- --------------------------------------------------------------------------------
John Hancock Funds
- --------------------------------------------------------------------------------
Cash
Reserve,
Inc.
SEMI-ANNUAL REPORT
June 30, 1996
<PAGE>
================================================================================
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
ANNE C. HODSDON
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
RICHARD S. SCIPIONE
CHARLES L. LADNER*
LEO E. LINBECK, JR.*
PATRICIA P. McCARTER*
STEVEN R. PRUCHANSKY*
LT. GEN. NORMAN H. SMITH, USMC (RET.)*
JOHN P. TOOLAN*
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and
Chief Investment Officer
ANNE C. HODSDON
President
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President & Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET
BOSTON, MASSACHUSETTS 02111
TRANSFER AGENT
JOHN HANCOCK INVESTOR SERVICES CORPORATION
P.O. BOX 9116
BOSTON, MASSACHUSETTS 02205-9116
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
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
Since late 1994, prospectus simplification has been a major topic in the mutual
fund industry. At that time, Securities and Exchange Commission Chairman Arthur
Levitt called on fund companies to make their prospectuses more user-friendly.
He noted that prospectuses are often overloaded with technical detail and are
hard for most investors to understand. Many industry observers agreed, and
rightly so.
So it is my pleasure to let you know that John Hancock Funds has introduced
the first in a series of new prospectuses. Covering the John Hancock growth
funds, the new prospectus made its debut on July 1 after being under development
for a year. It is simplified, using shorter, clearer language with a streamlined
design, and consolidated, incorporating several funds with similar investment
objectives into one document. We are excited about our new prospectus because we
believe it is a bold but sensible step forward. And while it is easier to read,
it still complies with all federal and state guidelines.
We have taken the initiative to create a prospectus that dramatically
departs from the norm. Among its most innovative features is a two-page spread
highlighting each fund's goals and investment strategy, the types of securities
it buys, its portfolio management and risk factors, all in plainer language.
Fund expenses and financial highlights are now found here, too, as is a new bar
chart that shows year-to-year volatility for each fund. Other features include a
better presentation of fund services, a new glossary of investment risks and a
discussion about how funds are organized, including a diagram showing the
connection of the various players that provide services to your Hancock fund(s).
In the coming months, we will introduce similar prospectuses for our growth
and income, income, tax-free income, international/global and money market
funds. We believe we have made a significant advancement in the drive toward
better mutual fund prospectuses. We hope you will agree because in the end, we
did it for you, our shareholders.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
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BY DAWN BAILLIE, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Cash Reserve, Inc.
Money market fund yields rise as inflation fears
push up short-term interest rates
After falling for the last half of 1995, short-term interest rates began
climbing again in early 1996 and money market-fund yields followed suit. The
reversal reflected the complete change in market sentiment that occurred between
January, when the Fund's six-month period began, and the end of June.
At the beginning of the year, investors expected a balanced federal budget,
a slow-growth economy, falling interest rates and low inflation. In fact, many
feared that the economy was headed into recession. That prompted the Federal
Reserve to lower short-term rates in January to help stimulate the economy. Then
in March, the release of stronger-than-expected employment numbers spooked the
market, and interest rates began to climb. The employment trend remained the
same over the next few months, and soon it was clear: the economy had done an
about-face and was continuing to show unexpected strength. As inflation fears
resurfaced, interest rates rose and investors waited for the Federal Reserve to
raise short-term interest rates to prevent the economy from overheating. A
faster-growing economy, or the fear that it's heating up, pushes interest rates
up out of concern that more spending will send prices higher, triggering a jump
in inflation. While a higher-interest rate environment is good for money market
fund investors because it means more investment income, it also creates heavier
borrowing costs for consumers.
On June 30, 1996, John Hancock Cash Reserve,
- --------------------------------------------------------------------------------
"...short-term interest rates began climbing again in early 1996..."
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[A 2 1/4" by 2" photo of Dawn Baillie at bottom center. Caption reads: "Dawn
Baillie".]
3
<PAGE>
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John Hancock Funds - Cash Reserve, Inc.
[A bar chart with heading "7-Day Yield" at top of left hand column. Under the
heading is the footnote: "As of June 30, 1996." The chart has plot points of 0%,
1%, 3% and 5%. Within the chart there are two solid bars. The first represents
the 4.84% total return for John Hancock Cash Reserve, Inc. The second represents
the 4.78% for the average taxable money market fund. A footnote below states:
"The average taxable money market fund is tracked by IBC/Donaghue's Money Fund
Report. Past performance is not guarantee of future results."]
