, liquidity, credit, opportunity risks. STRUCTURED SECURITIES Indexed and/or leveraged 10 10 10 mortgage-backed and other debt securities, including principal-only and interest-only securities, leveraged floating rate securities, and others. These securities tend to be highly sensitive to interest rate movements and their performance may not correlate to such movements in a conventional fashion. Credit, interest rate, extension, prepayment, market, speculative leverage, liquidity, valuation risks. SWAPS, CAPS, FLOORS, COLLARS OTC contracts involving X X X the right or obligation to receive or make payments based on two different income streams. Correlation, credit, currency, interest rate, hedged or speculative leverage, liquidity, valuation risks. LIMITED-TERM GOVERNMENT SOVEREIGN BOND - ---------------------------------------------------------------------------------------------------- LEVERAGED DERIVATIVE SECURITIES CURRENCY CONTRACTS Contracts involving the right or obligation to buy or sell a given amount of foreign currency at a specified price and future date. - - HEDGED. Currency, hedged leverage, correlation, -- X liquidity, opportunity risks. - - SPECULATIVE. Currency, speculative leverage, -- -- liquidity risks. FINANCIAL FUTURES AND OPTIONS; SECURITIES AND INDEX OPTIONS Contracts involving the right or obligation to deliver or receive assets or money depending on the performance of one or more assets or an economic index. - - Futures and related options. Interest rate, X X currency, market, hedged or speculative leverage, correlation, liquidity, opportunity risks. - - Options on securities and indices. Interest rate, 5(4) 5(4) currency, market, hedged or speculative leverage, correlation, liquidity, credit, opportunity risks. STRUCTURED SECURITIES Indexed and/or leveraged 10 10 mortgage-backed and other debt securities, including principal-only and interest-only securities, leveraged floating rate securities, and others. These securities tend to be highly sensitive to interest rate movements and their performance may not correlate to such movements in a conventional fashion. Credit, interest rate, extension, prepayment, market, speculative leverage, liquidity, valuation risks. SWAPS, CAPS, FLOORS, COLLARS OTC contracts involving X X the right or obligation to receive or make payments based on two different income streams. Correlation, credit, currency, interest rate, hedged or speculative leverage, liquidity, valuation risks. SOVEREIGN U.S. GOV'T INCOME STRATEGIC INCOME - ------------------------------------------------------------------------------------------------------ LEVERAGED DERIVATIVE SECURITIES CURRENCY CONTRACTS Contracts involving the right or obligation to buy or sell a given amount of foreign currency at a specified price and future date. - - HEDGED. Currency, hedged leverage, correlation, -- X liquidity, opportunity risks. - - SPECULATIVE. Currency, speculative leverage, -- X liquidity risks. FINANCIAL FUTURES AND OPTIONS; SECURITIES AND INDEX OPTIONS Contracts involving the right or obligation to deliver or receive assets or money depending on the performance of one or more assets or an economic index. - - Futures and related options. Interest rate, X X currency, market, hedged or speculative leverage, correlation, liquidity, opportunity risks. - - Options on securities and indices. Interest rate, 5(4) 5(4) currency, market, hedged or speculative leverage, correlation, liquidity, credit, opportunity risks. STRUCTURED SECURITIES Indexed and/or leveraged 10 X mortgage-backed and other debt securities, including principal-only and interest-only securities, leveraged floating rate securities, and others. These securities tend to be highly sensitive to interest rate movements and their performance may not correlate to such movements in a conventional fashion. Credit, interest rate, extension, prepayment, market, speculative leverage, liquidity, valuation risks. SWAPS, CAPS, FLOORS, COLLARS OTC contracts involving X X the right or obligation to receive or make payments based on two different income streams. Correlation, credit, currency, interest rate, hedged or speculative leverage, liquidity, valuation risks.
