ANNUAL REPORT
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[GRAPHIC OMITTED]
Cash
Reserve,
Inc.
DECEMBER 31, 1997
LOGO] JOHN HANCOCK FUNDS
A Global Investment Firm
<PAGE>
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DIRECTORS
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON
CHARLES L. LADNER*
LEO E. LINBECK, JR.*
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
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 and Compliance Officer
CUSTODIAN
STATE STREET BANK & TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02205-9116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
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 LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5072
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CHAIRMAN'S MESSAGE
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DEAR FELLOW SHAREHOLDERS:
The financial markets in 1997 were anything but dull. Bond investors enjoyed the
benefits of a strong economy with no inflation. Stock investors were treated to
record-breaking performance by the Dow Jones Industrial Average, but with
record-breaking volatility. After two years of strong advances with relatively
minor swings, the stock market's recent sharp drops and enormous rebounds have
caused a fair share of investor concern.
The latest round began in October and was largely due to uncertainty in
foreign markets. Southeast Asia sneezed and the rest of the world caught a cold.
On October 27, the Dow experienced its largest one-day point decline, dropping
554 points. In percentage terms, however, that roughly 7% decline didn't even
register on the list of 10 largest drops. The next day, the market bounced right
back, as the Dow had a record one-day vault of 337 points. In short order, the
U.S. market had bounced back, yet it and many markets remained edgy and more
volatile as investors sorted out the Asian turmoil and its implications on
economic growth, interest rates and corporate earnings.
In the face of such uncertainty, a trusted investment professional can be
your best ally. Now, more than ever, your investment professional can help you
take the emotion out of investment decisions. At a time when your instincts
might have you react to the heat of the market's moment, your investment
professional can serve as an objective voice to put current events in a
longer-term perspective. He or she can also help you evaluate your investments
in any market environment to ensure that they fit your risk tolerance and time
horizons. On an ongoing basis, your investment professional is there for you to
check out new investment ideas or to get an informed opinion about current
economic and market conditions.
We encourage you to take advantage of this important resource. Working
together, you can draw up a detailed road map to help reach your financial
destination regardless of the conditions along the way.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
[Page 2 A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.]
2
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BY DAWN BAILLIE, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Cash Reserve, Inc.
Moderate economy and dormant inflation keep the
Federal Reserve on the sidelines after March
Uncertainty was the watchword for money market funds during 1997, but status quo
was the end result, as short-term interest rates remained fairly stable. Early
in the year, all eyes were on the Federal Reserve, which everyone knew was just
waiting to pounce at the first signs of rising inflation. In early spring,
interest rates began to rise as the economy surged ahead and investors came to
expect that the Fed would raise short-term interest rates to slow down the
economy. Although that Fed hike in late March -- its first in two years --
turned out to be the only move the Fed made in 1997, money markets fretted all
year over each set of monthly economic data. Fear remained about the strength of
the economy and whether the low unemployment rate would inevitably translate
into rising labor costs and higher inflation, as has been the case in past
economic cycles.
Despite all the concerns, the economy remained fairly moderate after the
first quarter, and, in atypical fashion, inflation never budged. Fed chairman
Alan Greenspan concluded that this economic cycle was different, and by the end
of the year, the Fed had changed its stance. Instead of its earlier inclination
to raise short-term interest rates, the Fed shifted to a more neutral,
status-quo policy. Its inclination was further bolstered by currency and
financial turmoil in Asia, which many believed would keep the U.S. economy's
growth
"...short-term interest
rates remained fairly
stable."
[Page 3 A 2 1/4" x 3 1/4" photo of Fund management team at bottom right column.
Caption reads, "Cash Reserve, Inc., management team (l-r): Barry Evans, Dawn
Baillie and Bill Larkin, Jr.".]
3
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John Hancock Funds - Cash Reserve, Inc.
"...the Fed is maintaining
a neutral stance..."
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[Page 4 Bar chart with the heading "7-Day Yield" at top of left hand column.
Under the heading is the footnote: "As of December 31, 1997." 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
5.27% 7-day yield for John Hancock Cash Reserve Fund, Inc. The second represents
the 4.95% 7-day yield for the average taxable money market fund. Footnote below
reads: "The average taxable money market fund is tracked by Lipper Analytical
Services, Inc. Past performance is no guarantee of future results."]
- --------------------------------------------------------------------------------
in check without the Fed's help. As a result, the federal funds rate, which
banks charge each other for overnight loans and which serves as a pricing
benchmark for money market securities, closed the year at 5.50%, where it had
been since March.
On December 31, 1997, John Hancock Cash Reserve, Inc. had a 7-day
effective yield of 5.27%. By comparison, the average taxable money fund had a
7-day effective yield of 4.95%, according to Lipper Analytical Services, Inc.
