<PAGE> 1
JOHN HANCOCK
CASH RESERVE, INC.
PROSPECTUS
MAY 1, 1995
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TABLE OF CONTENTS
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Page
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Expense Information................................................................... 2
The Fund's Financial Highlights....................................................... 3
Investment Objective and Policies..................................................... 4
Organization and Management of the Fund............................................... 6
The Fund's Expenses................................................................... 6
Dividends and Taxes................................................................... 6
How to Buy Shares..................................................................... 8
Share Price........................................................................... 9
How to Redeem Shares.................................................................. 10
Additional Services and Programs...................................................... 12
Investments, Techniques and Risk Factors.............................................. 15
</TABLE>
This Prospectus sets forth the information about John Hancock Cash Reserve,
Inc. (the "Fund"), a diversified Fund, that you should know before investing.
Please read and retain it for future reference.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Additional information about the Fund has been filed with the Securities and
Exchange Commission (the "SEC"). You can obtain a copy of the Fund's Statement
of Additional Information, dated May 1, 1995, and incorporated by reference into
this Prospectus, free of charge by writing or telephoning: John Hancock Investor
Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116,
1-800-225-5291 (1-800-554-6713 TDD).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 2
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various fees and expenses you will bear, directly or indirectly, when you
purchase Fund shares. The operating expenses included in the table and
hypothetical example below are based on fees and expenses for the Fund's fiscal
year ended December 31, 1994 adjusted to reflect certain current fees and
expenses. Actual fees and expenses may be greater or less than those shown.
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SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a percentage of offering price)...................................... None
Maximum sales charge imposed on reinvested dividends............................................................... None
Maximum deferred sales charge...................................................................................... None
Redemption fee+.................................................................................................... None
Exchange fee....................................................................................................... None
ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets)
Management fee..................................................................................................... 0.35%
12b-1 fee.......................................................................................................... 0.00%
Other expenses*.................................................................................................... 0.27%
Total Fund operating expenses...................................................................................... 0.62%
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* Other Expenses include transfer agent, legal, audit, custody and other
expenses.
+ Redemption by wire fee (currently $4.00) not included.
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EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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You would pay the following expenses for the indicated period of years on a
hypothetical $1,000 investment, assuming 5% annual return........................ $ 7 $ 23 $ 41 $ 104
</TABLE>
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.)
The management fees referred to above are more fully explained in this
Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the caption "Investment Advisory and Other
Services."
2
<PAGE> 3
THE FUND'S FINANCIAL HIGHLIGHTS
The following selected data have been audited by Ernst & Young LLP, the Fund's
independent auditors. Further financial data and Ernst & Young's report on the
Fund's financial statements and Financial Highlights are available in the Annual
Report to Shareholders, which is included in the Statement of Additional
Information. Additional information about the performance of the Fund is
contained in the Fund's Annual Report to Shareholders which may be obtained free
of charge by writing or telephoning John Hancock Investor Services Corporation
("Investor Services"), at the address or telephone number listed on the front
page of this Prospectus.
Selected data for each share outstanding throughout each period is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
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1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
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PER SHARE
INCOME AND
CAPITAL
CHANGES
FOR A
SHARE
OUTSTANDING
DURING
EACH YEAR:
Net asset
value,
beginning
of year.... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM
INVESTMENT
OPERATIONS
Net
investment
income..... 0.037 0.026 0.033 0.056 0.078 0.088 0.072 0.063 0.064 0.079
LESS
DISTRIBUTIONS
Dividends
from net
investment
income..... (0.037) (0.026) (0.033) (0.056) (0.078) (0.088) (0.072) (0.063) (0.064) (0.079)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset
value, end
of year.... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
========== ========== ========== ========== ========== ========== ========== ========== ========== ==========
TOTAL
RETURN..... 3.74% 2.60% 3.33% 5.79% 8.05% 9.20% 7.40% 6.43% 6.61% 8.19%
========== ========== ========== ========== ========== ========== ========== ========== ========== ==========
RATIOS AND
SUPPLEMENTAL
DATA
Ratio of
expenses to
average net
assets..... 0.62% 0.66% 0.63% 0.57% 0.46% 0.45% 0.45% 0.49% 0.54% 0.55%
Ratio of net
investment
income to
average net
assets..... 3.72% 2.58% 3.34% 5.66% 7.78% 8.85% 7.21% 6.36% 6.55% 8.10%
Net Assets,
end of year
(in
thousands)... $142,301 $130,405 $266,349 $416,198 $556,860 $444,299 $429,700 $416,066 $324,612 $301,044
</TABLE>
YIELD INFORMATION
For the seven days ended December 31, 1994, the Fund's annualized yield and
effective yield were 5.13% and 5.25%, respectively. On December 31, 1994, the
Fund's average portfolio maturity was 31 days.
Current information on the Fund's annualized yield during a recent seven-day
period may be obtained by calling the Easi-Line at 1-800-338-8080 or a customer
service representative, 1-800-225-5291.
For information on how the Fund calculates its annualized yield see the
Statement of Additional Information.
3
<PAGE> 4
INVESTMENT OBJECTIVE AND POLICIES
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THE FUND SEEKS TO OBTAIN MAXIMUM CURRENT
INCOME CONSISTENT WITH THE PRESERVATION OF
CAPITAL AND MAINTENANCE OF LIQUIDITY.
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The Fund invests in high quality money market instruments maturing within one
year from the date of purchase with an average portfolio maturity of 90 days or
less. The Fund seeks to maximize current income from these short-term
investments to the extent consistent with maintaining liquidity and preserving
capital. The Fund will invest in U.S. dollar denominated instruments of the
following types:
- -- high quality, short-term corporate obligations including commercial paper,
notes and bonds.
- -- obligations of financial institutions including U.S. and Canadian banks
(including their foreign branches) and U.S. savings loan associations.
- -- obligations of U.S. and Canadian governments and their agencies or
instrumentalities.
- -- other short-term debt obligations with remaining maturities of 365 days or
less.
Securities in which the Fund invests may not earn as high a level of current
income as long-term or lower quality securities which generally have less
liquidity, greater market risk and more fluctuation in market value. The return
on an investment in the Fund will depend on the interest earned by the Fund's
investments after expenses of the Fund are deducted. The return is paid to
shareholders in the form of dividends.
The Fund seeks to maintain a net asset value of $1.00 per share at all times.
There can be no assurance that the Fund will be able to maintain a constant
$1.00 share price. However, because the Fund purchases high quality U.S.
government securities with short maturities, this policy helps to minimize any
price decreases or increases that could result from changes in interest rates or
an issuer's creditworthiness.
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THE FUND SEEKS TO MAINTAIN A CONSTANT
$1.00 SHARE PRICE.
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The Fund will invest only in U.S. dollar denominated securities determined by
the Board of Directors to present minimal credit risk and which are rated high
quality by any major rating service or, if unrated, determined to be of
comparable quality by the Board of Directors. These include commercial paper and
similar short-term obligations of U.S. issuers which generally meet the highest
quality standards at the time of investment, in conformity with securities
regulations governing money market mutual funds. The Fund may also purchase
other marketable, non-convertible corporate debt securities of U.S. issuers.
These investments include bonds, debentures, floating rate obligations, and
issues with optional maturities which in each case must have remaining
maturities of one year or less and be rated at least AA by Standard and Poor's
Ratings Group ("S&P") or Aa by Moody's Investor Services, Inc. ("Moody's") at
the time of investment. See the "Statement of Additional Information" for a
description of S&P and Moody's ratings.
Investments will also include bank obligations such as certificates of deposit,
time or demand deposits and bankers acceptances. Bank obligations are limited to
U.S. or Canadian banks having total assets over $1 billion. Investments in
savings
4
<PAGE> 5
association obligations are limited to U.S. savings and loan associations with
total assets over $1 billion. Investments in bank obligations may include
instruments issued by foreign branches of U.S. or Canadian banks. The Fund may
invest in U.S. Government securities, U.S. dollar denominated securities issued
or guaranteed by the Government of Canada, a Province of Canada, or their
instrumentalities in an amount not to exceed 10% of its total assets at the time
of purchase of such government securities. The Fund may enter into repurchase
agreements, invest in restricted securities and is authorized to invest in
participation interests and to purchase securities on a delayed delivery basis.
In addition, the Fund is authorized, but presently does not intend, to engage in
reverse repurchase agreements and invest in variable amount master notes. See
Statement of Additional Information for discussion of these instruments.
The Fund has adopted certain investment restrictions which are enumerated in
detail in the Statement of Additional Information where they are classified as
fundamental or nonfundamental. Those restrictions designated as fundamental may
not be changed without shareholder approval. The Fund's investment objective,
policies and restrictions, except as noted, are fundamental and may not be
changed without the approval of the Fund's shareholders. Notwithstanding the
Fund's investment restriction prohibiting investments in other investment
companies, the Fund may, pursuant to an order granted by the SEC, invest in
other investment companies in connection with a deferred compensation plan for
the non-interested trustees of the John Hancock of Funds. There can be no
assurance that the Fund will achieve its investment objective.
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THE FUND FOLLOWS CERTAIN POLICIES WHICH
MAY HELP TO REDUCE INVESTMENT RISK.
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RISK FACTORS. It is important to note that unlike the government securities in
which the Fund may invest, shares of the Fund are neither insured nor
guaranteed. Because interest rates on money market instruments fluctuate in
response to economic factors, the rates on short-term investments made by the
Fund and the daily dividend paid to investors will vary rising or falling with
short-term rates generally. Many obligations in which the Fund invests are not
guaranteed by any governmental agency. For additional information about risks
associated with an investment in the Fund, see "Investments, Techniques and Risk
Factors."
The primary consideration in choosing brokerage firms to carry out the Fund's
transactions is execution at the most favorable prices, taking into account the
broker's professional ability and quality of service. Consideration may also be
given to the broker's sales of Fund shares. Pursuant to procedures determined by
the Directors, the John Hancock Advisers, Inc. (the "Adviser") may place
securities transactions with brokers affiliated with the Fund's investment
adviser. The brokers include Tucker Anthony Incorporated, Sutro and Company,
Inc. and John Hancock Distributors, Inc., which are indirectly owned by the John
Hancock Mutual Life Insurance Company (the "Life Company"), which in turn
indirectly owns the Adviser.
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BROKERS ARE CHOSEN ON BEST PRICE AND
EXECUTION.
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5
<PAGE> 6
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a diversified open-end management investment company organized as a
Maryland Corporation in 1980. The Fund reserves the right to create and issue a
number of series of shares which are separately managed and have different
investment objectives. The Fund is not required to and does not intend to hold
annual meetings of shareholders, although special meetings may be held for such
purposes as electing or removing Directors, changing fundamental policies or
approving a management contract. The Fund, under certain circumstances, will
assist in shareholder communications with other shareholders.
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THE DIRECTORS ELECT OFFICERS AND RETAIN
THE INVESTMENT ADVISER WHO IS RESPONSIBLE
FOR THE DAY-TO-DAY OPERATIONS OF THE FUND,
SUBJECT TO THE DIRECTORS' POLICIES AND
SUPERVISION.
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The Adviser was organized in 1968 and is a wholly owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Fund,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds, Inc.
("John Hancock Funds") distributes shares for all of the John Hancock mutual
funds through brokers with agreements with John Hancock Funds ("Selling
Brokers"). Certain Fund officers are also officers of the Adviser and John
Hancock Funds.
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JOHN HANCOCK ADVISERS, INC. ADVISES
INVESTMENT COMPANIES HAVING A TOTAL ASSET
VALUE OF MORE THAN $13 BILLION.
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In order to avoid any conflict with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities trading
by personnel of the Adviser and its affiliates. Some of these restrictions are:
preclearance for all personal trades and a ban on the purchase of initial public
offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a monthly fee to
the Adviser. During the Fund's most recent fiscal year, the advisory fee was
0.35% of the Fund's average daily net assets. Information on the Fund's total
expenses is in the Financial Highlights section of the Prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. Dividends from the Fund's net investment income are declared daily
and paid monthly. You will begin earning income on the day following receipt in
good order by Investors Bank and Trust Company of payment for Fund shares.