- --------------------------------------------------------------------------------
" ... speculation lately has centered on when the Fed will raise interest
rates..."
- --------------------------------------------------------------------------------
Inc. had a 7-day average yield of 4.84%. By comparison, the average taxable
money fund had a 7-day average yield of 4.78%, according to IBC/Donoghue's Money
Fund Report.
Flexible strategy
Between January and March, as interest rates were falling, the Fund took an
aggressive approach to finding higher yields by lengthening its average maturity
which helped us lock in higher yields in the face of falling rates. But in
March, as market sentiment changed, we took a more conservative approach and
stopped extending the average maturity of the Fund's holdings. At the end of
June, the Fund's average maturity was 52 days, the same as the 52-day average
for Donoghue's All-Taxable Group.
Looking ahead
By the end of the period, most market analysts stopped wondering if the Fed
would raise interest rates; they assumed it would. Instead, speculation lately
has centered on when the Fed will raise interest rates and by how much. The
question is complicated by the fact that the Fed has traditionally been
reluctant to move interest rates in a presidential election year. With that in
mind, many think the Fed will act sooner rather than later, to put as much
distance as possible between their actions and the November election. In any
case, the market has made it clear that it is expecting the Fed to raise
short-term rates by at least one-quarter of a percentage point. We'll be
watching the Fed actions closely to determine our strategy. For now, we're
maintaining the Fund's defensive position as we keep a close eye on the Fed.
This conservative approach will allow us to remain flexible so we can respond
quickly to changes in both the economic environment and the Fund's liquidity
needs, while also providing stability of principal.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio management team through the
end of the Fund's period discussed in this report. Of course, the team's views
are subject to change as market and other conditions warrant.
The Fund is neither insured nor guaranteed by the U.S. government. There can be
no assurance that the Fund will be able to maintain a net asset value of $1.00
per share.
4
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Cash Reserve, Inc.
Statement of Assets and Liabilities
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, in money market instruments,
at value - Note C:
Commercial paper (cost - $73,113,532)......................... $ 73,113,532
Corporate interest-bearing obligations
(cost - $27,742,970)........................................ 27,742,970
Joint repurchase agreement (cost - $1,046,000)................ 1,046,000
------------
101,902,502
Cash.......................................................... 102,121
Interest receivable........................................... 588,177
Other assets.................................................. 36,611
------------
Total Assets................. 102,629,411
---------------------------------------------
Liabilities:
Payable for shares repurchased................................ 475,741
Dividend payable.............................................. 40,775
Payable to John Hancock Advisers, Inc.
and affiliates - Note B....................................... 78,651
Accounts payable and accrued expenses......................... 75,193
------------
Total Liabilities............ 670,360
---------------------------------------------
Net Assets:
Capital paid-in............................................... 101,959,051
------------
Net Assets $101,959,051
=============================================
Net Asset Value, Offering Price and
Redemption Price Per Share:
(based on 101,959,051 shares of beneficial interest
outstanding - unlimited number of shares authorized
with no par value)............................................ $ 1.00
================================================================================
The STATEMENT OF ASSETS AND LIABILITIES is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on June 30, 1996. You'll also
find the net asset value per share as of that date.
The STATEMENT OF OPERATIONS summarizes the Fund's investment income earned and
expenses incurred in operating the Fund.