Longer-than-average maturity pays off
We adjusted the Fund's average maturity during the year not only in response to
market conditions, but also to accommodate the Fund's liquidity needs. Whenever
possible, we kept the Fund's maturity longer than average, believing that the
Fed was not going to raise rates further. We took this aggressive stance to lock
in higher yields, most especially in the second half of the year as the economy
moderated and we became more convinced of the Fed's hands-off approach. That
only changed briefly as the year ended so we could take advantage of the
typically favorable buying environment for money market securities.
A word about Asia
Money market funds have not felt the effects of currency and financial problems
roiling Asia, largely because most money funds stopped buying any short-term
certificates of deposit from Japanese banks. In any event, the Fund had no
exposure to the potential turmoil because it is prohibited from investing in
foreign securities.
Status quo ahead
Given the current near-perfect economic environment -- moderate growth and tame
inflation -- it's unlikely that the Federal Reserve will make any moves for at
least the next three months. For now, our view is that the Fed is maintaining a
neutral stance, without a bias toward either raising or lowering short-term
rates. Against that backdrop, we will continue to aggressively seek a high level
of income by keeping the Fund's maturity longer than average. We'll determine
our next course of action after we evaluate the economic data in February and
March. Above all else, we'll stay focused on providing shareholders with a
competitive level of current income, while maintaining liquidity and stability
of principal.
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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
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FINANCIAL STATEMENTS
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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, 1997. You'll
also find the net asset value per share as of that date.
Statement of Assets and Liabilities
December 31, 1997
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Assets:
Investments, in money market instruments,
at value - Note C:
Commercial paper (cost - $3,422,833) ........................ $3,422,833
Corporate interest-bearing obligations
(cost - $19,283,438) ....................................... 19,283,438
U.S. government obligations (cost - $12,371,353) ............ 12,371,353
Joint repurchase agreement (cost - $1,894,000) .............. 1,894,000
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36,971,624
Cash ......................................................... 55
Interest receivable .......................................... 903,724
Other assets ................................................. 9,002
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Total Assets ..................................... 37,884,405
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Liabilities:
Payable for shares repurchased ............................... 310
Dividend payable ............................................. 4,803
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ..................................... 26,772
Accounts payable and accrued expenses ........................ 30,918
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Total Liabilities ................................ 62,803
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Net Assets:
Capital paid-in .............................................. 37,821,602
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Net Assets ....................................... $37,821,602
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Net Asset Value, Offering Price and
Redemption Price Per Share:
(Based on 37,821,602 shares of beneficial interest
outstanding - 4,000,000,000 shares authorized with
$0.01 per share par value) .................................. $1.00
===============================================================================
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund.
Statement of Operations
Year ended December 31, 1997
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Investment Income:
Interest ..................................................... $2,759,690
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Expenses:
Investment management fee - Note B ......................... 170,018
Transfer agent fee - Note B ................................ 54,620
Custodian fee .............................................. 32,932
Auditing fee ............................................... 18,500
Financial services fee - Note B ............................ 8,877
Trustees' fees ............................................. 4,853
Printing ................................................... 3,123
Registration and filing fees ............................... 2,367
Miscellaneous .............................................. 772
Legal fees ................................................. 332
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Total Expenses ................................... 296,394
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Net Investment Income ............................ 2,463,296
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Net Increase in Net Assets
Resulting from Operations ........................ $2,463,296
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SEE NOTES TO FINANCIAL STATEMENTS.
5
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FINANCIAL STATEMENTS
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John Hancock Funds - Cash Reserve, Inc.
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................ $5,037,521 $2,463,296
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Distributions to Shareholders:
Dividends from net investment income ($0.0489 and
$0.0508 per share, respectively) ............................. (5,037,521) (2,463,296)
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From Fund Share Transactions - Net:* ............................ (52,760,079) (29,181,297)
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Net Assets:
Beginning of period .......................................... 119,762,978 67,002,899
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End of period ................................................ $67,002,899 $37,821,602
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* Analysis of Fund Share Transactions at $1 Per Share:
Shares sold .................................................. $714,206,543 $12,066
Shares issued to shareholders in reinvestment of distributions 4,480,168 2,336,137
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718,686,711 2,348,203
Less shares repurchased ...................................... (771,446,790) (31,529,500)
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Net decrease ................................................. ($52,760,079) ($29,181,297)
============= =============
</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 repurchased during the last two periods.
SEE NOTES TO FINANCIAL STATEMENTS.
6
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FINANCIAL STATEMENTS
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John Hancock Funds - Cash Reserve, Inc.
Financial Highlights
Selected data for each share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios, and supplemental data are
listed as follows:
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1993 1994(1) 1995 1996 1997
-------- -------- -------- -------- --------
<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 ................................. 0.03 0.04 0.05 0.05 0.05
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income .................. (0.03) (0.04) (0.05) (0.05) (0.05)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ........................ $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (2) ........ 2.60% 3.74% 5.38% 5.00% 5.20%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .............. $130,405 $142,301 $119,763 $67,003 $37,822
Ratio of Expenses to Average Net Assets ............... 0.66% 0.62% 0.73% 0.65% 0.61%
Ratio of Net Investment Income to Average Net Assets .. 2.58% 3.72% 5.30% 4.85% 5.07%
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(2) Total investment return assumes dividend reinvestment.