Dividends are reinvested in additional shares of the Fund unless you elect the
option to receive them in cash. If you elect the cash option and the U.S. Postal
Service cannot deliver your checks, your election will be converted to the
reinvestment option.
TAXATION. Dividends from the Fund's net investment income and net short-term
capital gains are taxable to you as ordinary income. Dividends from the Fund's
net long-term capital gains, if any, are taxable as long-term capital gain. The
Fund does not anticipate that it will generally realize any long-term capital
gains. Dividends are taxable, whether received in cash or reinvested in
additional shares. Certain dividends may be paid by the Fund in January of a
given year but may be
6
<PAGE> 7
treated as if you received them the previous December. The Fund will send you a
statement by January 31 showing the federal tax status of the dividends you
received for the prior year.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, the Fund will not be
subject to Federal income tax on any net investment income or net realized
capital gains distributed to its shareholders within the time period prescribed
by the Code. On the account application, you must certify that the social
security or other taxpayer identification number you provide is your correct
number and that you are not subject to backup withholding of Federal income tax.
If you do not provide this information or are otherwise subject to this
withholding, the Fund may be required
to withhold 31% of your dividends.
In addition to Federal taxes, you may be subject to state and local or foreign
taxes with respect to your investment in and distributions from the Fund. A
state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the Fund's distributions are
derived from interest on (or, in the case of intangibles taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in some
states that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Non-U.S. shareholders and tax-exempt shareholders
are subject to different tax rules not described herein. You should consult your
tax adviser for specific advice.
7
<PAGE> 8
<TABLE>
HOW TO BUY SHARES
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<S> <C> <C>
The minimum initial investment is $2,500 ($250 for retirement plans). Complete the
Account Application attached to this Prospectus.
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OPENING AN ACCOUNT
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
BY CHECK 1. Make your check payable to John Hancock Investor Services
Corporation ("Investor Services"), P.O. Box 9115, Boston, MA
02205-9115.
2. Deliver the completed application and check to your registered
representative or a Selling Broker or mail it directly to
Investor Services.
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BY WIRE 1. Obtain an account number by contacting your registered
representative or Selling Broker, or by calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Cash Reserve, Inc.
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative or Selling Broker or mail it directly to
Investor Services.
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BUYING ADDITIONAL SHARES
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
MONTHLY 1. Complete the "Automatic Investing" and "Bank Information"
AUTOMATIC sections on the Account Privileges Application designating a
ACCUMULATION bank account from which funds may be drawn.
PROGRAM 2. The amount you elect to invest will be automatically withdrawn
(MAAP) from your bank or credit union account.
- ---------------------------------------------------------------------------------------
BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information" sections
on the Account Privileges Application designating a bank
account from which your funds may be drawn. Note that in order
to invest by phone, your account must be in a bank or credit
union that is a member of the Automated Clearing House system
(ACH).
2. After your authorization form has been processed, you may
purchase additional shares by calling Investor Services
toll-free 1-800-225-5291.
3. Give the Investor Services representative the name(s) in which
your account is registered, the Fund name, your account number,
and the amount you wish to invest.
4. Your investment normally will be credited to your account the
business day following your phone request.
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</TABLE>
8
<PAGE> 9
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BUYING ADDITIONAL
SHARES (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
BY CHECK 1. Either complete the detachable stub included on your account
statement or include a note with your investment listing the
name of the Fund, your account number and the name(s) in which
the account is registered.
2. Make your check payable to John Hancock Investor Services
Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling
Broker.
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BY WIRE Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Cash Reserve Inc.
Your Account Number
Name(s) under which account is registered
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Other Requirements: All purchases must be made in U.S. dollars. Checks written on
foreign banks will delay purchases until U.S. funds are received, and a collection
charge may be imposed. Wire purchases normally take two or more hours to complete
and, to be accepted the same day, must be received by 4:00 P.M., New York time.
Your bank may charge a fee to wire funds. Telephone transactions are recorded to
verify information. Certificates are not issued.
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</TABLE>
You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
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YOU WILL RECEIVE ACCOUNT STATEMENTS THAT
YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL
RECORDKEEPING.
- -------------------------------------------------------------------------------
SHARE PRICE
The net asset value per share ("NAV") is the value of one share. The NAV per
share is calculated by dividing the net assets of the Fund by the number of
outstanding shares. The NAV is calculated twice daily at 12:00 noon and as of
the close of regular trading on the New York Stock Exchange (the "Exchange")
(generally at 4:00 P.M., New York time) on each day that the Exchange is open.
- -------------------------------------------------------------------------------
THE OFFERING PRICE OF YOUR SHARES IS THEIR
NET ASSET VALUE WHICH WILL NORMALLY BE
CONSTANT AT $1.00.
- -------------------------------------------------------------------------------
The Fund uses the amortized cost method of valuing portfolio instruments. Under
amortized cost valuation, assets are valued by amortizing daily over the
remaining life of an instrument the difference between the principal amount due
at maturity and the cost of the instrument to the Fund. There is no assurance
that the Fund can maintain the $1.00 per share net asset value.
The price you pay for shares of the Fund equals the NAV computed after your
investment request is received in good order by John Hancock Funds, which will
normally be constant at $1.00 per share. There is no sales charge. If you buy
shares of the Fund through a Selling Broker, the Selling Broker must receive
your investment before the close of regular trading on the Exchange and transmit
it to John Hancock Funds before its close of business to receive that day's
price.
9
<PAGE> 10
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services. The Fund may hold payment until it
is reasonably satisfied that investments recently made by check or
Invest-by-Phone have been collected (which may take up to 10 calendar days).
Once your shares are redeemed, the Fund generally sends you payment on the next
business day. Under unusual circumstances, the Fund may suspend redemptions or
postpone payment for up to seven days or longer, as permitted by Federal
securities laws.
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<TABLE>
<S> <C> <C> <C>
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TO ASSURE ACCEPTANCE OF YOUR REDEMPTION
REQUEST, PLEASE FOLLOW THESE PROCEDURES.
- -------------------------------------------------------------------------------
BY CHECK You may elect the checkwriting privilege which allows you
to write checks in amounts from a minimum of $100. Checks
may not be written against shares in your account which
have been purchased within the last 10 days, except for
shares purchased by wire transfer (which are immediately
available).
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BY TELEPHONE All Fund shareholders are automatically eligible for the
telephone redemption privilege. Call 1-800-225-5291, from
8:00 A.M. to 4:00 P.M. (New York time), Monday through
Friday, excluding days on which the Exchange is closed.
Investor Services employs the following procedures to
confirm that instructions received by telephone are
genuine. Your name, the account number, taxpayer
identification number applicable to the account and other
relevant information may be requested. In addition,
telephone instructions are recorded.
You may redeem up to $100,000 by telephone, but the address
on the account must not have changed for the last thirty
days. A check will be mailed to the exact name(s) and
address shown on the account.
If reasonable procedures, such as those described above,
are not followed, the Fund may be liable for any loss due
to unauthorized or fraudulent telephone instructions. In
all other cases, neither the Fund nor Investor Services
will be liable for any loss or expense for acting upon
telephone instructions made in accordance with the
telephone transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or shares of the Fund that
are in certificated form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement
due to a large volume of calls. During these times, you
should consider placing redemption requests in writing or
use EASI-Line. EASI-Line's telephone number is
1-800-338-8080.
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BY WIRE If you have a telephone redemption form on file with the
Fund, redemption proceeds of $1,000 or more can be wired on
the next business day to your designated bank account, and
a fee (currently $4.00) will be deducted. You may also use
electronic funds transfer to your assigned bank account,
and the funds are usually collectible after two business
days. Your bank may or may not charge a fee for this
service. Redemptions of less than $1,000 will be sent by
check or electronic funds transfer.
This feature may be elected by completing the "Telephone
Redemption" section on the Account Privileges Application
included with this Prospectus.
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</TABLE>
10
<PAGE> 11
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<TABLE>
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IN WRITING Send a stock power or "letter of instruction" specifying
the name of the Fund, the dollar amount or the number of
shares to be redeemed, your name, your account number and
the additional requirements listed below that apply to your
particular account.
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</TABLE>
<TABLE>
<CAPTION>
TYPE OF REGISTRATION REQUIREMENTS
--------------------------------- ----------------------------------------
<S> <C>
Individual, Joint Tenants, Sole A letter of instruction signed (with titles
Proprietorship, Custodial where applicable) by all persons authorized
(Uniform Gifts or Transfer to to sign for the account, exactly as it is
Minors Act), General Partners registered with the signature(s) guaran-
teed.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s) authorized
to act on the account with the signature(s)
guaranteed.
Trusts A letter of instruction signed by the
trustee(s) with the signature(s) guaranteed.
(If the trustee's name is not registered on
your account, also provide a copy of the
trust document, certified within the last 60
days.)
</TABLE>
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
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WHO MAY GUARANTEE YOUR SIGNATURE.
---------------------------------------------------------------------------
A signature guarantee is a widely accepted way to protect you and the Fund
by verifying the signature on your request. It may not be provided by a
notary public. If the net asset value of the shares redeemed is $100,000 or
less, John Hancock Funds may guarantee the signature. The following
institutions may provide you with a signature guarantee, provided that the
institution meets credit standards established by Investor Services: (i) a
bank; (ii) a securities broker or dealer, including a government or
municipal securities broker or dealer, that is a member of a clearing
corporation or meets certain net capital requirements; (iii) a credit union
having authority to issue signature guarantees; (iv) a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association; or (v) a national securities exchange, a
registered securities exchange or a clearing agency.
---------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
---------------------------------------------------------------------------
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption.
Contact your broker for instructions.
---------------------------------------------------------------------------
If you have certificates for your shares, you must submit them with your
stock power or a letter of instructions. You may not redeem certificated
shares by telephone. Due to the proportionately high cost of maintaining
small accounts, the Fund reserves the right to redeem at net asset value
all shares in an account which holds less than $500 (except accounts under
retirement plans) and to mail the proceeds to the shareholder, or the
transfer agent may impose an annual fee of $10.00. No account will be
involuntarily redeemed or additional fee imposed, if the value of the
account is in excess of the Fund's minimum initial investment or if the
account falls below the required minimum as a result of market action.
Shareholders will be notified before these redemptions are to be made or
this fee is imposed, and will have 30 days to purchase additional shares to
bring their account balance up to the required minimum. Unless the number
of shares acquired by further purchases and dividend reinvestments, if any,
exceeds the number of shares redeemed, repeated redemptions from a smaller
account may eventually trigger this policy.
---------------------------------------------------------------------------
11
<PAGE> 12
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of investment
goals. Contact your registered representative or Selling Broker and request a
prospectus for the John Hancock funds that interest you. Read the prospectus
carefully before exchanging your shares. You can exchange shares of each class
of the Fund only for Class A shares of another John Hancock fund. For this
purpose, John Hancock funds with only one class of shares will be treated as
Class A, whether or not they have been so designated.
- -------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES OF THE FUND ONLY
FOR CLASS A SHARES OF ANOTHER JOHN HANCOCK
FUND.
- -------------------------------------------------------------------------------
Exchanges between funds that carry a front end sales charge will be subject to
the sales charge described in the other fund's prospectus (generally, 4.5% or
5.0%). Shares of the Fund acquired by exchange of shares of another fund on
which a front end sales charge was previously paid or which are subject to a
contingent deferred sales charge ("Class B Shares") are exchanged at net asset
value. However, shares of the Fund acquired through an exchange of Class B
shares will continue to be subject to a contingent deferred sales charge upon
redemption. The rate of this charge will be the rate in effect for the Class B
shares at the time of exchange. Shares purchased through the reinvestment of
dividends in the Fund are exchanged at public offering price.