ANALYSIS OF FUNDS WITH 5% OR MORE IN JUNK BONDS
Quality rating (S&P/Moody's)(1) High Yield Bond Fund Sovereign Bond Fund Strategic Income Fund - ---------------------------------------------------------------------------------------------------- INVESTMENT-GRADE BONDS - ---------------------------------------------------------------------------------------------------- AAA/Aaa 2.0% 42.2% 25.13% - ---------------------------------------------------------------------------------------------------- AA/Aa 0.0% 9.1% 8.4% - ---------------------------------------------------------------------------------------------------- A/A 0.0% 14.6% 4.2% - ---------------------------------------------------------------------------------------------------- BBB/Baa 1.7% 12.5% 1.4% - ---------------------------------------------------------------------------------------------------- JUNK BONDS - ---------------------------------------------------------------------------------------------------- BB/Ba 14.7% 11.1% 8.11% - ---------------------------------------------------------------------------------------------------- B/B 63.7% 7.8% 41.1% - ---------------------------------------------------------------------------------------------------- CCC/Caa 5.6% 0.2% 1.5% - ---------------------------------------------------------------------------------------------------- CC/Ca 0.0% 0.0% 0.0% - ---------------------------------------------------------------------------------------------------- C/C 0.0% 0.0% 0.0% - ---------------------------------------------------------------------------------------------------- D/D 0.0% 0.0% 0.1% - ---------------------------------------------------------------------------------------------------- % of portfolio in bonds 87.7% 97.5% 92.1% - ----------------------------------------------------------------------------------------------------
Rated by S&P or Moody's n Rated by the advisor (1) In cases where the S&P and Moody's ratings for a given bond issue do not agree, the issue has been counted in the higher category. FUND DETAILS 31 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Two documents are available that offer further information on John Hancock income funds: ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS Includes financial statements, detailed performance information, portfolio holdings, a statement from the portfolio manager and the auditor's report. STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI contains more detailed information on all aspects of the funds. The current annual/ semi-annual report is included in the SAI. The Statement of Additional Information has been filed with the Securities and Exchange Commission and is incorporated by reference (is legally a part of this prospectus). To request a free copy of the current annual/semi-annual report or the SAI, please write or call: John Hancock Investor Services Corporation P.O. Box 9116 Boston, MA 02205-9116 Telephone: 1-800-225-5291 TDD: 1-800-544-6713 [JOHN HANCOCK'S GRAPHIC LOGO. A CIRCLE, DIAMOND, TRIANGLE AND A CUBE] JOHN HANCOCK FUNDS A GLOBAL INVESTMENT MANAGEMENT FIRM 101 Huntington Avenue Boston, Massachusetts 02199-7603 [JOHN HANCOCK SCRIPT LOGO] (C) 1996 John Hancock Funds, Inc. INCPN 8/96 JOHN HANCOCK SOVEREIGN BOND FUND Class A and Class B Shares Statement of Additional Information August 30, 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 August 30, 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 13 THOSE RESPONSIBLE FOR MANAGEMENT 17 INVESTMENT ADVISORY AND OTHER SERVICES 24 DISTRIBUTION CONTRACT 26 NET ASSET VALUE 28 INITIAL SALES CHARGE ON CLASS A SHARES 29 DEFERRED SALES CHARGE ON CLASS B SHARES 31 SPECIAL REDEMPTIONS 34 ADDITIONAL SERVICES AND PROGRAMS 35 DESCRIPTION OF THE FUND'S SHARES 36 TAX STATUS 37 CALCULATION OF PERFORMANCE 42 BROKERAGE ALLOCATION 44 TRANSFER AGENT SERVICES 46 CUSTODY OF PORTFOLIO 46 INDEPENDENT AUDITORS 47 APPENDIX A-1 FINANCIAL STATEMENTS F-1 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 "Goal and Strategy" 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 2 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 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 of 1986, as amended (the "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 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 United States. 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 rate 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 3 increasing interest rate environment. Under certain interest and prepayment scenarios, the Fund may fail to recover the full amount of its investment in mortgage-backed securities notwithstanding any direct or indirect governmental or agency guarantee. Since faster than expected prepayments must usually be invested in lower yielding securities, mortgage-backed securities are less effective than conventional bonds in "locking in" a specified interest rate. 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. 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." 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. 4 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 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 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 transactions 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 5 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 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 6 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 the Fund intends to purchase. As evidence of this hedging intent, the Fund expects that on 75% or more of 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 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. 7 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 options and futures contracts only to the extent such transactions are consistent with the requirements of the 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 up to 25% of the value of its total assets in fixed income securities rated below Baa by Moody's Investors Service, Inc. ("Moody's"), or below BBB by Standard & Poor's Ratings Group ("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 Statement of Additional Information, 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 8 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 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 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. 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 money market 9 funds. When the Fund lends portfolio securities, there is a risk that the borrower may fail to return the securities involved in the transaction. As a result, the Fund may incur a loss or, in the event of the borrower's bankruptcy, the Fund may be delayed in or prevented from liquidating the collateral. It is a fundamental policy of the Fund not to lend portfolio securities having a total value exceeding 33_% of its total assets. 