Statement of Operations
Six months ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest...................................................... $3,070,828
----------
Expenses:
Investment management fee - Note B.......................... 195,131
Transfer agent fee - Note B................................. 93,813
Custodian fee............................................... 29,831
Registration and filing fees................................ 27,307
Auditing fee................................................ 18,454
Financial services fee - Note B............................. 10,453
Trustees' fees.............................................. 7,703
Printing.................................................... 4,483
Advisory board fee.......................................... 4,161
Miscellaneous............................................... 2,552
Legal fees.................................................. 1,088
----------
Total Expenses............... 394,976
---------------------------------------------
Net Investment Income........ 2,675,852
---------------------------------------------
Net Increase in Net Assets
Resulting from Operations.... $2,675,852
=============================================
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Cash Reserve, Inc.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1996
DECEMBER 31, 1995 (UNAUDITED)
----------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment Income.................................... $ 6,096,238 $ 2,675,852
------------ ------------
Net Increase in Net Assets Resulting from Operations... 6,096,238 2,675,852
------------ ------------
Distributions to Shareholders:
Dividends from net investment income ($0.0526 and
$0.0239 per share, respectively)..................... ( 6,096,238) ( 2,675,852)
------------ ------------
From Fund Share Transactions N Net*........................ ( 22,538,046) ( 17,803,927)
------------ ------------
Net Assets:
Beginning of period...................................... 142,301,024 119,762,978
------------ ------------
End of period............................................ $119,762,978 $101,959,051
============ ============
* Analysis of Fund Share Transactions at $1 Per Share:
Shares sold.............................................. $314,379,252 $434,749,682
Shares issued to shareholders in reinvestment of
distributions.......................................... 5,606,946 2,394,951
------------ ------------
319,986,198 437,144,633
Less shares repurchased.............................. ( 342,524,244) ( 454,948,560)
------------ ------------
Net decrease......................................... ($ 22,538,046) ($ 17,803,927)
============ ============
</TABLE>
The STATEMENT OF CHANGES IN NET ASSETS shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, distributions paid to shareholders, and any increase or
decrease in money shareholders invested in the Fund. The footnote illustrates
the Fund shares sold, reinvested and redeemed during the last two periods.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout the
periods indicated, investment returns, key ratios, and supplemental data are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
---------------------------------------------------- JUNE 30, 1996
1991 1992 1993 1994(1) 1995 (UNAUDITED)
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Net Investment Income.................................... 0.06 0.03 0.03 0.04 0.05 0.02
-------- -------- -------- -------- -------- --------
Less Distributions
Dividends from Net Investment Income..................... ( 0.06) ( 0.03) ( 0.03) ( 0.04) ( 0.05) ( 0.02)
-------- -------- -------- -------- --------- -------
Net Asset Value, End of Period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2)............ 5.79% 3.33% 2.60% 3.74% 5.38% 2.41%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted)................ $416,198 $266,349 $130,405 $142,301 $119,763 $101,959
Ratio of Expenses to Average Net Assets.................. 0.57% 0.63% 0.66% 0.62% 0.73% 0.71%(4)
Ratio of Net Investment Income to Average Net Assets..... 5.66% 3.34% 2.58% 3.72% 5.30% 4.80%(4)
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
(2) Assumes dividend reinvestment.
(3) Not annualized.
(4) Annualized.
</TABLE>
The FINANCIAL HIGHLIGHTS summarizes the impact of net investment income and
dividends on a single share for the period indicated. Additionally, important
relationships between some items presented in the financial statements are
expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Cash Reserve, Inc.
Schedule of Investments
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The SCHEDULE OF INVESTMENTS is a complete list of all securities owned by Cash
Reserve, Inc. on June 30, 1996. It's divided into three types of short-term
investments. Most categories of short-term investments are further broken down
by industry group.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST QUALITY (000's
ISSUER, DESCRIPTION RATE RATINGS* OMITTED VALUE
- ------------------- ---- -------- ------- -----
<S> <C> <C> <C> <C>
COMMERCIAL PAPER
Automotive (11.35%)
Ford Motor Credit Co.,
07-08-96........................... 5.310% Tier 1 $5,000 $ 4,994,838
General Motors Acceptance Corp.,
07-08-96........................... 5.340 Tier 1 3,800 3,796,054
General Motors Acceptance Corp.,
07-18-96........................... 5.370 Tier 1 1,500 1,496,196
General Motors Acceptance Corp.,
09-09-96........................... 5.430 Tier 1 1,300 1,286,274
-----------
11,573,362
-----------
Banking (9.17%)
Barnett Banks, Inc.,
07-09-96........................... 5.370 Tier 1 5,000 4,994,033
Morgan (J.P.) & Co., Inc.,
09-09-96........................... 5.400 Tier 1 4,405 4,358,748
-----------
9,352,781
-----------
Broker Services (16.53%)
Bear Stearns Cos., Inc.,
07-23-96........................... 5.360 Tier 1 6,600 6,578,381
Goldman Sachs Group., L.P.
07-22-96........................... 5.330 Tier 1 5,000 4,984,454
Merrill Lynch & Co., Inc.,
07-08-96........................... 5.310 Tier 1 4,000 3,995,870
Merrill Lynch & Co., Inc.,
07-24-96........................... 5.360 Tier 1 1,300 1,295,548
-----------
16,854,253
-----------
Finance (17.83%)
American Honda Finance Corp.,
07-09-96........................... 5.330 Tier 1 4,000 3,995,262
American Honda Finance Corp.,
07-25-96........................... 5.350 Tier 1 1,000 996,433
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Cash Reserve, Inc.
