<PAGE> 1
JOHN HANCOCK FUNDS
- --------------------------------------------------------------------------------
CASH
RESERVE,
INC.
ANNUAL REPORT
December 31, 1995
<PAGE> 2
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
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
THOMAS H. DROHAN
Senior Vice President and Secretary
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Compliance Officer
JAMES J. STOKOWSKI
Vice President and Treasurer
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
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
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.]
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders -- technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place -- slow economic growth, muted inflation and decent corporate earnings --
it would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and the level of assistance we provide you. Our commitment to this
task is no less than John Hancock's loyalty was to his fledgling country when he
is said to have uttered, "if it does the public good, burn Boston." We won't go
that far, of course, but we share our namesake's dedication to putting the
public before all else.
In our case, that public is you, our shareholders. We take very seriously the
role you have entrusted to us, that of helping you achieve your financial goals.
Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY DAWN BAILLIE, PORTFOLIO MANAGER
JOHN HANCOCK
CASH RESERVE, INC.
MONEY MARKET YIELDS STABLE THROUGHOUT THE YEAR,
APPROACHING HIGHEST LEVEL IN FOUR YEARS
Money market yields were relatively stable throughout 1995 and approached their
highest levels in almost four years. The second half of the year continued to
bring falling interest rates and booming equity markets. For money markets, the
driving force was again the Federal Reserve. After increasing short-term rates
for a seventh time early in 1995 in order to slow growth and stem inflation,
the Fed lowered short-term interest rates twice during the second half of the
year. It reversed its course based on lower inflation expectations after it
became clear that the economy's growth had slowed but not stopped. The first
cut in the federal funds rate that banks charge each other for overnight loans
was by one quarter percentage point and came in July. A second quarter-percent
cut followed in December, bringing the rate down to 5.5%.
[A 2 1/2" x 2" photo of Dawn Baillie at bottom center. Caption reads: "Dawn
Baillie".]
[CAPTION]
"...THE FED REVERSED COURSE AND LOWERED SHORT-TERM INTEREST RATES TWICE DURING
THE SECOND HALF..."
On December 31, 1995, John Hancock Cash Reserve, Inc. had a 7-day average yield
of 5.05%. By comparison, the average taxable money fund had a 7-day average
yield of 5.15%, according to IBC/Donoghue's Money Fund Report.
MATURITY SHORTER THAN AVERAGE AT YEAR END
The Fund's average maturity shortened in the second half of the year, from
almost 55 days in June to an average 37 days at the end of the Fund's fiscal
year on December 31, 1995. That compared to the average 53 days for Donoghue's
All-Taxable Group. This change in strategy was driven by heightened shareholder
activity and a corresponding focus on liquidity in the Fund's second half.
Because of the strong performance of the stock and bond markets in 1995, more
investors moved money more frequently
3
<PAGE> 4
John Hancock Funds - Cash Reserve, Inc.
[Bar chart with the heading "7-Day Yield" at top of left hand column. Under the
heading is the footnote: "As of December 31, 1995." The chart is scaled in
increments of 2% from top to bottom, with 6% at the top and 0% at the bottom.
Within the chart, there are two solid bars. The first represents the 5.05% 7-day
yield for John Hancock Cash Reserve Fund, Inc. The second represents the 5.15%
7-day yield for the average taxable money market fund. Footnote below reads:
"The average taxable money market fund is tracked by IBC/Donoghue's Money Fund
Report."]
between the Cash Reserve, Inc. and equity funds in the hopes of capitalizing on
the strength in the equity markets. As a result, the Fund made shorter-term
investments. Another factor contributing to our shorter-than-average maturity
was what we call the "year-end effect." Money market yields often spike up at
year end due to technical pressures that cause rates to rise in the very short
term. The Fund's shortened position allowed it to take advantage of that effect.
Going forward, we intend to extend our maturity out closer to the average, and
possibly even longer to gain protection against the possibility that the Federal
Reserve further lowers rates to give the economy a boost. However, liquidity
will remain our number one priority for the time being.
WHAT NEXT FOR MONEY MARKET YIELDS?
There are three keys to the outlook for interest rates in 1996: the growth rate
of the economy, the path of inflation and the outcome of federal budget
negotiations. We expect the economy will grow slowly in 1996 because there is no
obvious source of strength to galvanize growth. Consumer spending has been slack
and looks to remain so in 1996. On the credit side, consumers appear to be fully
extended, with their level of debt as a share of disposable income now back to
its 1989 peak. Currently, the economy is going through an inventory correction
that should last through the first quarter of 1996. Once it ends, there will be
some pickup in activity, putting us on a growth path most likely between 2.2%
and 2.5%. Given a slow U.S. economy and mediocre growth abroad, the outlook for
inflation is moderately benign. As a result, we could well see the Federal
Reserve lower short-term rates another half a percentage point by June in an
attempt to prevent slow growth from slipping into recession. One thing is
certain. The tide has turned and today's environment favors lower interest rates
over the near term. The timing of any cuts would depend on current budget
negotiations, as well as the delayed release of economic data. We will watch all
these things very carefully, as they will be factors, along with our liquidity
needs, in implementing the Fund's strategies.