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 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. Forward Commitment and When-Issued Securities. The Fund may purchase securities on a when-issued or forward commitment basis. "When-issued" refers to securities whose terms are available and for which a market exists, but which have not been issued. The Fund will engage in when-issued transactions with respect to securities purchased for its portfolio in order to obtain what is considered to be an advantageous price and yield at the time of the transaction. For when-issued transactions, no payment is made until delivery is due, often a month or more after the purchase. In a forward commitment transaction, the Fund contracts to purchase securities for a fixed price at a future date beyond customary settlement time. When the Fund engages in forward commitment and when-issued transactions, it relies on the seller to consummate the transaction. The failure of the issuer or seller to consummate the transaction may result in the Fund's losing the opportunity to obtain a price and yield considered to be advantageous. The purchase of securities on a when- issued or forward commitment basis also involves a risk of loss if the value of the security to be purchased declines prior to the settlement date. On the date the Fund enters into an agreement to purchase securities on a when- issued or forward commitment basis, the Fund will segregate in a separate account cash or liquid, high grade debt securities equal in value to the Fund's commitment. These assets will be valued daily at market, and additional cash or 10 securities will be segregated in a separate account to the extent that the total value of the assets in the account declines below the amount of the when-issued commitments. Alternatively, the Fund may enter into offsetting contracts for the forward sale of other securities that it owns. Short Term Trading and Portfolio Turnover. Short-term trading means the purchase and subsequent sale of a security after it has been held for a relatively brief period of time. The Fund may engage in short-term trading in response to stock market conditions, changes in interest rates or other economic trends and developments, or to take advantage of yield disparities between various fixed income securities in order to realize capital gains or improve income. Short term trading may have the effect of increasing portfolio turnover rate. A high rate of portfolio turnover (100% or greater) involves corresponding higher transaction expenses and may make it more difficult for the Fund to qualify as a regulated investment company for federal income tax purposes. The Fund intends to limit its short-term trading so that less than 30% of the Fund's gross annual income will be derived from gross realized gains on the sale of securities held for less than three months. Mortgage "Dollar Roll" Transactions. The Fund may enter into mortgage "dollar roll" transactions with selected banks and broker-dealers pursuant to which the Fund sells mortgage-backed securities and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. The Fund will only enter into covered rolls. A "covered roll" is a specific type of dollar roll for which there is an offsetting cash position or a cash equivalent security position which matures on or before the forward settlement date of the dollar roll transaction. Covered rolls are not treated as a borrowing or other senior security and will be excluded from the calculation of the Fund's borrowings and other senior securities. For financial reporting and tax purposes, the Fund treats mortgage dollar rolls as two separate transactions; one involving the purchase of a security and a separate transaction involving a sale. The Fund does not currently intend to enter into mortgage dollar roll transactions that are accounted for as a financing. Asset-Backed Securities. The Fund may invest a portion of its assets in asset- backed securities which are rated in the highest rating category by a nationally recognized statistical rating organization (e.g., Standard & Poor's Corporation or Moody's Investors Services, Inc.) or if not so rated, of equivalent investment quality in the opinion of the Adviser. Asset-backed securities are often subject to more rapid repayment than their stated maturity date would indicate as a result of the pass-through of prepayments of principal on the underlying loans. During periods of declining interest rates, prepayment of loans underlying asset-backed securities can be expected to accelerate. Accordingly, the Fund's ability to maintain positions in these securities will be affected by reductions in the principal amount of such securities resulting from prepayments, and its ability to reinvest the returns of principal at comparable yields is subject to generally prevailing interest rates at that time. 11 Credit card receivables are generally unsecured and the debtors on such receivables are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set-off certain amounts owed on the credit cards, thereby reducing the balance due. Automobile receivables generally are secured, but by automobiles rather than residential real property. Most issuers of automobile receivables permit the loan servicers to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the asset- backed securities. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in the underlying automobiles. Therefore, there is the possibility that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities. Rights and Warrants. The Fund may invest up to 5% of its total assets (at the time of purchase) in rights and warrants. However, this limitation does not apply to those warrants or rights (i) acquired as part of a unit or attached to other securities purchased by the Fund or (ii) acquired as part of a distribution from the issuer. Structured or Hybrid Notes. The Fund may invest in "structured" or "hybrid" notes. The distinguishing feature of a structured or hybrid note is that the amount of interest and/or principal payable on the note is based on the performance of a benchmark asset or market other than fixed income securities or interest rates. Examples of these benchmarks include stock prices, currency exchange rates and physical commodity prices. Investing in a structured note allows the Fund to gain exposure to the benchmark market while fixing the maximum loss that the Fund may experience in the event that market does not perform as expected. Depending on the terms of the note, the Fund may forego all or part of the interest and principal that would be payable on a comparable conventional note; the Fund's loss cannot exceed this foregone interest and/or principal. An investment in structured or hybrid notes involves risks similar to those associated with a direct investment in the benchmark asset. Swaps, Caps, Floor and Collars. As one way of managing its exposure to different types of investments, the Fund may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payment in different currencies, the parties might agree to exchange the notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to 12 receive payments to the extent that a specified interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor. Swap agreements will tend to shift the Fund's investment exposure from one type of investment to another. For example, if the Fund agreed to exchange payments in dollars for payments in a foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield. Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Fund's performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Fund may also suffer losses if it is unable to terminate outstanding swap agreements or reduce its exposure through offsetting transactions. The Fund will maintain in a segregated account with its custodian, cash or liquid, high grade debt securities equal to the net amount, if any, of the excess of the Fund's obligations over its entitlements with respect to swap, cap, collar or floor transactions. Participation Interests. Participation interests, which may take the form of interests in, or assignments of certain loans, are acquired from banks who have made these loans or are members of a lending syndicate. The Fund's investments in participation interests are subject to its 15% limitation on investments in illiquid securities. The Fund may purchase only those participation interest that mature in 60 days or less, or, if maturing in more than 60 days, that have a floating rate that is automatically adjusted at least once every 60 days. 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: 13 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 futures 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 interests 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. (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 14 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. (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, 15 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 16 Plan for Independent Trustees/Directors, purchase securities of other investment companies within the John Hancock Group of Funds provided that, as a result, (i) no more than 10% of the Fund's assets would be invested in securities of all other investment companies, (ii) such purchase would not result in more than 3% of the total outstanding voting securities of any one such investment company being held by the Fund and (iii) no more 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 the 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: 17