An exchange of shares is treated as a redemption of one fund and the purchase of
another for Federal income tax purposes. An exchange will not ordinarily result
in a gain or loss is the Fund has maintained a constant net asset value.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers and
investment advisers may exchange their clients' Fund shares, subject to the
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and other
restrictions that do not apply to exchanges requested by shareholders directly,
as described above.
Because Fund performance and shareholders can be hurt by excessive trading, the
Fund reserves the right to terminate the exchange privilege for any person or
group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely. The
Fund may also temporarily or permanently terminate the exchange privilege for
any person who makes seven or more exchanges out of the Fund per calendar year.
Accounts under common control or ownership will be aggregated for this purpose.
Although the Fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time.
12
<PAGE> 13
The Fund reserves the right to require you to keep previously exchanged shares
(and reinvested dividends) in the Fund for 90 days before you are permitted to
execute a new exchange. The Fund may also terminate or alter the terms of the
exchange privilege, upon 60 days' notice to shareholders.
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current Fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Investor Services employs the following procedures to confirm that
instructions received by telephone are genuine. Your name, the account
number, taxpayer identification number applicable to the account and other
relevant information may be requested. In addition, telephone instructions
are recorded.
IN WRITING
1. In a letter, request an exchange and list the following:
-- the name of the Fund whose shares you currently own
-- your account number
-- the name(s) in which the account is registered
-- the name of the fund in which you wish your exchange to be invested
-- the number of shares, all shares or dollar amount you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
13
<PAGE> 14
SYSTEMATIC WITHDRAWAL PLAN
- -------------------------------------------------------------------------------
YOU CAN PAY ROUTINE BILLS FROM YOUR
ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF
FUNDS FROM YOUR RETIREMENT ACCOUNT TO
COMPLY WITH IRS REGULATIONS.
- -------------------------------------------------------------------------------
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You can
also obtain this application by calling your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually or
annually or on a selected monthly basis to yourself or any other designated
payee.
4. There is no limit on the number of payees you may authorize, but all payments
must be made at the same time or intervals.
5. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks or if deposits to a bank account are returned for any reason.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
- -------------------------------------------------------------------------------
YOU CAN MAKE AUTOMATIC INVESTMENTS AND
SIMPLIFY YOUR INVESTING.
- -------------------------------------------------------------------------------
1. You can authorize an investment to be automatically withdrawn each month from
your bank, for investment in Fund shares under the "Automatic Investing" and
"Bank Information" sections of the Account Privileges Application.
2. You can also authorize automatic investment through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program plan at any
time.
4. There is no charge to you for this program, and there is no cost to the Fund.
5. If you have payments being withdrawn from a bank account and we are notified
that the account has been closed, your withdrawals will be discontinued.
RETIREMENT PLANS
1. You may use the Fund as a funding medium for various types of qualified
retirement plans, including Individual Retirement Accounts, Keogh Plans
(H.R.10), Pension and Profit Sharing Plans (including 401(k) Plans), Tax
Sheltered Annuity Retirement Plans (403(b) or TSA Plans) and 457 Plans.
2. The initial investment minimum or aggregate minimum for any of the above
plans is $250. However, accounts being established as Group IRA, SEP, SARSEP,
TSA, 401(k) and 457 Plans will be accepted without an initial minimum
investment.
14
<PAGE> 15
INVESTMENTS, TECHNIQUES AND RISK FACTORS
The Fund will purchase only, with regard to its investments in both rated (all
ratings are at time of investment) and unrated (excluding U.S. government
securities) obligations, a short-term obligation (including a long-term
obligation having one year or less remaining to maturity and whose issuer has
high quality rated short-term debt obligations, hereinafter referred to as a
"corporate bond"), which, in the following order or priority, is:
(a) rated in the highest category by both Standard & Poor's Ratings Group, Inc.
("S&P") and Moody's Investors Services ("Moody's"); or
(b) rated in the highest category by only one of the rating services described
in (a) and also rated in the highest category by any other nationally
recognized statistical rating organization (hereinafter together with S&P
and Moody's, collectively referred to as "rating services"); or
(c) rated by only one rating service which rating is in its highest category,
and the purchase of such obligation is approved or ratified by the Board of
Directors; or
(d) unrated and whose issuer has short-term securities rated as described in
(a), (b) and (c);
(e) unrated, other than those described in (d), and which is determined by the
Investment Adviser to be of comparable quality to obligations rated in (a),
(b) or (c) and such determination is approved or ratified by the Directors
(hereinafter, obligations described under (a), (b), (c), (d) and (e) are
collectively referred to a "premium obligations"); and
In addition, the Fund will purchase only, with regard to its rated and unrated
investments, apart from premium obligations referenced above, any of the
following obligations (collectively "other eligible obligations") so long as the
purchase would not cause this category (i.e. the Fund's total investments in
other eligible obligations) to exceed 5% of the fund's total assets and further
provided that investment in all other obligations of a single issuer, at the
time of purchase, is limited to the greater of 1% of the fund's total net assets
or $1 million:
(a) an obligation rated in the highest category by only one rating service and
also rated in the second highest category by another rating service;
(b) a corporate bond, other than a premium obligation, rated by only one rating
service, which rating is in its second highest category and the purchase of
such obligation is approved or ratified by the Directors; and
(c) an unrated obligation, other than a premium obligation, which is determined
by the Adviser to be of comparable quality to the rating of any other
eligible obligation so long as such determination is approved or ratified by
the Board of Directors.
15
<PAGE> 16
DESCRIPTION OF PORTFOLIO SECURITIES
U.S. Government Securities: include obligations issued or guaranteed as to
principal and interest, including detached interest coupons, by the U.S.
Government or one of its agencies or instrumentalities, including certificates
or receipts evidencing ownership of interest or principal payments of the
foregoing.
Commercial Paper: is a short-term promissory note issued to finance short-term
credit needs.
Bankers' Acceptances: are negotiable obligations of a bank to pay a draft which
has been drawn on it by a customer.
Time Deposits: non-negotiable deposits maintained in a banking institution
earning a specified interest rate over a given period of time (no longer than 7
days).
Corporate Obligations (other than commercial paper): include bonds and notes
issued by corporations and other business organizations in order to finance
long-term credit needs.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its net
assets in illiquid investments, which include repurchase agreements maturing in
more than seven days, restricted securities and securities not readily
marketable.
REPURCHASE AGREEMENTS. For the purpose of realizing additional (taxable)
income, the Fund may enter into repurchase agreements. In a repurchase
agreement, the Fund buys a security subject to the right and obligation to sell
it back to the issuer at the same price plus accrued interest. The transaction
must be fully collateralized at all times. The Fund may reinvest any cash
collateral in short-term highly liquid debt securities. However, reverse
repurchase agreements may involve some credit risk to the Fund if the other
party should default on its obligation and the Fund is delayed in or prevented
from recovering the collateral.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Fund may purchase securities
on a forward or "when-issued" basis and may purchase or sell securities on a
forward commitment basis to hedge against anticipated changes in interest rates
and prices. When the Fund engages in such transactions, it relies on the seller
or the buyer, as the case may be, to consummate the transaction. Failure to
consummate the transaction may result in the Fund's losing the opportunity to
obtain an advantageous price and yield. If the Fund chooses to dispose of the
right to acquire a when-issued security prior to its acquisition or dispose of
its right to deliver or receive against a forward commitment, it can incur a
taxable gain or a loss.
SHORT-TERM TRADING AND PORTFOLIO TURNOVER. Short-term trading means the
purchase and subsequent sale of a security after it has been held for a
relatively brief period of time. Short-term trading may have the effect of
increasing portfolio turnover and may increase net short-term capital gains,
distributions from which would be taxable to shareholders as ordinary income.
The Fund does not intend to invest for the purpose of seeking short-term
profits. The Fund's portfolio securities may be changed, however, without regard
to the holding period of these securities (subject to certain tax restrictions),
when the Adviser deems that this action will help achieve the Fund's objective
given a change in an issuer's operations or changes in general market
conditions.
16
<PAGE> 17
RISK FACTORS. The Fund's ownership of obligations issued by banks may involve
special considerations. Normally, large domestic banks are members of the
Federal Reserve System and the Federal Deposit Insurance Corporation, but these
are not investment requirements. The purchase of obligations issued by foreign
branches of domestic banks and by Canadian banks or their foreign branches
involves special investment considerations, including the possible imposition of
withholding taxes on interest income, expropriation, confiscatory taxation, the
possible adoption of foreign governmental restrictions which might adversely
affect the payment of principal and interest on such obligations, limitations on
the removal of funds, or other adverse political or economic developments. In
addition, it may be more difficult to obtain and enforce a judgment against a
Canadian bank or foreign branch of a domestic or Canadian bank. The Fund will
not invest more than 25% of its assets in Canadian banks, including their
foreign branches. Some investments in foreign branches of domestic banks may be
considered to have the same investment risk as investing in instruments of the
domestic bank when the parent is unconditionally liable for the obligations of
its foreign branch; in all other cases the Fund will not invest more than 25% of
its assets in the instruments of foreign branches of domestic banks.
17
<PAGE> 18
(NOTES)
<PAGE> 19
(NOTES)
<PAGE> 20
JOHN HANCOCK
CASH RESERVE, INC.
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
Investors Bank
& Trust Company
24 Federal Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For Service Information
For Telephone Exchange call 1-800-225-5291
For Investment-by-Phone
For Telephone Redemption
For TDD call 1-800-554-6713
T010P 5/95(LOGO) Printed on Recycled Paper
<PAGE> 21
JOHN HANCOCK
CASH RESERVE, INC.
PROSPECTUS
MAY 1, 1995
A MUTUAL FUND SEEKING TO OBTAIN MAXIMUM CURRENT INCOME
CONSISTENT WITH PRESERVATION OF CAPITAL AND MAINTENANCE OF
LIQUIDITY.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
TELEPHONE 1-800-225-5291
<PAGE> 22
JOHN HANCOCK CASH RESERVE, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1995
This Statement of Additional Information provides information about John
Hancock Cash Reserve Fund, Inc. (the "Fund") in addition to the information that
is contained in the Fund's Class A and Class B Prospectus (the "Prospectus"),
dated May 1, 1995.
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 02205-5291
1-800-225-5291
TABLE OF CONTENTS
<TABLE>
<S> <C>
Organization of the Fund ................................................. 2
Investment Objective and Policies ........................................ 2
Investment Restrictions .................................................. 5
Those Responsible for Management ......................................... 7
Investment Advisory and Other Services ................................... 13
Distribution Contract .................................................... 16
Amortized Cost Method of Portfolio Valuation ............................. 17
Tax Status ............................................................... 18
Brokerage Allocation ..................................................... 21
Transfer Agent Services .................................................. 23
Independent Auditors ..................................................... 23
Custodian ................................................................ 23
Description of Fund's Shares ............................................. 23
Calaculation of Yield .................................................... 24
Calculation of Performance ............................................... 20
Appendix ................................................................. A-1
Financial Statements ..................................................... F-1
</TABLE>
<PAGE> 23
ORGANIZATION OF THE FUND
The Fund is a diversified open-end management investment company organized
as a corporation under the laws of the state of Maryland on January 17, 1980.
Prior to the approval of John Hancock Advisers, Inc. (the "Investment Adviser")
as the Fund's adviser, the Fund was known as Transamerica Cash Reserve, Inc.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE. As discussed under "Investment Objective and
Policies" in the Prospectus, the investment objective of the Fund is to obtain
maximum current income consistent with the preservation of capital and
maintenance of liquidity. The Fund seeks to achieve its objective by investing
in high quality money market instruments maturing within one year from the date
of purchase with an average portfolio maturity of 90 days or less. Securities in
which the Fund may invest may not earn as high a level of current income as
long-term or lower quality securities which generally have less liquidity,
greater market risk and more fluctuation in market value.