- --------------------------------------------------------------------------------
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.
This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
[CAPTION]
"TODAY'S ENVIRONMENT FAVORS LOWER INTEREST RATES OVER THE NEAR TERM."
4
<PAGE> 5
FINANCIAL STATEMENTS
John Hancock Funds - Cash Reserve, Inc.
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 DECEMBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE PER SHARE AS OF THAT DATE.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, in money market instruments,
at value - Note C:
Commercial paper (cost $69,286,709)................... $ 69,286,709
Negotiable bank certificates of deposit
(cost $3,000,000)................................... 3,000,000
Corporate interest-bearing obligations
(cost $18,862,555).................................. 18,862,555
U.S. government obligation (cost - $5,333,482)........ 5,333,482
Joint repurchase agreement (cost - $24,109,000)....... 24,109,000
------------
120,591,746
Cash................................................... 124,360
Interest receivable.................................... 507,480
Other assets........................................... 31,479
------------
Total Assets......................... 121,255,065
---------------------------------------------------
LIABILITIES:
Payable for shares repurchased......................... 295,812
Payable for investments purchased...................... 1,015,767
Dividend payable....................................... 49,819
Payable to John Hancock Advisers, Inc.
and affiliates - Note B............................... 55,890
Accounts payable and accrued expenses.................. 74,799
------------
Total Liabilities.................... 1,492,087
---------------------------------------------------
NET ASSETS:
Capital paid-in........................................ 119,762,978
------------
Net Assets........................... $119,762,978
===================================================
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE:
(based on 119,762,978 shares of beneficial interest
outstanding - unlimited number of shares authorized
with no par value)...................................... $ 1.00
================================================================================
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended December 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest............................................... $6,933,186
----------
Expenses:
Investment management fee - Note B.................... 405,945
Transfer agent fee - Note B........................... 183,688
Custodian fee......................................... 56,582
Registration and filing fees.......................... 49,452
Auditing fee.......................................... 40,431
Printing.............................................. 35,536
Miscellaneous......................................... 20,542
Trustees' fees........................................ 16,583
Legal fees............................................ 14,967
Advisory board fee.................................... 13,222
----------
Total Expenses........................... 836,948
-----------------------------------------------------
Net Investment Income ................... 6,096,238
-----------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............... $6,096,238
=====================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> 6
FINANCIAL STATEMENTS
John Hancock Funds - Cash Reserve, Inc.
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment Income................................................................ $ 6,096,238 $ 6,711,161
------------ ------------
Net Increase in Net Assets Resulting from Operations................................ 6,096,238 6,711,161
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ($0.0526 and $0.0368 per share, respectively)... (6,096,238) (6,711,161)
------------ ------------
FROM FUND SHARE TRANSACTIONS - NET*.................................................... (22,538,046) 11,895,566
------------ ------------
NET ASSETS:
Beginning of period.................................................................. 142,301,024 130,405,458
------------ ------------
End of period........................................................................ $119,762,978 $142,301,024
============ ============
* ANALYSIS OF FUND SHARE TRANSACTIONS AT $1 PER SHARE:
Shares sold.......................................................................... $314,379,252 $898,557,224
Shares issued to shareholders in reinvestment of distributions....................... 5,606,946 5,942,196
------------ ------------
319,986,198 904,499,420
Less shares repurchased.............................................................. (342,524,244) (892,603,854)
------------ ------------
Net increase (decrease).............................................................. $(22,538,046) $ 11,895,566
============ ============
</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> 7
FINANCIAL STATEMENTS
John Hancock Funds - Cash Reserve, Inc.
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,
----------------------------------------------------
1995 1994(a) 1993 1992 1991
-------- -------- -------- -------- --------
<S> <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
-------- -------- -------- -------- --------
Net Investment Income......................................... 0.05 0.04 0.03 0.03 0.06
-------- -------- -------- -------- --------
Less Distributions
Dividends from Net Investment Income.......................... (0.05) (0.04) (0.03) (0.03) (0.06)
-------- -------- -------- -------- --------
Net Asset Value, End of Period................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (b)................ 5.38% 3.74% 2.60% 3.33% 5.79%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted)..................... $119,763 $142,301 $130,405 $266,349 $416,198
Ratio of Expenses to Average Net Assets....................... 0.73% 0.62% 0.66% 0.63% 0.57%
Ratio of Net Investment Income to Average Net Assets.......... 5.30% 3.72% 2.58% 3.34% 5.66%
</TABLE>
(a) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(b) Total investment return assumes dividend reinvestment.