Name, Address Position(s) Held Principal Occupation(s) and Date of Birth With Trust During Past 5 Years - ----------------- ---------- ------------------- *Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive 101 Huntington Avenue Officer, the Adviser and The Boston, MA 02199 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"), Transamerica Fund Management Company ("TFMC") and Sovereign Asset Management Corporation ("SAMCorp"); (hereinafter 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. ("Distributors") until April 1994. * An "interested person" of the Company, as such term is defined in the Investment Company Act. (1) Member of the Executive Committee. Under the Company's charter, the Executive Committee may generally exercise most of the powers of the Board of Directors. (2) A Member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Administration Committee. 18 Name, Address Position(s) Held Principal Occupation(s) and Date of Birth With Trust During Past 5 Years - ----------------- ---------- ------------------- Dennis S. Aronowitz Trustee (1,2) Professor of Law, Boston University Boston University School of Law; Trustee, Brookline Boston, Massachusetts Savings Bank. June 1931 Richard P. Chapman, Jr. Trustee (1,2) President, Brookline Savings Bank. 160 Washington Street Director, Federal Home Loan Bank of Brookline, Massachusetts Boston (lending); Director, Lumber February 1935 Insurance Companies (fire and casualty insurance); Trustee, Northeastern University (education); Director, Depositors Insurance Fund, Inc. (insurance). William J. Cosgrove Trustee (1,2) Vice President, Senior Banker and 20 Buttonwood Place Senior Credit Officer, Citibank, Saddle River, New Jersey N.A. (retired September 1991); January 1933 Executive Vice President, Citadel Group Representatives, Inc.; EVP Resource Evaluation Inc. (consulting, October 1991 - October 1993); Trustee, the Hudson City Savings Bank (until October 1995). * An "interested person" of the Company, as such term is defined in the Investment Company Act. (1) Member of the Executive Committee. Under the Company's charter, the Executive Committee may generally exercise most of the powers of the Board of Directors. (2) A Member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Administration Committee. 19 Name, Address Position(s) Held Principal Occupation(s) and Date of Birth With Trust During Past 5 Years - ----------------- ---------- ------------------- Douglas M. Costle Trustee (1,2,3) Director, Chairman of the Board and RR2 Box 480 Distinguished Senior Fellow, Woodstock, Vermont 05091 Institute for Sustainable July 1939 Communities, Montpelier, Vermont (since 1991). Dean, Vermont Law School (until 1991). Director, Air and Water Technologies Corporation (environmental services and equipment), Niagara Mohawk Power Company (electric services) and MITRE Corporation (governmental consulting services). Leland O. Erdahl Trustee (1,2) Director of Santa Fe Ingredients 9449 Navy Blue Court Company of California, Inc. and Las Vegas, NV 89117 Santa Fe Ingredients Company, Inc. December 1928 (private food processing companies); Director of Uranium Resources, Inc.; President of Stolar, Inc. (from 1987-1991) and President of Albuquerque Uranium Corporation (from 1985-1992); Director of Freeport-McMoRan Copper & Cold Company Inc., Hecla Mining Company, Canyon Resources Corporation and Original Sixteen to One Mine, Inc. (from 1984-1987 and from 1991 to 1995) (management consultant). * An "interested person" of the Company, as such term is defined in the Investment Company Act. (1) Member of the Executive Committee. Under the Company's charter, the Executive Committee may generally exercise most of the powers of the Board of Directors. (2) A Member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Administration Committee. 20 Name, Address Position(s) Held Principal Occupation(s) and Date of Birth With Trust During Past 5 Years - ----------------- ---------- ------------------- Richard A. Farrell Trustee (1,2) President of Farrell, Healer & Co., Farrell, Healer & Company, Inc. (venture capital management firm) 160 Federal Street -- 23rd Floor (since 1980); Prior to 1980, headed Boston, MA 02110 the venture capital group at Bank November 1932 of Boston Corporation. Gail D. Fosler Trustee (1,2) Vice President and Chief Economist, 4104 Woodbine Street The Conference Board (non-profit Chevy Chase, MD economic and business research). December 1947 William F. Glavin Trustee (1,2) President, Babson College; Vice Babson College Chairman, Xerox Corporation until Horn Library June 1989; Director, Caldor Inc., Babson Park, MA 02157 Reebok, Ltd. (since 1994), and Inco March 1931 Ltd. Dr. John A. Moore Trustee (1,2) President and Chief Executive Institute for Evaluating Officer, Institute for Evaluating Health Risks Health Risks, (nonprofit 1101 Vermont Avenue N.W. institution) ( since September Suite 608 1989). Washington, DC 20005 February 1939 Patti McGill Peterson Trustee (1,2) President, St. Lawrence University; St. Lawrence University Director, Niagara Mohawk Power 110 Vilas Hall Corporation and Security Mutual Canton, NY 13617 Life. May 1943 * An "interested person" of the Company, as such term is defined in the Investment Company Act. (1) Member of the Executive Committee. Under the Company's charter, the Executive Committee may generally exercise most of the powers of the Board of Directors. (2) A Member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Administration Committee. 21 Name, Address Position(s) Held Principal Occupation(s) and Date of Birth With Trust During Past 5 Years - ----------------- ---------- ------------------- John W. Pratt Trustee (1,2) Professor of Business 2 Gray Gardens East Administration at Harvard Cambridge, MA 02138 University Graduate School of September 1931 Business Administration (since 1961). *Richard S. Scipione Trustee (3) General Counsel, the Life Insurance John Hancock Place Company; Director, the Adviser, the P.O. Box 111 Affiliated Companies, John Hancock Boston, Massachusetts Distributors, Inc., JH Networking August 1937 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 (1,2,4) Partner, KPMG Peat Marwick LLP 259C Commercial Bld. (retired June 1990). Lauderdale, FL November 1932 Anne C. Hodsdon Trustee and President (3)(4) President and Chief Operating 101 Huntington Avenue Officer, the Adviser; Executive Boston, MA 02199 Vice President, the Adviser (until April 1953 December 1994); Senior Vice President; the Adviser (until December 1993); Vice President, the Adviser, 1991.