U.S. GOVERNMENT SECURITIES. U.S. Government obligations are issued or
guaranteed as to principal and interest by the U.S. Government or one of its
agencies or instrumentalities. Treasury bills, bonds and notes and certain
obligations of Government agencies and instrumentalities, such as Government
National Mortgage Association pass through certificates are supported by the
full faith and credit of the Treasury. Other obligations such as securities of
the Federal Home Loan Bank are supported by the right of the issuer to borrow
from the Treasury; while others such as bonds issued by the Federal National
Mortgage Association, which is a private corporation, are supported only by the
credit of the issuing instrumentality. Obligations not backed by the full faith
and credit of the United States may be secured, in whole or part, by a line of
credit with the U.S. Treasury or collateral consisting of cash or other
securities which are backed by the full faith and credit of the United States.
In the case of other obligations, the agency issuing or guaranteeing the
obligation must be looked to for ultimate repayment.
CORPORATE OBLIGATIONS. For a description of the ratings of securities which
are eligible for investment by the Fund, see Appendix A.
Short-term corporate obligations may also include variable amount master
demand notes. Variable amount master notes are obligations that permit the
investment of fluctuating amounts by the Fund at varying rates of interest
pursuant to direct
-2-
<PAGE> 24
arrangements between the Fund, as lender, and the borrower. These notes permit
daily changes in the amounts borrowed. The Fund has the right to increase the
amount under the note at any time up to the full amount provided by the note
agreement, or to decrease the amount, and the borrower may repay up to the full
amount of the note without penalty. The borrower is typically a large industrial
or finance company which also issues commercial paper. Typically these notes
provide that the interest rate is set daily by the borrower; the rate is usually
the same as or similar to the interest rate on commercial paper being issued by
the borrower. Because variable amount master notes are direct lending
arrangements between the lender and borrower, it is not generally contemplated
that such instruments will be traded, and there is no secondary market for these
notes, although they are redeemable (and thus immediately repayable by the
borrower) at the face value, plus accrued interest, at any time. Accordingly,
the Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. In connection with master demand note
arrangements, the Fund considers earning power, cash flow, and other liquidity
ratios of the issuer. The Fund will only invest in master demand notes of U.S.
issuers. While master demand notes, as such, are not typically rated by credit
rating agencies, if not so rated the Fund may invest in them only if at the time
of an investment the issuer meets the criteria set forth in the Prospectus for
all other commercial paper issuers. The Fund will not invest more than 25% of
its assets in master demand notes. Although the Fund has previously invested in
one master demand note and might again own this type of note, it has no current
intention of doing so in the foreseeable future.
OTHER INVESTMENT PRACTICES. The Fund may invest in participations issued by
an intermediary, usually a bank, which evidence ownership of a fractional
interest in a large, underlying money market instrument of a type in which the
Fund is otherwise permitted to invest. The Fund's ability to exercise its rights
as a lender and to trade these participations and any fractional notes from the
underlying issuer in the secondary market is normally less than if the Fund
owned the entire investment directly.
The Fund may enter into reverse repurchase agreements which involve the
sale of any of the money market securities held by the Fund and an agreement to
repurchase those securities at an agreed upon price, date, and interest payment.
The Fund would then use the proceeds of reverse repurchase agreements to make
other investments which either mature or are under an agreement to resell at a
date simultaneous with or prior to the expiration of the reverse repurchase
agreement. The Fund may utilize reverse repurchase agreements only if the
interest income to be earned from the investment of proceeds of the transaction
is greater than
-3-
<PAGE> 25
the interest expense of the reverse repurchase transaction. In the view of the
staff of the Securities and Exchange Commission ("SEC") (a) reverse repurchase
arrangements are borrowings under the Investment Company Act of 1940 and (b) if
entered into with other than banks, the Fund must maintain, in a segregated
account, marketable short-term securities equal to the aggregate amount of its
reverse repurchase obligations. If the Fund enters into reverse repurchase
arrangements with other than banks, it will maintain such a segregated account.
In addition, the Fund would not enter into reverse repurchase agreements
exceeding in the aggregate (provided that overall borrowings do not exceed 1/3
of the Fund's total assets) more than 20% of the value of its total net assets.
To avoid the potential leveraging effects of the Fund's borrowings, additional
investments will not be made while borrowings (including reverse repurchase
agreements) are in excess of 5% of the Fund's total assets. In addition, the
Fund would enter into reverse repurchase agreements only with financial
institutions which are approved in advance as being creditworthy by the Board of
Directors. Under procedures established by the Board of Directors, the
Investment Adviser will monitor the creditworthiness of the firms involved. The
Fund has not invested in reverse repurchase agreements in the past and has no
current intention of doing so.
Although it is not typically the practice with respect to money market
securities, some new issues of the securities in which the Fund may invest could
be offered on a delayed delivery (including a when-issued) basis, that is,
delivery and payment for the securities would be scheduled to take place after a
typical settlement date with the price, interest rate, and settlement date being
fixed at the time of commitment. The Fund will not effect delayed delivery
transactions with scheduled delivery dates of more than one year after the date
of its commitment. The Fund would only make such commitments to purchase
securities with the intention of actually acquiring them, and no new commitment
will be made if, as a result, more than 20% of the Fund's net assets would be so
committed. The Fund will at all times maintain in a segregated account cash or
liquid, high-grade money market instruments in an amount equal to these
commitments. However, the Fund could meet its obligations to pay for delayed
delivery securities from sale of the delayed delivery securities themselves,
which may have a value greater or less than the Fund's payment obligation and
thus produce a realized gain or loss.
The Fund's investment restrictions permit it to invest more than 25% of its
assets in all finance companies as a group and all domestic banks as a group
when, in the opinion of the Investment Adviser, yield differentials and money
market conditions suggest and when cash is available for such investment and
instruments are
-4-
<PAGE> 26
available for purchase which fulfill the Fund's objectives in terms of quality
and marketability.
INVESTMENT RESTRICTIONS
The following investment restrictions cannot be changed without approval of
the holders of a majority (as defined in the Investment Company Act of 1940) of
the outstanding shares of the Fund ("1940 Act Majority"). The Fund may not:
1. Borrow money except from banks for temporary or emergency purposes
(including meeting redemptions without immediately selling securities, but
not to purchase investment securities) in an amount not to exceed 1/3 of
the value (including the proceeds of the loan) of the Fund's total assets;
2. Mortgage, pledge, or hypothecate assets, except to an extent not greater
than 10% of total assets to secure borrowings made in accordance with
restriction 1 above;
3. Invest more than 5% of its total assets in the securities of any one
issuer, except for: securities issued or guaranteed by the United States
government or by one of its agencies or instrumentalities; and, with
respect to 25% of its total assets, obligations of domestic commercial
banks (although under current regulations, an investment in the obligations
of any one commercial bank may not exceed 5% of the Fund's total assets,
subject to an exception permitting investment in certain obligation of any
one such bank at any one time for a period of up to three business days);
4. Invest more than 25% of the Fund's total assets in the securities of
issuers (other than domestic banks and the U.S. Government, its agencies,
and instrumentalities) in the same industry. Electric, natural gas
distribution, natural gas pipeline, combined electric and natural gas, and
telephone utilities are considered separate industries for purposes of this
restriction, and finance companies as a group shall not be considered a
single industry;
5. Make loans to others, except through the purchase of various kinds of
publicly distributed debt obligations, investments in variable amount
master demand notes, participations, and repurchase agreement transactions;
6. Purchase or sell real estate; however, the Fund may purchase marketable
securities issued by companies which invest in real estate or interest
therein;
-5-
<PAGE> 27
7. Purchase securities on margin or sell short;
8. Purchase or sell commodities or commodity futures contracts, or oil, gas,
or mineral exploration or development programs;
9. Underwrite securities of other issuers;
10. Acquire more than 10% of any class of securities of an issuer. For this
purpose, all outstanding bonds and other evidences of indebtedness shall be
deemed within a single class regardless of maturities, priorities, coupon
rates, series, designations, conversion rights, security, or other
differences;
11. Purchase securities (other than under repurchase agreements of not more
than one week's duration - considering only the remaining days to maturity
of each existing repurchase agreement) for which there exists no readily
available market, or for which there are legal or contractual restrictions
on resale (excepting from this restriction securities which are subject to
such resale restrictions but which, in the judgment of the Fund's
investment adviser, are readily redeemable on demand), if as a result of
any such purchase, more than 10% of the Fund's net assets would be invested
in such securities;
12. Purchase warrants, or write, purchase or sell puts, calls, straddles,
spreads, or combinations thereof; and
13. Enter into reverse repurchase agreements, if as a result, the Fund's
obligations with respect to all reverse repurchase agreements would be
greater than 20% of net assets.
The following non-fundamental investment restrictions may be changed by the
Fund's Board of Directors without the approval of shareholders.
The Fund may not:
1. Purchase securities of other investment companies except in connection with
a merger, consolidation, acquisition, or reorganization;
2. Purchase securities of any issuer for the purpose of exercising control or
management;
3. Invest more than 5% of total assets in securities of any issuer which,
together with predecessors, has been in continuous operation less than
three years; and
-6-
<PAGE> 28
4. Purchase or retain the securities of an issuer if those officers or
directors of the Fund or the Investment Adviser, who are also officers or
directors of the issuer and who each own beneficially more than 1/2 of 1%
of the securities of that issuer, together own more than 5% of the
securities of such issuer.
With respect to investment restriction nos. 1 and 2, to avoid the potential
leveraging effects of the Fund's borrowings, additional investments will not be
made while borrowings (including reverse repurchase agreements) are in excess of
5% of the Fund's total assets.
The Fund's Board of Directors has approved the following non-fundamental
investment policy pursuant to an order of the SEC: Notwithstanding any
investment restriction to the contrary, the Fund may, in connection with the
John Hancock Group of Funds Deferred Compensation Plan for Independent
Trustees/Directors, purchase securities of other investment companies within the
John Hancock Group of Funds provided that, as a result, (i) no more than 10% of
the Fund's assets would be invested in securities of all other investment
companies, (ii) such purchase would not result in more than 3% of the total
outstanding voting securities of any one such investment company being held by
the Fund and (iii) no more than 5% of the Fund's assets would be invested in any
one such investment company.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of net assets will not be considered a violation
of any of the foregoing restrictions or those appearing in the Prospectus.
A 1940 Act majority means: (i) more than 50% of the outstanding shares
entitled to vote or (ii) 67% or more of the shares represented at the meeting
and entitled to vote on the matter, where more than 50% of the outstanding
shares are represented, whichever is less.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Directors who elect officers who
are responsible for the day-to-day operations of the Fund and who execute
policies formulated by the Directors. Several of the officers and Directors of
the Fund are also officers and directors of the Investment Adviser or officers
and directors of the Fund's distributor, John Hancock Funds, Inc. (the
"Distributor").
-7-
<PAGE> 29
Set forth below is information with respect to each of the Fund's officers
and Directors. The officers and Directors may be contacted at 101 Huntington
Avenue, Boston, MA 02199-7603. Their affiliations represent their principal
occupations during the past five years.
*EDWARD J. BOUDREAU, JR., Director, Chairman and Chief Executive Officer.
Chairman and Chief Executive Officer, the Investment Adviser and The
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
Investor Services Corporation ("Investor Services"); and Sovereign Asset
Management Corporation ("SAMCorp"); (hereinafter the Investment Adviser,
the Berkeley Group, NM Capital, Advisers International, John Hancock Funds,
Inc., Investor Services and SAMCorp are collectively referred to as the
"Affiliated Companies"); Chairman, First Signature Bank & Trust; Director,
John Hancock Freedom Securities Corporation, John Hancock Capital
Corporation, New England/Canada Business Council; Member, Investment
Company Institute Board of Governors; Trustee, Museum of Science;
President, the Investment Adviser (until July 1992); Trustee or Director of
other investment companies managed by the Investment Adviser; and Chairman,
John Hancock Distributors, Inc. (until April, 1994).