PAR VALUE
INTEREST QUALITY (000's
ISSUER, DESCRIPTION RATE RATINGS* OMITTED VALUE
- ------------------- ---- -------- ------- -----
Finance (continued)
American Honda Finance Corp.,
07-31-96........................... 5.380% Tier 1 $1,600 $ 1,592,827
Heller Financial, Inc.
07-08-96........................... 5.350 Tier 1 1,400 1,398,544
Heller Financial, Inc.
07-08-96........................... 5.360 Tier 1 3,200 3,196,665
Heller Financial, Inc.
07-10-96........................... 5.390 Tier 1 2,000 1,997,305
International Business Machines
07-05-96........................... 5.340 Tier 1 5,000 4,997,033
-----------
18,174,069
-----------
Mortgage Banking (5.47%)
Countrywide Funding Corp.,
07-16-96........................... 5.350 Tier 1 2,700 2,693,981
Countrywide Funding Corp.,
07-25-96........................... 5.380 Tier 1 1,400 1,394,979
Countrywide Funding Corp.,
08-22-96........................... 5.420 Tier 1 1,500 1,488,257
-----------
5,577,217
-----------
Retail Stores (6.46%)
Sears Roebuck Acceptance Corp.,
07-09-96........................... 5.300 Tier 1 1,000 998,822
Sears Roebuck Acceptance Corp.,
07-10-96........................... 5.310 Tier 1 1,400 1,398,142
Sears Roebuck Acceptance Corp.,
07-12-96........................... 5.360 Tier 1 4,200 4,193,121
-----------
6,590,085
-----------
Utilities (4.90%)
NYNEX Corp.,
07-12-96........................... 5.390 Tier 1 5,000 4,991,765
-----------
TOTAL COMMERCIAL PAPER
(Cost $73,113,532) (71.71%) 73,113,532
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Cash Reserve, Inc.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST QUALITY (000's
ISSUER, DESCRIPTION RATE RATINGS* OMITTED VALUE
- ------------------- ---- -------- ------- -----
<S> <C> <C> <C> <C>
CORPORATE INTEREST BEARING OBLIGATIONS
Banking (12.61%)
Keycorp.,
04-25-97........................... 6.500% Tier 1 $4,000 $ 4,020,955
Norwest Corp.,
07-01-96........................... 8.875 Tier 1 2,400 2,400,000
Norwest Corp.,
12-31-96........................... 7.750 Tier 1 2,000 2,025,398
PNC Bank NA
09-18-96........................... 5.650 Tier 1 3,400 3,398,609
Republic National Bank of New York
01-14-97........................... 7.950 Tier 1 1,000 1,011,876
-----------
12,856,838
-----------
Electronics (0.98%)
Pitney Bowes Credit Corp.,
02-15-97........................... 5.625 Tier 1 1,000 1,003,285
-----------
Finance (11.72%)
American Express Credit Corp.,
03-01-97....................... 7.750 Tier 1 1,800 1,829,600
Associates Corp. of North America
01-15-97....................... 6.875 Tier 1 500 503,118
Associates Corp. of North America
01-24-97....................... 7.350 Tier 1 1,000 1,009,130
CIT Group Holdings, Inc.,
11-15-96....................... 7.125 Tier 1 3,500 3,523,757
General Electric Capital Corp.
07-10-96....................... 4.988 Tier 1 1,650 1,647,957
General Electric Capital Corp.
07-10-96....................... 5.155 Tier 1 2,700 2,696,521
General Electric Capital Corp.
07-10-96....................... 5.292 Tier 1 740 739,021
-----------
11,949,104
-----------
Utilities (1.90%)
Southern California Edison Co.
01-15-97........................... 5.900 Tier 1 1,925 1,933,743
-----------
TOTAL CORPORATE INTEREST
BEARING OBLIGATIONS
(Cost $27,742,970) (27.21%) 27,742,970
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Cash Reserve, Inc.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000's MARKET
ISSUER, DESCRIPTION RATE OMITTED VALUE
- ------------------- ---- ------- -----
<S> <C> <C> <C>
JOINT REPURCHASE AGREEMENT
Investment in a joint repurchase
agreement transaction with
Toronto-Dominion Bank Ltd.