* An "interested person" of the Company, as such term is defined in the Investment Company Act. (1) Member of the Executive Committee. Under the Company's charter, the Executive Committee may generally exercise most of the powers of the Board of Directors. (2) A Member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Administration Committee. 22 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 during its most recently completed fiscal year and the other investment companies in the John Hancock Fund Complex to the Independent Trustees for their services. Trustees not listed below were not Trustees of the Fund during its most recently completed fiscal year. 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. Total Compensation Aggregate From the Fund Compensation and John Hancock Independent From the Fund Complex to Trustees Fund* Trustees1 -------- ----- --------- (Total of 18 Funds) Dennis S. Aronowitz $ 20,323 $ 61,050 Richard P. Chapman+ 20,994 62,800 William J. Cosgrove+ 20,323 61,050 Gail D. Fosler 20,323 60,800 Bayard Henry** 19,605 58,850 Edward J. Spellman 20,323 61,050 ------ ------ $121,891 $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. + As of December 31, 1995, the value of the aggregate accrued deferred compensation amount from all funds in the John Hancock Fund Complex for Mr. Chapman was $54,681 and for Mr. Cosgrove was $54,243 under the John Hancock Deferred Compensation Plan for Independent Trustees. ** Mr. Henry retired from his position as Trustee effective April 26, 1996. As of May 31, 1996, the officers and trustees of the Trust as a group owned less than 1% of the outstanding shares of each class of the Fund. 23 As of May 31, 1996, the following shareholders beneficially owned 5% of or more of the outstanding shares of the Funds listed below:
Percentage of Number of total shares of outstanding shares beneficial of the Fund and Class interest class Name and Address of Shareholder of Shares owned of the Fund - ------------------------------- --------- ----- ----------- Merrill Lynch Pierce Fenner & Class B shares 747,226 9.79% Smith, Inc. 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 and (ii) supervision of all aspects of the Fund's operations except those delegated to a custodian, transfer agent or other agent. 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 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. 24 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. 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 assets, 2% of the next $70,000,000 of such net assets, and 1 1/2% of the 25 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 $18 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. 26 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 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% for Class A and Class B, 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 will be used to reimburse the Distributor for its distribution expenses, including but not limited to: (i) initial and ongoing sales compensation to Selling Brokers and others (including affiliates of the Distributor) engaged in the sale of Fund shares; (ii) marketing, promotional and overhead expenses incurred in connection with the distribution of Fund shares; and (iii) with respect to Class B shares only, interest expenses on unreimbursed distribution expenses. The service fees will be used to compensate Selling Brokers for providing personal and account maintenance services to shareholders. In the event that John Hancock Funds is not fully reimbursed for expenses incurred by it under the Class B Plan in any fiscal year, John Hancock Funds may carry these expenses forward, provided, however that the Trustees may terminate the Class B Plan and, thus, the Fund's obligation to make further payments at any time. Accordingly, the Fund does not treat unreimbursed expenses relating to the Class B shares as a liability of the Fund. The Plans were approved by a majority of the voting securities of the Fund. The Plans and all amendments were approved by the Trustees, including a majority of the Trustees who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plans (the "Independent Trustees"), by votes cast in person at meetings called for the purpose of voting on 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. 27 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 Interest Mailing of Compensation Expenses of Carrying or Prospectus to to Selling John Hancock Other Finance Advertising New Shareholders Brokers Funds Charges ----------- ---------------- ------- ----- ------- 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 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. 28 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 The Fund will not price its securities on the following national holidays: New Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and Christmas Day. 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. Trading of foreign securities may take place on Saturdays and U.S. business holidays on which a Fund's NAV is not calculated. Consequently, a Fund's portfolio securities may trade and the NAV of the Fund's redeemable securities may be significantly affected on days when a shareholder has no access to the Fund. INITIAL SALES CHARGE ON CLASS A SHARES Class A shares of the Fund are offered at a price equal to their net asset value plus a sales charge which, at the option of the purchaser, may be imposed either at the time of purchase (the "initial sales charge alternative") or on a contingent deferred basis (the "deferred sales charge alternative"). Share certificates will not be issued unless requested by the shareholder in writing, and then they will only be issued for full shares. The Trustees reserve the right to change or waive a Fund's minimum investment requirements and to reject any order to purchase shares (including purchase by exchange) when in the judgment of the Adviser such rejection is in the Fund's best interest. The sales charges applicable to purchases of Class A shares of the 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. 29 Without Sales Charges. Class A shares may be offered without a front-end sales charge or CDSC to various individuals and institutions as follows: o Any state, county 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. o A bank, trust company, credit union, savings institution or other depository institution, its trust departments or common trust funds if it is purchasing $1 million or more for non-discretionary customers or accounts. o 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 (spouse, children, mother, father, sister, brother, mother-in-law, father-in-law) of any of the foregoing; or any fund, pension, profit sharings or other benefit plan for the individuals described above. o A broker, dealer, financial planner, consultant or registered investment advisor that has entered into an agreement with John Hancock Funds providing specifically for the use of Fund shares in fee-based investment products or services made available to their clients. o 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. o A member of an approved affinity group financial services plan. Class A shares may also be acquired without an initial sales charge in connection with certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. 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 30 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 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. No CDSC will be imposed on 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 31 payments during a month will be aggregated and deemed to have been made on the first day of the month. 