JAMES F. CARLIN, Director. Chairman and CEO, Carlin Consolidated, Inc.
(insurance); Director, Arbella Mutual Insurance Company (insurance),
Consolidated Group Trust (group health plan), Carlin Insurance Agency, Inc.
and West Insurance Agency, Inc.; Receiver, the City of Chelsea (until
August 1992); and Trustee or Director of other investment companies managed
by the Investment Adviser.
WILLIAM H. CUNNINGHAM, Director. Chancellor, University of Texas System and
former President of the University of Texas, Austin, Texas; Regents Chair
in Higher Education Leadership; James L. Bayless Chair for Free Enterprise;
Professor of Marketing and Dean College of Business Administration/
Graduate School of Business (1983-1985); Centennial Chair in Business
Education Leadership, 1983-1985; Director, LaQuinta Motor Inns, Inc. (hotel
management company); Director, Jefferson-Pilot Corporation (diversified
life insurance company); Director, Freeport-McMoran Inc. (oil and gas
company); Director, Barton Creek Properties, Inc. (1988-1990)
- ----------------------
* An "interested person" of the Fund, as such term is defined in the Investment
Company Act of 1940.
-8-
<PAGE> 30
(real estate development) and LBJ Foundation Board (education foundation);
Advisory Director, Texas Commerce Bank - Austin; and Trustee or Director of
other investment companies managed by the Investment Adviser.
CHARLES L. LADNER, Director. Director, Energy North, Inc. (public utility
holding company); Senior Vice President, Finance UGI Corp (public utility
holding company) (until 1992); and Trustee or Director of other investment
companies managed by the Investment Adviser.
LEO E. LINBECK, JR., Director. Chairman, President, Chief Executive Officer and
Director, Linbeck Corporation (a holding company engaged in various phases
of the construction industry and warehousing interests); Director and
Chairman, Federal Reserve Bank of Dallas; Chairman of the Board and Chief
Executive Officer, Linbeck Construction Corporation; Director, Panhandle
Eastern Corporation (a diversified energy company); Director, Daniel
Industries, Inc. (manufacturer of gas measuring products and energy related
equipment); Director, GeoQuest International, Inc. (a geophysical
consulting firm); Director, Greater Houston Partnership; and Trustee or
Director of other investment companies managed by the Investment Adviser.
PATRICIA P. MCCARTER, Director. Director and Secretary, the McCarter Corp.
(machine manufacturer); and Trustee or Director of other investment
companies managed by the Investment Adviser.
STEVEN R. PRUCHANSKY, Director. Director and Treasurer, Mast Holdings, Inc.;
Director, First Signature Bank & Trust Company (until August 1991); General
Partner, Mast Realty Trust; President, Maxwell Building Corp. (until 1991);
and Trustee or Director of other investment companies managed by the
Investment Adviser.
NORMAN H. SMITH, Director. Lieutenant General, USMC, Deputy Chief of Staff for
Manpower and Reserve Affairs, Headquarter Marine Corps; Commanding General
III Marine Expeditionary Force/3rd Marine Division (retired 1991); and
Trustee or Director of other investment companies managed by the Investment
Adviser.
JOHN P. TOOLAN, Director. Director, The Smith Barney Muni Bond Funds, The Smith
Barney Tax-Free Money Fund, Inc., Vantage Money Market Funds (mutual
funds), The Inefficient-Market Fund, Inc. (closed-end investment company)
and Smith Barney Trust Company of Florida; Chairman, Smith Barney Trust
Company (retired December, 1991); Director, Smith Barney, Inc., Mutual
Management Company and Smith, Barney Advisers,
-9-
<PAGE> 31
Inc. (investment advisers) (retired 1991); and Senior Executive Vice
President, Director and member of the Executive Committee, Smith Barney,
Harris Upham & Co, Incorporated (investment bankers) (until 1991); and
Trustee or Director of other investment companies managed by the Investment
Adviser.
*ROBERT G. FREEDMAN, Vice Chairman and Chief Investment Officer. President and
Chief Investment Officer, the Investment Adviser.
*ANNE C. HODSDON, President. President and Chief Operations Officer, the
Investment Adviser; Executive Vice President, the Investment Adviser (until
December, 1994).
*JAMES B. LITTLE, Senior Vice President and Chief Financial Officer. Senior Vice
President, the Investment Adviser.
*THOMAS H. DROHAN, Senior Vice President and Secretary. Senior Vice President
and Secretary, the Investment Adviser.
*MICHAEL P. DICARLO, Senior Vice President. Senior Vice President, the
Investment Adviser.
*EDGAR LARSEN, Senior Vice President. Senior Vice President, the Investment
Adviser.
*B.J. WILLINGHAM, Senior Vice President. Senior Vice President, the Investment
Adviser. Formerly, Director and Chief Investment Officer of Transamerica
Fund Management Company.
*JAMES J. STOKOWSKI, Vice President and Treasurer. Vice President, the
Investment Adviser.
*SUSAN S. NEWTON, Vice President and Compliance Officer. Vice President and
Assistant Secretary, the Investment Adviser.
*JOHN A. MORIN, Vice President. Vice President, the Investment Adviser.
*THOMAS J. PRESS, Vice President and Assistant Secretary. Vice President and
Assistant Secretary, the Investment Adviser. Formerly, General Counsel and
Secretary, Transamerica Management Company; Secretary and Treasurer,
Transamerica Asset Management Group, Inc.; and Secretary, Transamerica
Funds Distributors, Inc.
- ----------------------
* An "interested person" of the Fund, as such term is defined in the Investment
Company Act of 1940.
-10-
<PAGE> 32
As of April 6, 1995, there were 119,650,419 shares of the Fund outstanding
and officers and Directors of the Fund as a group beneficially owned less than
1% of these outstanding shares.
As of December 22, 1994, the Directors have established an Advisory Board
which acts to facilitate a smooth transition of management over a two-year
period (between Transamerica Fund Management Company ("TFMC"), the prior
investment adviser, and the Investment Adviser). The members of the Advisory
Board are distinct from the Board of Directors, do not serve the Fund in any
other capacity and are persons who have no power to determine what securities
are purchased or sold on behalf of the Fund. Each member of the Advisory Board
may be contacted at 101 Huntington Avenue, Boston, Massachusetts 02199.
Members of the Advisory Board and their respective principal occupations
during the past five years are as follows:
R. Trent Campbell, President, FMS, Inc. (financial and management services);
former Chairman of the Board, Mosher Steel Company.
Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman from Texas;
co-founder, Houston Parents' League; former board member of various civic
and cultural organizations in Houston, including the Houston Symphony,
Museum of Fine Arts and YWCA. Mrs. Bentsen is presently active in various
civic and cultural activities in the Washington, D.C. area, including
membership on the Area Board for The March of Dimes and is a National
Trustee for the Botanic Gardens of Washington, D.C.
Thomas R. Powers, Formerly Chairman of the Board, President and Chief Executive
Officer, TFMC; Director, West Central Advisory Board, Texas Commerce Bank;
Trustee, Memorial Hospital System; Chairman of the Board of Regents of
Baylor University; Member, Board of Governors, National Association of
Securities Dealers, Inc.; Formerly, Chairman, Investment Company Institute;
formerly, President, Houston Chapter of Financial Executive Institute.
Thomas B. McDade, Chairman and Director, TransTexas Gas Company; Director,
Houston Industries and Houston Lighting and Power Company; Director,
TransAmerican Companies (natural gas producer and transportation); Member,
Board of Managers, Harris County Hospital District; Advisory Director,
Commercial State Bank, El Campo; Advisory Director, First
-11-
<PAGE> 33
National Bank of Bryan; Advisory Director, Sterling Bancshares; Former
Director and Vice Chairman, Texas Commerce Bancshares; and Vice Chairman,
Texas Commerce Bank.
COMPENSATION OF THE BOARD OF DIRECTORS AND ADVISORY BOARD. The following
table provides information regarding the compensation paid by the Fund and the
other investment companies in the John Hancock Fund Complex to the Independent
Directors and the Advisory Board members for their services. Mr. Boudreau, a
non-Independent Director, and each of the officers of the Funds are interested
persons of the Investment Adviser, are compensated by the Investment Adviser and
received no compensation from the Funds for their services.
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Directors from the Fund Fund's Expenses Directors**
========= ============= ================ ==================
<S> <C> <C> <C>
James F. Carlin $ 0 $0 $60,450
William H. Cunningham $5,000* $0 $ 0
Charles L. Ladner $ 0 $0 $60,450
Leo E. Linbeck, Jr $4,250* $0 $ 0
Patricia P. McCarter $ 0 $0 $60,200
Steven R. Pruchansky $ 0 $0 $62,450
Norman H. Smith $ 0 $0 $62,450
John P. Toolan $ 0 $0 $60,450
</TABLE>
*Compensation made pursuant to different compensation arrangements then in
effect.
**The total compensation paid by the John Hancock Fund Complex to the
Independent Directors was $366,450 as of the calendar year ended December 31,
1994. All Trustees/Directors, except Messrs. Cunnignham and Linbeck, are
Trustees/Directors of 39 funds in the John Hancock Fund Complex. Messrs.
Cunningham and Linbeck are Trustees/Directors of 21 funds. (The Fund was not
part of the John Hancock Fund Complex until December 22, 1994 and Messrs.
Cunningham and Linbeck were not trustees or directors of any funds in the John
Hancock Fund Complex prior to December 22, 1994.)
-12-
<PAGE> 34
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Advisory Board*** from the Fund Fund's Expenses Advisory Board***
============== ============= ================ ==================
<S> <C> <C> <C>
R. Trent Campbell $ 3,176 $0 $ 54,000
Mrs. Lloyd Bentsen $ 3,176 $0 $ 54,000
Thomas R. Powers $ 3,176 $0 $ 54,000
Thomas B. McDade $ 3,176 $0 $ 54,000
TOTAL $12,704 $0 $216,000
</TABLE>
*** Estimated for the Fund's current fiscal year ending December 31, 1995.
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Prospectus, the Fund receives its investment advice
from the Investment Adviser. Investors should refer to the Prospectus for a
description of certain information concerning the investment management
contract. Each of the Directors and principal officers affiliated with the Fund
who is also an affiliated person of the Investment Adviser is named above,
together with the capacity in which such person is affiliated with the Fund, the
Investment Adviser or TFMC (the Fund's prior investment adviser).
The Investment Adviser, located at 101 Huntington Avenue, Boston,
Massachusetts 02199-7603, was organized in 1968 and has over $13 billion in
assets under management in its capacity as investment adviser to the Fund and
the other mutual funds and publicly traded investment companies in the John
Hancock group of funds having a combined total of over 1,000,000 shareholders.
The Investment Adviser is a wholly-owned subsidiary of The Berkeley Financial
Group, which is in turn a wholly-owned subsidiary of John Hancock Subsidiaries,
Inc., which is in turn a wholly-owned subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company"), one of the nation's oldest and largest
financial services companies. With total assets under management of over $80
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries Standard & Poor's and A.M. Best's highest
ratings. Founded in 1862, the Life Company has been serving clients for over 130
years.
The Fund has entered into an investment management contract with the
Investment Adviser. Under the investment management
-13-
<PAGE> 35
contract, the Investment Adviser provides the Fund with (i) a continuous
investment program, consistent with the Fund's stated investment objective and
policies, (ii) supervision of all aspects of the Fund's operations except those
that are delegated to a custodian, transfer agent or other agent and (iii) such
executive, administrative and clerical personnel, officers and equipment as are
necessary for the conduct of its business. See "Organization and Management of
the Fund" and "The Fund's Expenses" in the Prospectus for a description of
certain information concerning the Fund's investment management contract.