Dated 06-28-96, due 07-01-96
(secured by U.S. Treasury Bond,
8.00% due 11-15-21 and U.S.
Treasury Notes, 4.75% thru
8.75% due 03-31-97 thru 08-15-00)................... 5.50% $1,046 $ 1,046,000
------------
TOTAL JOINT REPURCHASE AGREEMENT
(Cost $1,046,000) ( 1.02%) 1,046,000
------ ------------
TOTAL INVESTMENTS (99.94%) $101,902,502
====== ============
</TABLE>
*Quality ratings indicate the categories of eligible securities, as defined by
Rule 2a-7 of the U.S. Securities and Exchange Commission, owned by the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Cash Reserve, Inc.
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Cash Reserve, Inc. (the "Fund") is a diversified, open-end
management investment company, registered under the Investment Company Act of
1940. The investment objective of the Fund is to provide maximum current income,
consistent with capital preservation and liquidity. Significant accounting
policies of the Fund are as follows:
VALUATION OF INVESTMENTS The Directors have determined appropriate methods for
valuing portfolio securities. Accordingly, portfolio securities are valued at
amortized cost, in accordance with Rule 2a-7 of the Investment Company Act of
1940, which approximates market value. The amortized cost method involves
valuing a security at its cost on the date of purchase and thereafter assuming a
constant amortization to maturity of the difference between the principal amount
due at maturity and the cost of the security to the Fund. Interest income on
certain portfolio securities such as negotiable bank certificates of deposit and
interest bearing notes is accrued daily and included in interest receivable.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement. Aggregate cash balances are
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies.
Accordingly, the Fund will not be subject to federal income tax on taxable
earnings which are distributed to shareholders.
DIVIDENDS The Fund's net investment income is declared daily as dividends to
shareholders of record as of the close of business on the preceding day and
distributed monthly.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues,
and expenses of the Fund.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to 0.35% of the Fund's average daily net assets.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares, the fee payable to the
Adviser will be reduced to the extent of such excess, and the Adviser will make
additional arrangements necessary to eliminate any remaining excess expenses.
The current limits are 2.5% of the first $30,000,000 of the Fund's average daily
net asset value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund pays Investor Services a fee based on the number of
shareholder accounts and certain out-of-pocket expenses.
On March 26, 1996, the Board of Directors approved retroactively to
January 1, 1996, an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for 1996 is
estimated to be at an annual rate of 0.01875% of the average net assets of each
Fund.
12
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Cash Reserve, Inc.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C. Hodson
are directors and/or officers of the Adviser and/or its affiliates, as well as
Directors of the Fund. The compensation of unaffiliated Directors is borne by
the Fund. Effective with the fees paid for 1995, the unaffiliated Directors may
elect to defer for tax purposes their receipt of this compensation under the
John Hancock Group of Funds Deferred Compensation Plan. The Fund makes
investments into other John Hancock funds, as applicable, to cover its liability
for the deferred compensation. Investments to cover the Fund's deferred
compensation l iability are recorded on the Fund's books as an other asset. The
deferred comp ensation liability and the related other asset are always equal
and are marked to market on a periodic basis to reflect any income earned by the
investment as well as any unrealized gains or losses. The investment has no
impact on the operations of the Fund.
The Fund has an independent advisory board composed of certain retired
Directors who provide advice to the current Board of Directors in order to
facilitate a smooth management transition. The Fund pays the advisory board and
its counsel a fee.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities, including discount earned on
investment securities, other than obligations of the U.S. government and its
agencies, during the period ended June 30, 1996, aggregated $2,134,649,154 and
$2,149,863,279, respectively. Purchases and proceeds from maturities of
obligations of the U.S. government and its agencies aggregated $3,899,775 and
$9,233,100, respectively, during the period ended June 30, 1996.
The cost of investments owned at June 30, 1996 for federal income tax
purposes was $101,902,502.
13
<PAGE>
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NOTES
John Hancock Funds - Cash Reserve, Inc.
14
<PAGE>
================================================================================
NOTES
John Hancock Funds - Cash Reserve, Inc.
15
<PAGE>
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[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
Randolph, MA
Permit No. 75
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This report is for the information of shareholders of John Hancock Cash Reserve,
Inc. It may be used as sales literature when preceded or accompanied by the
current prospectus, which details charges, investment objectives and operating
policies.
[RECYCLE LOGO] Printed on Recycled Paper 420SA 6/96
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