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> 8
FINANCIAL STATEMENTS
John Hancock Funds - Cash Reserve, Inc.
SCHEDULE OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY CASH
RESERVE, INC. ON DECEMBER 31, 1995. IT'S DIVIDED INTO FIVE 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
BANKING (9.33%)
Bank of New York, NY
01-17-96................................................................... 5.770% Tier 1 $5,500 $ 5,485,896
Bank of New York, NY
01-23-96................................................................... 5.840 Tier 1 500 498,216
Barnett Banks Inc
01-09-96................................................................... 5.840 Tier 1 3,200 3,195,847
PNC Bank Corp.,
02-05-96................................................................... 5.770 Tier 1 2,000 1,988,781
-----------
11,168,740
-----------
BANKING - FOREIGN (4.25%)
Toronto-Dominion Holdings USA, Inc.,
01-19-96................................................................... 5.800 Tier 1 5,100 5,085,210
-----------
BROKER SERVICES (11.24%)
Bear Stearns Cos., Inc.,
01-02-96................................................................... 5.750 Tier 1 1,600 1,599,744
Goldman Sachs Group., L.P.
01-05-96................................................................... 5.770 Tier 1 1,000 999,359
Goldman Sachs Group., L.P.
01-12-96................................................................... 5.750 Tier 1 5,000 4,991,215
Merrill Lynch & Co., Inc.,
01-19-96................................................................... 5.740 Tier 1 2,900 2,891,677
Merrill Lynch & Co., Inc.,
01-31-96................................................................... 5.760 Tier 1 3,000 2,985,600
-----------
13,467,595
-----------
FINANCE (10.07%)
American Honda Finance Corp.,
01-19-96................................................................... 5.830 Tier 1 1,000 997,085
American Honda Finance Corp.,
01-19-96................................................................... 5.850 Tier 1 800 797,660
American Honda Finance Corp.,
01-26-96................................................................... 5.780 Tier 1 1,300 1,294,782
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
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>
FINANCE (CONTINUED)
American Honda Finance Corp.,
01-30-96................................................................... 5.770% Tier 1 $3,000 $ 2,986,056
International Business Machines
01-02-96................................................................... 6.220 Tier 1 2,000 1,999,654
International Business Machines
01-04-96................................................................... 5.850 Tier 1 4,000 3,998,050
-----------
12,073,287
-----------
FOOD (1.84%)
Heinz (H.J.) Co.,
01-03-96................................................................... 5.750 Tier 1 2,200 2,199,297
-----------
MORTGAGE BANKING (3.99%)
Countrywide Funding Corp.,
01-26-96................................................................... 5.800 Tier 1 800 796,778
Countrywide Funding Corp.,
02-02-96................................................................... 5.820 Tier 1 4,000 3,979,307
-----------
4,776,085
-----------
RETAIL STORES (6.47%)
Dayton Hudson Corp.,
01-12-96................................................................... 5.850 Tier 1 1,660 1,657,033
Sears Roebuck Acceptance Corp.,
01-08-96................................................................... 5.760 Tier 1 2,000 1,997,760
Sears Roebuck Acceptance Corp.,
01-11-96................................................................... 5.790 Tier 1 4,100 4,093,406
-----------
7,748,199
-----------
UTILITIES (10.66%)
Bell Atlantic Financial Services,
01-19-96................................................................... 5.760 Tier 1 4,200 4,187,904
NYNEX Corp.,
01-10-96................................................................... 6.030 Tier 1 1,000 998,492
Public Service Electric and Gas Co.,
01-16-96................................................................... 5.820 Tier 1 4,000 3,990,300
Public Service Electric and Gas Co.,
01-18-96................................................................... 5.780 Tier 1 2,100 2,094,268
U.S West Communications, Inc.,
01-12-96................................................................... 5.820 Tier 1 1,500 1,497,332
-----------
12,768,296
-----------
TOTAL COMMERCIAL PAPER
(Cost $69,286,709) (57.85%) 69,286,709
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
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>
NEGOTIABLE BANK CERTIFICATES OF DEPOSIT
U.S.BANKS (2.50%)
Morgan Guaranty Trust Co., NY
10-30-96................................................................... 6.000% Tier 1 $3,000 $ 3,000,000
-----------
TOTAL NEGOTIABLE BANK
CERTIFICATES OF DEPOSIT
(Cost $3,000,000) (2.50%) 3,000,000
------ -----------
CORPORATE INTEREST BEARING OBLIGATIONS
AUTOMOTIVE (4.12%)
General Motors Acceptance Corp.,
03-13-96................................................................... 8.900 Tier 1 1,900 1,909,571
General Motors Acceptance Corp.,
05-02-96................................................................... 8.650 Tier 1 3,000 3,022,461
-----------
4,932,032
-----------
BANKING (5.26%)
Keycorp.,
04-25-96................................................................... 6.000 Tier 1 1,480 1,480,769
Norwest Corp.,
07-01-96................................................................... 8.875 Tier 1 1,400 1,421,428
PNC Bank NA
09-18-96................................................................... 5.650 Tier 1 3,400 3,395,403
-----------
6,297,600
-----------
FINANCE (6.37%)
American Express Credit Corp.,
03-05-96................................................................... 6.900 Tier 1 1,500 1,501,760
Associates Corp.of North America
03-01-96................................................................... 8.800 Tier 1 4,615 4,636,602
CIT Group Holdings, Inc.,
03-15-96................................................................... 4.750 Tier 1 1,500 1,494,561
-----------
7,632,923
-----------
TOTAL CORPORATE INTEREST
BEARING OBLIGATIONS
(Cost $18,862,555) (15.75%) 18,862,555
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
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>
U.S.GOVERNMENT OBLIGATION
GOVERNMENTAL - U.S.AGENCIES (4.46%)
Federal National Mortgage Assn,
01-02-96................................................................... 9.500% Tier 1 $5,000 $ 5,333,482
------------
TOTAL U.S.GOVERNMENT OBLIGATION
(Cost $5,333,482) (4.46%) 5,333,482
------ ------------
JOINT REPURCHASE AGREEMENT
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc.