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 and capital gain reinvestment, and next from the shares you have held the longest during the six-year period. For this purpose, the amount of any increase in a share's value above its initial purchase price is not regarded as a share exempt from CDSC. Thus, when a share that has appreciated in value is redeemed during the CDSC period, a CDSC is assessed only on its initial purchase price. Upon redemption, appreciation is effective only on a per share basis for those shares being redeemed. Appreciation of shares cannot be redeemed CDSC free at the account level. When requesting a redemption for a specific dollar amount please indicate if you require the proceeds to equal the dollar amount requested. If not indicated, only the specified dollar amount will be redeemed from your account and the proceeds will be less any applicable CDSC. 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: * Proceeds of 50 shares redeemed at $12 per share $600 * Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment) -120 * Minus appreciation on remaining shares (40 shares X $2) -80 ---- * Amount subject to CDSC $400 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. 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 CDSC, unless indicated otherwise, in the circumstances defined below: 32 * Redemptions made pursuant to the Fund's right to liquidate your account if you own shares worth less than $1,000. * Redemptions made under certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. * Redemptions due to death or disability. * Redemptions made under the Reinstatement Privilege, as described in "Sales Charge Reductions and Waivers" of the Prospectus. For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing Plan and other plans qualified under the Code) unless otherwise noted. * Redemptions made to effect mandatory distributions under the Internal Revenue Code after age 70 1/2. * Returns of excess contributions made to these plans. * Redemptions made to effect distributions to participants or beneficiaries from employer sponsored retirement plans such as 401k, 403b, 457. In all cases, the distribution must be free from penalty under the Code. * Redemptions made to effect distributions from an Individual Retirement Account either before age 59 1/2 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. * Redemptions from certain IRA and retirement plans that purchased shares prior to October 1, 1992 and certain IRA plans that purchased shares prior to May 15, 1995. For non-retirement accounts (please see above for retirement account waivers): * Redemptions of Class B shares made under a periodic withdrawal plan, as long as your annual redemptions do not exceed 10% of your account value at the time you established your periodic withdrawal plan and 10% of the value of subsequent investments (less redemptions) in that account at the time you notify Investor Services. (Please note, this waiver does not apply to periodic withdrawal plan redemptions of Class A shares that are subject to a CDSC.) Please see matrix for reference. 33
- ------------------------------------------------------------------------------------------------------ 401(a) Plan Type of (401(k), MPP, IRA, IRA Distribution PSP) 403(b) 457 Rollover Non-retirement - ------------------------------------------------------------------------------------------------------ Death or Waived Waived Waived Waived Waived Disability - ------------------------------------------------------------------------------------------------------ Over 70 1/2 Waived Waived Waived Waived 10% of account value annually in periodic payments - ------------------------------------------------------------------------------------------------------ Between 59 1/2 Only Life 10% of account and 70 1/2 Waived Waived Waived Expectancy value annually in periodic payments - ------------------------------------------------------------------------------------------------------ Under 59 1/2 Waived for rollover, or annuity payments. Not 10% of account waived if paid Waived for Waived for Waived for value annually directly to annuity annuity annuity in periodic participant. payments payments payments payments - ------------------------------------------------------------------------------------------------------ Loans Waived Waived N/A N/A N/A - ------------------------------------------------------------------------------------------------------ Termination of Not Waived Not Waived Not Waived Not Waived N/A Plan - ------------------------------------------------------------------------------------------------------ Return of Waived Waived Waived Waived N/A Excess - ------------------------------------------------------------------------------------------------------
If you qualify for a CDSC waiver under one of these situations, you must notify Investor Services at the time you make your redemption. The waiver will be granted once Investor Services has confirmed that you are entitled to the waiver. 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. 34 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 recognition 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. 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 35 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 for differences resulting from the facts that (i) the distribution and service fees relating to Class A and Class B shares will be borne exclusively by that class, (ii) Class B shares will pay higher distribution and service fees than Class A shares and (iii) each 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 a multiple-class structure. Similarly, the net asset value per share may vary depending on the class of shares purchased. 36 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. 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. TAX STATUS The Fund has qualified and has elected to be treated as a "regulated investment company" under Subchapter M of 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 in accordance with the timing requirements of the Code. 37 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 seek to avoid or minimize liability for such tax by satisfying such distribution requirements. Distributions from the Fund's current or accumulated earnings and profits ("E&P") will be taxable under the Code for investors who are subject to tax. If these distributions are paid from the Fund's "investment company taxable income," they will be taxable as ordinary income; and if they are paid from the Fund's "net capital gain," they will be taxable as long-term capital gain. (Net capital gain is the excess (if any) of net long-term capital gain over net short-term capital loss, and investment company taxable income is all taxable income and capital gains, other than net capital gain, after reduction by deductible expenses.) Some distributions from investment company taxable income and/or net capital gain may be paid in January but may be taxable to shareholders as if they had been received on December 31 of the previous year. The tax treatment described above will apply without regard to whether distributions are received in cash or reinvested in additional shares of the Fund. Distributions, if any, in excess of E&P will constitute a return of capital under the Code, which will first reduce an investor's federal tax basis in Fund shares and then, to the extent such basis is exceeded, will generally give rise to capital gains. Shareholders who have chosen automatic reinvestment of their distributions will have a federal tax basis in each share received pursuant to such a reinvestment 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 in the reinvestment. 