No person other than the Investment Adviser and its directors and employees
regularly furnishes advice to the Fund with respect to the desirability of the
Fund investing in, purchasing or selling securities. The Investment Adviser may
from time to time receive statistical or other similar factual information, and
information regarding general economic factors and trends, from the Life Company
and its affiliates.
Under the terms of the investment management contract with the Fund, the
Investment Adviser provides the Fund with office space, equipment and supplies
and other facilities and personnel required for the business of the Fund. The
Investment Adviser pays the compensation of all officers and employees of the
Fund and Directors of the Fund affiliated with the Investment Adviser, the
office expenses of the Fund, including those of the Fund's Treasurer and
Secretary, and other expenses incurred by the Investment Adviser in connection
with the performance of its duties. All expenses which are not specifically paid
by the Investment Adviser and which are incurred in the operation of the Fund
including, but not limited to, (i) the fees of the Directors of the Fund who are
not "interested persons," as such term is defined in the 1940 Act (the
"Independent Directors"), (ii) the fees of the members of the Fund's Advisory
Board (described above) and (iii) the continuous public offering of the shares
of the Fund are borne by the Fund.
For the services rendered by the Investment Adviser, the investment
management contract requires the Fund to pay monthly fees to the Investment
Adviser computed at the annual percentage rate of 0.35% of the Fund's average
daily net assets. Fees are calculated and accrued daily and, at the end of each
month, the Investment Adviser is entitled to a portions of the annual fee, based
on the average daily net assets of the Fund through the last day of the month
for which payment is made, less any previous payments made to the Investment
Adviser for the fiscal year.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of any state limit where the
Fund is registered to sell shares of
-14-
<PAGE> 36
beneficial interest, the fee payable to the Investment Adviser will be reduced
to the extent required by law. 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 2.5% of the first $30,000,000 of the Fund's average daily
net asset value, 2% of the next $70,000,000 and 1.5% of the remaining average
daily net asset value. When calculating the limit above, the Fund may exclude
interest, brokerage commissions and extraordinary expenses.
Pursuant to the investment management contract, the Investment 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 contract relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Investment Adviser in the
performance of its duties or from its reckless disregard of the obligations and
duties under the applicable contract.
The investment management contract initially expires on December 22, 1996
and will continue in effect from year to year thereafter if approved annually by
a vote of a majority of the Directors of the Fund 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 a majority of the
Directors or the holders of a majority of the Fund's outstanding voting
securities. The management contract may, on 60 days' written notice, be
terminated at any time without the payment of any penalty to the Fund by vote of
a majority of the outstanding voting securities of the Fund, by the Directors or
by the Investment Adviser. The management contract terminates automatically in
the event of its assignment.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Investment Adviser or its affiliates provide
investment advice. Because of different investment objectives or other factors,
a particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Investment Adviser or for other funds or clients for which the
Investment 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 Investment Adviser or its respective affiliates may increase the demand
for securities being purchased or the supply of securities being sold, there may
be an adverse effect on price.
-15-
<PAGE> 37
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
investment management contract or any extension, renewal or amendment thereof
remains in effect. If the Fund's investment management contract is no longer in
effect, the Fund (to the extent that it lawfully can) will cease to use such
name or any other name indicating that it is advised by or otherwise connected
with the Investment Adviser. In addition, the Investment Adviser or the Life
Company may grant the non-exclusive right to use the name "John Hancock" or any
similar name to any other corporation or entity, including but not limited to
any investment company of which the Life Company or any subsidiary or affiliate
thereof or any successor to the business of any subsidiary or affiliate thereof
shall be the investment adviser.
For the fiscal years ended December 31, 1992, 1993 and 1994 advisory fee
payable by the Fund to TFMC, the Fund's former investment adviser, amounted to
$1,008,567, $585,243 and $630,730, respectively.
ADMINISTRATIVE SERVICES AGREEMENT. The Fund was a party to an
administrative services agreement with TFMC (the "Services Agreement"), pursuant
to which TFMC performed bookkeeping and accounting services and functions,
including preparing and maintaining various accounting books, records and other
documents and keeping such general ledgers and portfolio accounts as are
reasonably necessary for the operation of the Fund. Other administrative
services included communications in response to shareholder inquiries and
certain printing expenses of various financial reports. In addition, such staff
and office space, facilities and equipment was provided as necessary to provide
administrative services to the Fund. The Services Agreement was amended in
connection with the appointment of the Investment Adviser as adviser to the Fund
to permit services under the Agreement to be provided to the Fund by the
Investment Adviser and its affiliates. The Services Agreement was terminated
during the current fiscal year.
For the fiscal years ended December 31, 1992, 1993 and 1994, the Fund paid
to TFMC (pursuant to the Services Agreement) $90,756, $76,114 and $80,795,
respectively, of which $70,866, $60,553 and $65,979, respectively, was paid to
TFMC and $19,890, $15,561 and $14,816, respectively, were paid for certain data
processing and pricing information services.
DISTRIBUTION CONTRACT
The Fund has a distribution contract with John Hancock Funds (the
"Distribution Contract"). Under the Distribution Contract,
-16-
<PAGE> 38
John Hancock Funds is obligated to use its best efforts to sell shares on behalf
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 (normally $1.00 per
share). The Fund is a no-load Fund and John Hancock Funds and Selling Brokers'
representatives do not receive any sales commissions in connection with the
sales of shares of the Fund.
The Distribution Contract was initially adopted by the affirmative vote of
the Fund's Board of Directors including the vote of a majority of Directors who
are not parties to the agreement or interested persons of any such party, cast
in person at a meeting called for such purpose. The Distribution Contract shall
continue in effect until December 22, 1996 and from year to year if approved by
either the vote of the Fund's shareholders or the Board of Directors including
the vote of a majority of Directors who are not parties to the agreement or
interested persons of any such party, cast in person at a meeting called for
such purpose. The Distribution Contract may be terminated at any time, without
penalty, by either party upon sixty (60) days' written notice or by a vote of a
majority of the outstanding voting securities of the Fund and terminates
automatically in the case of an assignment by the Distributor.
AMORTIZED COST METHOD OF PORTFOLIO VALUATION
The Fund utilizes the amortized cost valuation method of valuing portfolio
instruments in the absence of extraordinary or unusual circumstances. Under the
amortized cost method, assets are valued by constantly amortizing over the
remaining life of an instrument the difference between the principal amount due
at maturity and the cost of the instrument to the Fund. The Directors will from
time to time review the extent of any deviation of the net asset value, as
determined on the basis of the amortized cost method, from net asset value as it
would be determined on the basis of available market quotations. If any
deviation occurs which may result in unfairness either to new investors or
existing shareholders, the Directors will take such actions as they deem
appropriate to eliminate or reduce such unfairness to the extent reasonably
practicable. These actions may include selling portfolio instruments prior to
maturity to realize gains or losses or to shorten the Fund's average portfolio
maturity, withholding dividends, splitting, combining or otherwise
recapitalizing outstanding shares or utilizing available market quotations to
determine net asset value per share.
-17-
<PAGE> 39
Since a dividend is declared to shareholders each time net asset value is
determined, the net asset value per share of the Fund will normally remain
constant at $1.00 per share. There is no assurance that the Fund can maintain
the $1.00 per share value. Monthly, any increase in the value of a shareholder's
investment from dividends is reflected as an increase in the number of shares in
the shareholder's account or is distributed as cash if a shareholder has so
elected.
It is expected that the Fund's net income will be positive each time it is
determined. However, if because of a sudden rise in interest rates or for any
other reason the net income of the Fund determined at any time is a negative
amount, the Fund will offset the negative amount against income accrued during
the month for each shareholder account. If at the time of payment of a
distribution such negative amount exceeds a shareholder's portion of accrued
income, the Fund may reduce the number of its outstanding shares by treating the
shareholder as having contributed to the capital of the Fund that number of full
or fractional shares which represent the amount of excess. By investing in the
Fund, shareholders are deemed to have agreed to make such a contribution. This
procedure permits the Fund to maintain its net asset value at $1.00 per share.
If in the view of the Directors it is inadvisable to continue the practice
of maintaining net asset value at $1.00 per share, the Directors reserve the
right to alter the procedures for determining net asset value. The Fund will
notify shareholders of any such alteration.
The Fund is permitted to redeem shares in kind. Nevertheless, the Fund has
filed with the Securities and Exchange Commission a notification of election
committing itself to pay in cash on redemption by a shareholder of record,
limited during any 90-day period to the lesser of $250,000 or 1% of the net
asset value of the Fund at the beginning of such period.
The Fund will not price its securities on the following national holidays:
New Year's Day; President's Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day and Christmas Day.
TAX STATUS
The Fund has qualified and has elected to be treated as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and intends to continue to so qualify in the future. As
such and by complying with the applicable provisions of the Code regarding the
sources
-18-
<PAGE> 40
of its income, the timing of its distributions, and the diversification of its
assets, the Fund will not be subject to Federal income tax on taxable income
(including net realized capital gains, if any) which is distributed to
shareholders at least annually in accordance with the timing requirements of the
Code.
The Fund will be subject to a four percent nondeductible federal excise tax
on certain amounts not distributed (and not treated as having been distributed)
on a timely basis in accordance with annual minimum distribution requirements.
The Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
Distributions of net investment income (which include original issue
discount and accrued, recognized market discount) and any net realized
short-term capital gains, as computed for Federal income tax purposes, will be
taxable as described in the Prospectus whether taken in shares or in cash.
Although the Fund does not expect to realize any net long-term capital gains,
distributions from such gains, if any, would be taxable as long-term capital
gains. Shareholders electing to receive distributions in the form of additional
shares will have a cost basis for Federal income tax purposes in shares so
received equal to the amount of cash they would have received had they taken the
distribution in cash.
Upon a redemption of shares (including by exercise of the exchange
privilege) a shareholder ordinarily will not realize a taxable gain or loss if,
as anticipated, the Fund maintains a constant net asset value per share. If the
Fund is not successful in maintaining a constant net asset value per share, a
redemption may produce a taxable gain or loss.
Distributions from the Fund will not qualify for the dividends-received
deduction for corporate shareholders.
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 capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and would not be distributed as such to shareholders.
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.
-19-
<PAGE> 41
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments, if any, in foreign securities. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.
If more than 50% of the value of the total assets of the Fund at the close
of any taxable year consists of securities of foreign corporations, the Fund may
file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their pro rata
shares of foreign income taxes paid by the Fund even though not actually
received, and (ii) treat such respective pro rata portions as foreign income
taxes paid by them.
If the election is made, shareholders of the Fund may then deduct such pro
rata portions of foreign income taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of foreign taxes paid by the Fund, although such
shareholders will be required to include their shares of such taxes in gross
income. Shareholders who claim a foreign tax credit for such foreign taxes may
be required to treat a portion of dividends received from the Fund as a separate
category of income for purposes of computing the limitations on the foreign tax
credit. Tax-exempt shareholders will ordinarily not benefit from this election.
Each year that the Fund files the election described above, its shareholders
will be notified of the amount of (i) each shareholder's pro rata share of
foreign income taxes paid by the Fund and (ii) the portion of Fund dividends
which represents income from each foreign country.
Provided that the Fund qualifies as a regulated investment company under
the Code, the Fund will not be required to pay any Massachusetts income,
corporate excise or franchise taxes.
The foregoing discussion relates solely to U.S. federal income tax laws
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distribution (if any), and ownership of or
gains realized (if any) on the exchange or redemption 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
-20-
<PAGE> 42
ownership of shares of and receipt of distribution from the Fund in their
particular circumstances.