Dated 12-29-95, due 01-02-96
(secured by U.S. Treasury Bonds, 11.625% due
11-15-04 and 14.00% due 11-15-11).......................................... 5.90% 24,109 24,109,000
------------
TOTAL JOINT REPURCHASE AGREEMENT
(Cost $24,109,000) ( 20.13%) 24,109,000
------ ------------
TOTAL INVESTMENTS (100.69%) $120,591,746
====== ============
</TABLE>
* Quality ratings indicate the categories of eligible securities, as defined by
Rule 2a-7 of the Investment Company Act of 1940, owned by the Fund and are
unaudited.
The percentage shown for each investment category is the total value of that
category expressed as a percentage of total net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Cash Reserve, Inc.
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 transaction. 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 for both financial
reporting and federal income tax purposes.
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.
NOTE B --
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES 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 of beneficial interest, 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 Board of Directors approved a shareholder servicing agreement between the
Fund and John Hancock Investor Services Corporation ("Investor Services"), a
wholly owned subsidiary of The Berkeley Financial Group, for the period between
December 22, 1994 and May 12, 1995, inclusive under which Investor Services
processed telephone transactions on behalf of the Fund. As of May 15, 1995, the
Fund entered into a full service transfer agent agreement with Investor
Services. Prior to this date The Shareholder Services Group was the transfer
agent. The Fund pays Investor Services a fee based on the number of shareholder
accounts and certain out-of-pocket expenses.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser and its
affiliates as well as Trustee of the Fund. The compensation of
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Cash Reserve, Inc.
unaffiliated Directors is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Directors may elect to defer 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 with regard to the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as other assets. The deferred compensation liability is marked to market
on a periodic basis and income earned by the investment is recorded on the
Fund's books.
The Fund has an independent advisory board composed of certain members of the
former Transamerica Board of Trustees who provide advice to the current Trustees
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, for the period ended December 31, 1995 aggregated $2,951,768,014 and
$2,975,569,268, respectively. Purchases and proceeds from sales and maturities
of obligations of the U.S. government and its agencies for the period ended
December 31, 1995, aggregated $32,590,968 and $30,253,891, respectively.
The cost of investments owned at December 31, 1995 for Federal income tax
purposes was $120,591,746.
13
<PAGE> 14
John Hancock Funds - Cash Reserve, Inc.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
John Hancock Cash Reserve, Inc. --
We have audited the accompanying statement of assets and liabilities of John
Hancock Cash Reserve, Inc. (the "Fund"), including the schedule of investments,
as of December 31, 1995, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended. 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, 1995, by correspondence with the custodian and brokers or other
appropriate audit procedures when replies from brokers were not received. 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, 1995, 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 five
years in the period then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 15, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished with
respect to the dividends of the Fund during its fiscal year ended December 31,
1995. All of the dividends paid for the fiscal year are taxable as ordinary
income. None of the 1995 dividends qualify for the dividends received deduction
available to corporations.
Shareholders will be mailed a 1995 U.S. Treasury Department Form 1099-DIV in
January of 1996. This will reflect the total of all distributions which are
taxable for calendar year 1995.
14
<PAGE> 15
NOTES
John Hancock Funds - Cash Reserve, Inc.
15
<PAGE> 16
[LOGO] JOHN HANDCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FIRM U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
Brockton, MA
Permit No. 582
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below reads
"A Global Investment Management Firm."]
- --------------------------------------------------------------------------------
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.
[A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."]
JHD 4200A 12/95
2/96