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. Consequently, subsequent distributions on these shares from such appreciation may be taxable to such investor even if the net asset value of the investor's shares is, as a result of the distributions, reduced below the investor's cost for such shares, and the distributions in reality represent a return of a portion of the purchase price. Upon a redemption of shares of the Fund (including by exercise of the exchange privilege) a shareholder will ordinarily realize a taxable gain or loss depending upon the amount of the proceeds and the investor's 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 and subject to the special rules described below. A sales charge paid in purchasing Class A shares of the Fund cannot be taken into account for purposes 38 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 automatic dividend reinvestments. 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, at least annually, all net capital gain, 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 capital gain realized in any year to the extent that a capital loss is carried forward from prior years against such gain. To the extent such excess was retained and not exhausted by the carryforward of prior years' capital losses, it would be subject to Federal income tax in the hands of the Fund. Upon proper designation of this amount by the Fund, each shareholder would be treated for Federal income tax purposes as if the Fund had distributed to him on the last day of its taxable year his pro rata share of such excess, and he had paid his pro rata share of the taxes paid by the Fund and reinvested the remainder in the Fund. Accordingly, each shareholder would (a) include his pro rata share of such excess as long-term capital gain 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 his pro rata share of these taxes. For Federal income tax purposes, the Fund is permitted to carry forward a net capital loss in any year to offset net capital gains, if any, during the eight years following the year of the loss. To the extent subsequent net capital gains are offset by such losses, they would not result in Federal income tax liability to the Fund and, as noted above, would not be distributed 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. Dividends and capital gain distributions from the Fund will not qualify for the dividends-received deduction for corporations. 39 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, if any. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes in some cases. Because more than 50% of the Fund's assets at the close of any taxable year will generally not consist of stocks or securities of foreign corporations, the Fund will generally be unable to pass through such taxes to its shareholders, who will therefore generally not be entitled to any foreign tax credit or deduction with respect to their investment in the Fund. The Fund will deduct such taxes in determining the amount it has available for distribution to shareholders. The Fund is required to accrue income on any debt securities that have more than a de minimus amount of original issue discount (or debt securities acquired at a market discount, if the Fund elects to include market discount in income currently) prior to the receipt of the corresponding cash payments. The mark to market rules applicable to certain options and futures contracts may also require the Fund to recognize gain within a concurrent receipt of cash. However, the Fund must distribute to shareholders for each taxable year substantially all of its net income and net capital gains, including such income or liability for any federal income or excise tax. 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 these distribution requirements. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent (if any) the Fund's distributions are derived from interest on (or, in the case of intangible 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 Fund will not seek to satisfy any threshold or reporting requirements that may apply in particular taxing jurisdictions, although the Fund may in its sole discretion provide relevant information to shareholders. The Fund will be required to report to the Internal Revenue Service (the "IRS") all taxable distributions to shareholders, as well as gross proceeds from the redemption or exchange of Fund shares, except in the case of certain exempt recipients, i.e., corporations and certain other investors distributions to which are exempt from the information reporting provisions of the Code. Under the backup withholding provisions of Code Section 3406 and applicable Treasury regulations, all such reportable distributions and proceeds may be subject to backup withholding of federal income tax at the rate of 31% in the case of non-exempt shareholders who fail to furnish the Fund with their correct taxpayer identification number and certain certifications required by the IRS or if the 40 IRS or a broker notifies the Fund that the number furnished by the shareholder is incorrect or that the shareholder is subject to backup withholding as a result of failure to report interest or dividend income. The Fund may refuse to accept an application that does not contain any required taxpayer identification number or certification that the number provided is correct. If the backup withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in shares, will be reduced by the amounts required to be withheld. Any amounts withheld may be credited against a shareholder's U.S. federal income tax liability. Investors should consult their tax advisers about the applicability of the backup withholding provisions. 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 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. Certain options and futures transactions undertaken by the Fund may cause the Fund to recognize gains or losses from marking to market even though its positions have not been sold or terminated and affect the character as long-term or short-term and timing of some capital gains and losses realized by the Fund. Also, some of the Fund's losses on its transactions involving options and futures contracts and/or offsetting or successor portfolio positions may be deferred rather than being taken into account currently in calculating the Fund's taxable income or gain. Certain of such transactions may also cause the Fund to dispose of investments sooner than would otherwise have occurred. These transactions may thereafter affect the amount, timing and character of the Fund's distributions to shareholders. 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. The Fund will take into account the special tax rules (including consideration of available elections) applicable to options and futures transactions in order to seek 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 41 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. Shareholders should consult their own tax advisers as to the Federal, state or local tax consequences of ownership of shares of, and receipt of distributions from, the Fund in their particular circumstances. Non-U.S. investors not engaged in a U.S. trade or business with which their Fund investment is effectively connected will be subject to U.S. Federal income tax treatment that is different from that described above. These investors may be subject to nonresident alien withholding tax at the rate of 30% (or a lower rate under an applicable tax treaty), on amounts treated as ordinary dividends from the Fund and, unless an effective IRS Form W-8 or authorized substitute for Form W-8 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: 42 Yield = 2 ([(a - b) + 1] 6 - 1) Where: a = dividends and interest earned during the period. b = net expenses accrued during the period. c = the average daily number of fund shares outstanding during the period that would be entitled to receive dividends. d = the maximum offering price per share on the last day of the period (NAV where applicable). The Fund's total return is computed by finding the average annual compounded rate of return over the 1 year, 5 year and 10 year periods that would equate the initial amount invested to the ending redeemable value according to the following formula: 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 43 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. 