Non-U.S. investors not engaged in 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 non-resident 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. Non-U.S. investors should consult their tax advisers regarding
such treatment and the application of foreign taxes to an investment in the
Fund.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities are made
by the Investment Adviser pursuant to recommendations made by an investment
committee of the Investment Adviser, which consists of officers and directors of
the Investment Adviser and affiliates and officers and Directors 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 officers of the Fund, will offer
the best price and market for the execution of each such transaction. Purchases
from underwriters of portfolio securities may include a commission or
commissions paid by the issuer and transactions with dealers serving as market
makers reflect a "spread." Investments in debt securities are generally traded
on a net basis through dealers acting for their own account as principals and
not as brokers; no brokerage commissions are payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing primary
policy, the Rules of Fair Practice of the NASD and other policies that the
Directors may determine, the Investment Adviser may consider sales of shares of
the Fund as a factor in the selection of broker-dealers to execute the Fund's
portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in
the selection of brokers and dealers, and the negotiation of brokerage
commission rates and dealer spreads, by the reliability and quality of the
services, including primarily the availability and value of research information
and to a lesser extent statistical assistance furnished to the Investment
Adviser
-21-
<PAGE> 43
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 Investment Adviser. The receipt of research information
is not expected to reduce significantly the expenses of the Investment Adviser.
The research information and statistical assistance furnished by brokers and
dealers may benefit the Life Company or other advisory clients of the Investment
Adviser, and conversely, brokerage commissions and spreads paid by other
advisory clients of the Investment Adviser may result in research information
and statistical assistance beneficial to the Fund. The Fund will make no
commitments to allocate portfolio transactions upon any prescribed basis. While
the Fund's officers will be primarily responsible for the allocation of the
Fund's brokerage business, their policies and practices in this regard must be
consistent with the foregoing and will at all times be subject to review by the
Directors. For the fiscal years ended December 31, 1994, 1993 and 1992, 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 Directors that the price is
reasonable in light of the services provided and to policies that the Directors
may adopt from time to time. During the fiscal year ended December 31, 1994, the
Fund did not pay commissions as compensation to any brokers for research
services such as industry, economic and company reviews and evaluations of
securities.
The Investment Adviser's indirect parent, the Life Company, is the indirect
sole shareholder of John Hancock Freedom Securities Corporation and its
subsidiaries, three of which, Tucker Anthony Incorporated ("Tucker Anthony"),
John Hancock Distributors, Inc. ("John Hancock Distributors"), and Sutro &
Company, Inc. ("Sutro"), are broker-dealers ("Affiliated Brokers"). Pursuant to
procedures determined by the Directors and consistent with the above policy of
obtaining best net results, the Fund may execute portfolio transactions with or
through Tucker Anthony, John Hancock Distributors or Sutro. During the year
ended December 31, 1994, the Fund did not execute any portfolio transactions
with then affiliated brokers.
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the
-22-
<PAGE> 44
Directors pursuant to the 1940 Act. Commissions paid to an Affiliated Broker
must be at least as favorable as those which the Directors believe to be
contemporaneously charged by other brokers in connection with comparable
transactions involving similar securities being purchased or sold. A transaction
would not be placed with an Affiliated Broker if the Fund would have to pay a
commission rate less favorable than the Affiliated Broker's contemporaneous
charges for comparable transactions for its other most favored, but
unaffiliated, customers, except for accounts for which the Affiliated Broker
acts as 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
Directors who are not interested persons (as defined in the 1940 Act) of the
Fund, the Investment Adviser or the Affiliated Brokers. Because the Investment
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, P.O. Box 9116, Boston, MA
02205-9116, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Investor Services
a monthly fee of approximately $3 per account.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116, has
been selected as the independent auditors of the Fund. The financial statements
of the Fund included in the Prospectus and this Statement of Additional
Information have been audited by Ernst & Young LLP for the periods indicated in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
CUSTODIAN
Investor Bank & Trust Company ("IBT") 24 Federal Street, Boston,
Massachusetts, serves as custodian of the cash and investment securities of the
Fund. IBT is also responsible for, among other things, receipt and delivery of
the Fund's investment
-23-
<PAGE> 45
securities in accordance with procedures and conditions specified in the
custody agreement.
DESCRIPTION OF THE FUND'S SHARES
CAPITALIZATION AND VOTING RIGHTS. The Fund's total authorized capital stock
is 4,000,000,000 common shares of the par value of one cent ($.01) per share.
The Board of Directors has the authority to designate additional series of
Common Stock without seeking the approval of shareholders.
All shares have equal rights as to voting, dividends and liquidation. The
voting rights of shares of the Fund are noncumulative. Consequently, holders of
more than 50% of the shares voting for the election of directors can elect all
of the directors of the Fund if they choose to do so, and in such event, the
holders of the remaining less than 50% of the shares voting will not be able to
elect any person or persons to the Board of Directors. In addition, shareholders
may request in writing that the Fund call a special meeting of shareholders for
various purposes, including removal of a director provided that such request
represents at least 10% of all the votes entitled to be cast at the meeting. The
Fund will assist shareholders with any communications, including shareholder
proposals, in accordance with provisions of Section 16 of the Investment Company
Act of 1940. All shares of the Fund issued and outstanding are, and all shares
offered by the Prospectus, when issued, will be fully paid and nonassessable.
Shares have no conversion, preemptive or other subscription rights and are
freely transferable on the books of the Fund.
REPORTS TO SHAREHOLDERS. Shareholders of the Fund will receive annual and
semiannual reports showing diversification of investments, securities owned and
other information regarding the Fund's activities. The financial statements of
the Fund are audited at least once a year by the Fund's independent auditors.
REGISTRATION STATEMENT. This Statement of Additional Information and the
Prospectus do not contain all of the information set forth in the Fund's
Registration Statement filed with the SEC. The complete Registration Statement
may be obtained from the SEC upon payment of the fee prescribed by the rules and
regulations of the SEC.
CALCULATION OF YIELD
For the purposes of calculating yield, daily income per share consists of
interest and discount earned on the Fund's investments
-24-
<PAGE> 46
less provision for amortization of premiums and applicable expenses, divided by
the number of shares outstanding, but does not include realized or unrealized
appreciation or depreciation.
In any case in which the Fund reports its annualized yield, it will also
furnish information as to the average portfolio maturities of the Fund. It will
also report any material effect of realized gains or losses or unrealized
appreciation on dividends which have been excluded from the computation of
yield.
Yield calculations are based on the value of a hypothetical preexisting
account with exactly one share at the beginning of the seven day period. Yield
is computed by determining the net change in the value of the account during the
base period and dividing the net change by the value of the account at the
beginning of the base period to obtain the base period return. Base period is
multiplied by 365/7 and the resulting figure is carried to the nearest 100th of
a percent. Net change in account value during the base period includes dividends
declared on the original share, dividends declared on any shares purchased with
dividends of that share and any account or sales charges that would affect an
account of average size, but excludes any capital changes.
Effective yield is computed by determining the net change, exclusive of
capital changes, in the value of a hypothetical preexisting account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1
The yield of the Fund is not fixed or guaranteed. Yield quotations should
not be considered to be representations of yield of the Fund for any period in
the future. The yield of the Fund is a function of available interest rates on
money market instruments, which can be expected to fluctuate, as well as of the
quality, maturity and types of portfolio instruments held by the Fund and of
changes in operating expenses. The Fund's yield may be affected if, through net
sales of its shares, there is a net investment of new money in the Fund which
the Fund invests at interest rates different from that being earned on current
portfolio instruments. Yield could also vary if the Fund experiences net
redemptions, which may require the disposition of some of the Fund's current
portfolio instruments.
-25-
<PAGE> 47
From time to time, in reports and promotional literature, the Fund's yield
and total return will be ranked or compared to indices of mutual funds and bank
deposit vehicles such as Lipper Analytical Services, Inc. "Lipper-Fixed Income
Fund Performance Analysis," a monthly publication which tracks net assets, total
return, and yield on approximately 1,000 fixed income mutual funds in the United
States or "IBC/Donahue's Money Fund Report," a similar publication. Comparisons
may also be made to bank Certificates of Deposit, which differ from mutual funds
like the Fund, in several ways. The interest rate established by the sponsoring
bank is fixed for the term of a CD, there are penalties for early withdrawal
from CD's and the principal on a CD is insured. Unlike CD's, which are insured
as to principal, an investment in the Fund is not insured or guaranteed.
Performance rankings and ratings, reported periodically in national
financial publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK, THE WALL
STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRONS, will also be
utilized.
-26-
<PAGE> 48
APPENDIX A
CORPORATE AND TAX-EXEMPT BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Aaa, Aa, A and Baa - Tax-exempt bonds rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to bonds that are of "high quality by all
standards," but long-term risks appear somewhat larger than Aaa rated bonds. The
Aaa and Aa rated bonds are generally known as "high grade bonds." The foregoing
ratings for tax-exempt bonds are sometimes presented in parentheses preceded
with a "con" indicating that the bonds are rated conditionally. Bonds for which
the security depends upon the completion of some act or upon the fulfillment of
some condition are rated conditionally. These are bonds secured by (a) earnings
of projects under construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals that begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. Such parenthetical
ratings denotes the probable credit stature upon completion of construction or
elimination of the basis of the condition. Bonds rated A are considered as upper
medium grade obligations. Principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future. Bonds rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected or 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.
STANDARD & POOR'S CORPORATION ("S&P")
AAA, AA, A and BBB - Bonds rated AAA bear the highest rating assigned to debt
obligations and indicates an extremely strong capacity to pay principal and
interest. Bonds rated AA are considered "high grade," are only slightly less
marked than those of AAA ratings and have the second strongest capacity for
payment of debt service. Bonds rated A have a strong capacity to pay principal
and interest, although they are somewhat susceptible to the adverse effects or
changes in circumstances and economic conditions. The foregoing ratings are
sometimes followed by a "p" indicating that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the bonds being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. Although a provisional rating addresses credit quality subsequent of
completion of the
<PAGE> 49
project, it makes no comment on the likelihood of, or the risk of default upon
failure of, such completion. Bonds rated BBB are regarded as having an adequate
capacity to repay principal and pay interest. Whereas they normally exhibit
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to repay principal and pay interest
for bonds in this category than for bonds in the A category.
FITCH INVESTORS SERVICE ("FITCH")
AAA, AA, A, BBB - Bonds rated AAA are considered to be investment grade and of
the highest quality. The obligor has an extraordinary ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events. Bonds rated AA are considered to be investment grade and of high
quality. The obligor's ability to pay interest and repay principal, while very
strong, is somewhat less than for AAA rated securities or more subject to
possible change over the term of the issue. Bonds rated A are considered to be
investment grade and of good quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with higher
ratings. Bonds rated BBB are considered to be investment grade and of
satisfactory quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to weaken this ability than bonds with
higher ratings.
TAX-EXEMPT NOTE RATINGS
MOODY'S - MIG-1 AND MIG-2. Notes rated MIG-1 are judged to be of the best
quality, enjoying strong protection from established cash flow of funds for
their services or from established and broad-based access to the market for
refinancing or both. Notes rated MIG-2 are judged to be of high quality with
ample margins of protection, through not as large as MIG-1.
S&P - SP-1 and SP-2. SP-1 denotes a very strong or strong capacity to pay
principal and interest. Issues determined to possess overwhelming safety
characteristics are given a plus (+) designation (SP-1+). SP-2 denotes a
satisfactory capacity to pay principal interest.
FITCH - FIN-1 AND FIN-2. Notes assigned FIN-1 are regarded as having the
strongest degree of assurance for timely payment. A plus symbol may be used to
indicate relative standing. Notes assigned FIN-2 reflect a degree of assurance
for timely payment only slightly less in degree than the highest category.
-2-
<PAGE> 50
CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
MOODY'S-Commercial Paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Prime-1, indicates highest quality repayment capacity of rated
issue and Prime-2 indicates higher quality.
S&P-Commercial Paper ratings are a current assessment of the likelihood of
timely payment of debts having an original maturity of no more than 365 days.
Issues rated A have the greatest capacity for a timely payment and the
designation 1, 2 and 3 indicates the relative degree of safety. Issues rated
"A-1+" are those with an "overwhelming degree of credit protection."