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 44 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 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, Tucker Anthony Incorporated, John Hancock Distributors, Inc. ("Distributors") 45 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 Trustees believe to be contemporaneously charged by other brokers in connection with comparable transactions involving similar securities being purchased or sold. A transaction would not be placed with an Affiliated Broker if the Fund would have to pay a commission rate less favorable than the Affiliated Broker's contemporaneous charges for comparable transactions for its other most favored, but unaffiliated, customers except for accounts for which the Affiliated Broker acts as a clearing broker for another brokerage firm, and any customers of the Affiliated Broker not comparable to the Fund as determined by a majority of the Trustees who are not interested persons (as defined in the 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 Class A shareholder account and $22.50 per Class B 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. 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. 46 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. 47 APPENDIX Moody's describes its lower ratings for corporate bonds as follows: Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterized bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Bonds which are rated Ca represented obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Standard & Poor's describes its lower ratings for corporate bonds as follows: Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. Debt rated 'BB,' 'B,' 'CCC,' or 'CC' is regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligations. 'BB' indicates the lowest degree of speculation and 'CC' the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. Moody's describes its three highest ratings for commercial paper as follows: Issuers rated P-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-1 repayment capacity will normally be evidenced by the following characteristics: (1) leading market positions in well- established industries; (2) high rates of return on funds employed; (3) conservative capitalization structures with moderate reliance on debt and ample asset protections; (4) broad margins in earnings coverage of fixed financial charges and high internal cash generation; and (5) well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated P-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated P-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Standard & Poor's describes its lower ratings for corporate bonds as follows: BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB, B, CCC, CC, C Debt rated 'BB', 'B', 'CCC', 'CC" and 'C' is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. 'BB' indicates the lowest degree of speculation and 'C' the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. BB Debt rated 'BB' has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The 'BB' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BBB-' rating. A-2 B Debt rated 'B' has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The 'B' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-' rating. CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The 'CCC' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'B' or 'B-' rating. CC The rating 'CC' is typically applied to debt subordinated to senior debt that is assigned an actual or implied 'CCC' rating. C The rating 'C' is typically applied to debt subordinated to senior debt which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. Standard & Poor's describes its three highest ratings for commercial paper as follows: A-1. This designation indicated that the degree of safety regarding timely payment is very strong. A-2. Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as overwhelming as for issues designated A-1. A-3. Issues carrying this designation have a satisfactory capacity for timely payment. They are, however, somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. Issuers rated P-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated P-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. A-3 FINANCIAL STATEMENTS F-1 PART C. OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) The financial statements listed below are included in and incorporated by reference into Part B of the Registration Statement from the 1995 Annual Report to Shareholders for the year ended December 31, 1995 (filed electronically on February 26, 1996; file nos. 811-2402 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 May 31, 1996, the number of record holders of shares of Registrant was as follows: Title of Class Number of Record Holders -------------- ------------------------ Class A Shares - 171,113 Class B Shares - 8,226 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 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 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 21st day of June, 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 - ----------------------- (Principal Executive Officer) Edward J. Boudreau, Jr. /s/James B. Little Senior Vice President and Chief - ----------------------- Financial Officer (Principal June 21, 1996 James B. Little Financial and Accounting Officer) * Trustee - ----------------------- Dennis S. Aronowitz * Trustee - ----------------------- Richard P. Chapman, Jr. * Trustee - ----------------------- William J. Cosgrove * Trustee - ----------------------- Gail D. Fosler C-9 Signature Title Date --------- ----- ---- - ----------------------- Trustee Anne C. Hodsdon * Trustee - ----------------------- Richard S. Scipione * Trustee - ----------------------- Edward J. Spellman *By: /s/Thomas H. Drohan ------------------- June 21, 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.* 27.1 Class A+ 27.2 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. ** Previously filed electronically with post-effective amendment number 40 (file nos. 811-2402 and 2-48925) on April 29, 1996, accession number 0001010521-96-000046. + Filed herewith. EX-99.B11 2 AUDITOR'S CONSENT CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the references to our firm under the captions "Financial Highlights" for Sovereign Bond Fund in the John Hancock Income Funds Prospectus and "Independent Auditors" in the John Hancock Sovereign Bond Fund Class A and Class B Shares Statement of Additional Information and to the use of our report on the financial statements and financial highlights of the John Hancock Sovereign Bond Fund dated February 9, 1996 in this Post-Effective Amendment Number 41 to Registration Statement (Form N-1A No.2-48925) dated August 30, 1996. /s/ERNST & YOUNG LLP ERNST & YOUNG LLP Boston, Massachusetts June 21, 1996 EX-27.1 3
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-27.2 4
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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