FITCH-Commercial Paper ratings reflect current appraisal of the degree of
assurance of timely payment. F-1 issues are regarded as having the strongest
degree of assurance for timely payment. (+) is used to designate the relative
position of an issuer within the rating category. F-2 issues reflect an
assurance of timely payment only slightly less in degree than the strongest
issues. The symbol (LOC) may follow either category and indicates that a letter
of credit issued by a commercial bank is attached to the commercial paper note.
OTHER CONSIDERATIONS-The ratings of S&P, Moody's, and Fitch represent their
respective opinions of the quality of the municipal securities they undertake to
rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, municipal securities with the same
maturity, coupon and rating may have different yields and municipal securities
of the same maturity and coupon with different ratings may have the same yield.
-3-
<PAGE> 51
John Hancock Cash Reserve, Inc.
STATEMENT OF NET ASSETS
December 31, 1994
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ----------- -----------
<S> <C> <C>
COMMERCIAL
PAPER--83.98%
BANKING
INSTITUTIONS--16.70%
Banc One Corp.
5.700% due 01/03/95........................ $ 1,600,000 $ 1,599,493
Bankers Trust
New York Corp.
4.950% to 5.400% due
01/03/95 to 01/27/95.................... 8,900,000 8,883,415
Canadian Imperial
Holdings Inc.
6.030% due 02/28/95...................... 7,000,000 6,931,995
Toronto-Dominion
Holdings Inc.
4.960% to 5.150% due
01/23/95 to 03/01/95.................... 6,400,000 6,353,555
-----------
23,768,458
BUSINESS CREDIT
INSTITUTIONS--13.78%
Daimler Benz
North America Corp.
5.480% to 5.520% due
01/13/95 to 03/21/95.................... 6,900,000 6,856,747
General Electric Capital Corp.
5.770% to 5.880% due
02/15/95 to 03/23/95.................... 7,900,000 7,814,739
Toyota Motor Credit Corp.
5.800% due 03/21/95...................... 5,000,000 4,936,361
-----------
19,607,847
</TABLE>
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ----------- -----------
<S> <C> <C>
CANADIAN GOVERNMENT &
AGENCY OBLIGATIONS--9.40%
Canadian Wheat Board
6.030% due 02/03/95...................... 3,750,000 3,729,272
Ontario Hydro
5.410% due 01/06/95...................... 8,000,000 7,993,989
Province of Alberta
5.570% due 01/09/95 ..................... 1,650,000 1,647,958
-----------
13,371,219
CONSUMER GOODS &
SERVICES--12.39%
Cargill Inc.
5.800% due 02/01/95 ..................... 4,800,000 4,776,027
Procter & Gamble Co.
5.600% to 5.720% due
01/05/95 to 02/06/95.................... 7,900,000 7,870,615
Sara Lee Corp.
5.950% due 01/12/95...................... 5,000,000 4,990,910
-----------
17,637,552
FINANCE & INSURANCE
INSTITUTIONS--17.14%
Associates Corp. of
North America
5.700% to 5.820% due
01/18/95 to 01/30/95.................... 7,900,000 7,874,144
Corporate Asset
Funding Co., Inc.
5.500% to 5.700% due
01/17/95 to 01/23/95.................... 6,700,000 6,681,619
Prudential Funding Corp.
5.760% due 02/15/95 ..................... 7,900,000 7,843,120
U.S.A.A. Capital Corp.
5.730% due 01/12/95 ..................... 2,000,000 1,996,498
-----------
24,395,381
</TABLE>
22
<PAGE> 52
John Hancock Cash Reserve, Inc.
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ --------- ------------
<S> <C> <C>
INDUSTRIAL--3.51%
E.I. duPont deNemours & Co.
5.700% due 01/05/95 . . . . . . . . . . . . 5,000,000 4,996,833
TELEPHONE & TELEGRAPH--11.06%
American Telephone & Telegraph Co.
5.750% to 6.000% due
02/02/95 to 02/07/95 . . . . . . . . . 8,100,000 8,053,918
Bellsouth
Telecommunications Inc.
5.680% due 01/18/95 . . . . . . . . . . . 7,700,000 7,679,347
------------
15,733,265
------------
TOTAL COMMERCIAL PAPER
(Cost $119,510,555) . . . . . . . . . . . . . 119,510,555
REPURCHASE AGREEMENTS--7.66%
Goldman Sachs 5.800% due 01/03/95
(dated 12/30/94). Collateralized by
$7,041,444 value, Federal National
Mortgage Association 6.500% due
04/01/09. (Repurchase proceeds
$6,904,447) . . . . . . . . . . . . . . . . 6,900,000 6,902,224
Merrill Lynch 5.500% due 01/03/95
(dated 12/30/94). Collateralized by
$4,081,820 value, Federal National
Mortgage Association 6.500% due
03/01/09. (Repurchase proceeds
$4,002,444) . . . . . . . . . . . . . . . . 4,000,000 4,001,222
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $10,903,446) . . . . . . . . . . . . . 10,903,446
TIME DEPOSIT--5.73%
National Bank of Detroit, Nassau Branch(1)
5.500% due 01/03/95 . . . . . . . . . . . . 8,149,635 8,152,126
MEDIUM-TERM NOTE--2.48%
Wachovia Bank of North Carolina, N.A.
5.650% due 01/17/95 . . . . . . . . . . . . 3,500,000 3,525,739
------------
TOTAL INVESTMENTS--99.85%
(Cost $142,091,866) . . . . . . . . . . . . . 142,091,866
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.15% . . . . . . . . . . . 209,158
------------
NET ASSETS, at value, equivalent to
$1.00 per share for 142,301,024
shares ($.01 par value) of capital
stock outstanding--100.00% . . . . . . . . $142,301,024
============
</TABLE>
(1) Full branch of a U.S. bank.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE> 53
John Hancock Cash Reserve, Inc.
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31, 1994
Investment Income
Interest............................................ $7,822,316
Expenses
Management fees..................................... $630,730
Transfer agent fees................................. 192,365
Administrative service fees......................... 80,795
Custodian fees...................................... 63,184
Registration fees................................... 37,987
Directors' fees and expenses........................ 34,390
Audit and legal fees................................ 27,842
Insurance expense................................... 19,437
Shareholder reports................................. 14,522
Miscellaneous....................................... 9,903 1,111,155
-------- ----------
Net Investment Income............................. $6,711,161
==========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993
------------ -------------
<S> <C> <C>
Operations
Net investment income........................... $ 6,711,161 $ 4,327,530
Distributions to Shareholders From
Net investment income........................... (6,711,161) (4,327,530)
Capital Share Transactions
Increase (decrease) in capital
shares outstanding............................ 11,895,566 (135,943,904)
------------ -------------
Increase (decrease) in net assets............... 11,895,566 (135,943,904)
Net Assets
Beginning of year............................... 130,405,458 266,349,362
------------ -------------
End of year..................................... $142,301,024 $ 130,405,458
============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS
John Hancock Cash Reserve, Inc.
NOTE A --
SIGNIFICANT ACCOUNTING POLICIES
John Hancock Cash Reserve, Inc. (the "Fund"), formerly Transamerica
Cash Reserve, Inc., is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended. On December
16, 1994, the shareholders of each of the mutual funds managed by Transamerica
Fund Management Company (TFMC) voted to approve new Investment Advisory
contracts with John Hancock Advisers, Inc. Each such approval was subject to
the acquisition of TFMC by The Berkeley Financial Group (known beginning
January 1, 1995 as John Hancock Funds), the parent company of John Hancock
Advisers, Inc. The acquisition became effective December 22, 1994. The Fund's
name change was also effective on this date.
The following is a summary of significant accounting policies
consistently followed by the Fund.
(1) The Fund values its investment securities at amortized cost
(original cost plus amortized discount or accrued interest).
(2) The Fund may invest in repurchase agreements which are
collateralized by underlying debt securities. The Fund will make payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of the custodian bank. The seller is required to maintain the
value of the underlying security at not less than the repurchase proceeds due
the Fund.
(3) Security transactions are accounted for on the trade date. Interest
income is accrued daily. The identified cost of securities at December 31, 1994
is the same for both financial reporting and federal income tax purposes.
(4) Distributions of the Fund are declared daily and reinvested in Fund
shares or paid to shareholders monthly. Income distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Distributions payable to shareholders at December 31,
1994 were $60,137.
(5) No provision for federal income taxes has been made since it is the
Fund's intention to distribute all of its taxable income and profits to its
shareholders and to comply with the requirements applicable to regulated
investment companies and the minimum distribution requirements of the Internal
Revenue Code.
(6) The Fund reports custodian fees net of credits and charges
resulting from cash positions in the custodial accounts greater than or less
than the amounts required to settle fund transactions. For the year ended
December 31, 1994, these amounts were $28,089 and $28,148, respectively.
NOTE B --
MANAGEMENT FEE AND OTHER
TRANSACTIONS WITH AFFILIATES
From January 1, 1994 through December 21, 1994, TFMC acted as the
Investment Adviser to the Fund. On December 22, 1994, John Hancock Advisers,
Inc., a wholly-owned subsidiary of John Hancock Funds, became Investment
Adviser following the approval of the Fund's shareholders. Throughout these
financial statement notes, TFMC and John Hancock Advisers, Inc. are referred to
collectively as the "Investment Adviser", as each acted in this capacity
during the time periods noted above. The Investment Adviser has a sub-advisory
agreement with, and pays a fee to, Transamerica Investment Services, Inc. (the
"Sub-Adviser"). TFMC was, prior to December 22, 1994, and the Sub-Adviser is
presently a subsidiary of Transamerica Corporation.
The Fund's management fee is payable monthly and is calculated based on
the monthly average daily net assets of the Fund at an annual rate of 0.35%. At
December 31, 1994, the management fee payable to the Investment Adviser was
$44,174.
The Investment Adviser also provided administrative services to the
Fund pursuant to an administrative service agreement. During the year ended
December 31, 1994, the Fund paid or accrued $65,979 to the Investment Adviser
for these services, of which $8,090 was payable at December 31, 1994.
The Fund paid no compensation directly to any officer. Certain officers
of the Fund are affiliated with the Investment Adviser.
During the year ended December 31, 1994, the Fund paid legal fees of
$6,000 to Baker & Botts. A partner with Baker & Botts was an officer of the
Fund until December 22, 1994.
At December 31, 1994, John Hancock Advisers, Inc. and the Sub-Adviser
owned a total of 13.70% of the outstanding shares of the Fund.
25
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS
NOTE C -- CAPITAL AND RELATED TRANSACTIONS
A summary of capital stock transactions follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1994 1993
-------------------------------- -------------------------------
Shares Dollars Shares Dollars
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold .......................................... 898,557,224 $ 898,557,224 533,208,016 $ 533,208,016
Shares issued in reinvestment of distributions ....... 5,942,196 5,942,196 3,687,847 3,687,847
Shares redeemed ...................................... (892,603,854) (892,603,854) (672,839,767) (672,839,767)
------------ ------------- ------------ -------------
Net increase (decrease) in capital shares outstanding 11,895,566 $ 11,895,566 (135,943,904) $(135,943,904)
============ ============= ============ =============
</TABLE>
At December 31, 1994, net assets were comprised of $142,301,024 in
capital paid-in, representing 142,301,024 shares of Common Stock outstanding
(4,000,000,000 shares authorized).
26
<PAGE> 56
John Hancock Cash Reserve, Inc.
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
John Hancock Cash Reserve, Inc.
We have audited the accompanying statement of net assets of John Hancock
Cash Reserve, Inc., formerly Transamerica Cash Reserve, Inc., as of
December 31, 1994, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of John Hancock Cash Reserve, Inc. at December 31, 1994, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights
for each of the indicated periods, in conformity with generally accepted
accounting principles.
Houston, Texas
February 3, 1995
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