The Financial Highlights summarizes the impact of net investment income and
dividends on a single share for each period indicated. Additionally, important
rela tionships between some items presented in the financial statements are
expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
7
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FINANCIAL STATEMENTS
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John Hancock Funds - Cash Reserve, Inc.
Schedule of Investments
December 31, 1997
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The Schedule of Investments is a complete list of all securities owned by Cash
Reserve, Inc. on December 31, 1997. It's divided into four types of short-term
investments. Most categories of short-term investments are further broken down
by industry group.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST QUALITY (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
COMMERCIAL PAPER
Finance (4.03%)
Heller Financial Corp., 01-09-98 ...................... 5.900% Tier 1 $1,527 $1,524,998
-----------
Mortgage Banking (5.02%)
Countrywide Home Loan, 01-08-98 ....................... 5.860 Tier 1 1,900 1,897,835
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TOTAL COMMERCIAL PAPER
(Cost $3,422,833) (9.05%) 3,422,833
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CORPORATE INTEREST BEARING OBLIGATIONS
Automotive (11.36%)
Chrysler Financial Corp., 06-15-98 .................... 6.500 Tier 1 1,035 1,037,534
Ford Motor Credit Co., 02-26-98 ....................... 6.250 Tier 1 2,250 2,251,018
General Motors Acceptance Corp., 07-20-98 ............. 7.375 Tier 1 1,000 1,007,835
-----------
4,296,387
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Banking (3.30%)
NationsBank Corp., 01-15-98 ........................... 6.625 Tier 1 750 750,221
Norwest Financial, Inc., 04-15-98 ..................... 5.500 Tier 1 500 499,407
-----------
1,249,628
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Beverage (2.26%)
PepsiCo, Inc., 01-15-98 ............................... 6.125 Tier 1 855 855,060
-----------
Finance (21.94%)
Associates Corporation of North America, 01-15-98 ..... 8.375 Tier 1 2,300 2,302,135
Beneficial Corp., 11-30-98 ............................ 8.230 Tier 1 2,000 2,039,076
CIT Group Holdings, Inc., 04-15-98 .................... 8.750 Tier 1 350 352,764
CIT Group Holdings, Inc., 07-31-98 .................... 6.350 Tier 1 1,500 1,502,886
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
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FINANCIAL STATEMENTS
------------------------------------------
John Hancock Funds - Cash Reserve, Inc.
PAR VALUE
INTEREST QUALITY (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
Finance (continued)
Household Finance Corp.,
02-06-98 ..................... 7.910% Tier 1 $800 $801,541
International Lease Finance,
02-02-98 ..................... 5.920 Tier 1 1,000 999,966
International Lease Finance,
03-01-98 ..................... 5.625 Tier 1 300 299,862
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8,298,230
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Food (3.37%)
Heinz (H.J.) Company,
01-05-98 ...................... 8.000 Tier 1 1,275 1,275,262
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Retail (3.70%)
Sears Roebuck Co.,
02-23-98 ...................... 7.820 Tier 1 400 401,094
Sears Roebuck Co.,
07-27-98 ...................... 5.830 Tier 1 1,000 999,884
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1,400,978
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Telecommunications (5.05%)
GTE Corp.,
03-01-98 ...................... 8.850 Tier 1 1,900 1,907,893
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TOTAL CORPORATE INTEREST
BEARING OBLIGATIONS
(Cost $19,283,438) (50.98%) 19,283,438
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U.S. GOVERNMENT OBLIGATIONS
Governmental - U.S. Agencies (32.71%)
Federal Farm Credit Bank,
02-02-98 ...................... 5.650 Tier 1 2,000 $1,999,329
Federal Home Loan Bank,
01-30-98 ...................... 5.810 Tier 1 5,000 5,000,000
Federal Home Loan Bank,
02-26-98 ...................... 5.875 Tier 1 1,000 999,673
Federal Home Loan Mortgage Corp.,
03-11-98 ...................... 5.190 Tier 1 625 624,377
Federal National Mortgage
Association,
01-15-98 ...................... 5.520 Tier 1 1,000 999,748
Private Export Funding Corp.,
04-30-98 ...................... 5.750 Tier 1 1,500 1,499,501
Tennessee Valley Authority,
03-04-98 ...................... 5.125 Tier 1 1,250 1,248,725
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TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $12,371,353) (32.71%) 12,371,353
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SEE NOTES TO FINANCIAL STATEMENTS.
9
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FINANCIAL STATEMENTS
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John Hancock Funds - Cash Reserve, Inc.
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
<S> <C> <C> <C>
JOINT REPURCHASE AGREEMENT (5.01%)
Investment in a joint repurchase agreement
transaction with HSBC Securities Inc. -
Dated 12-31-97, Due 01-02-98
(Secured by U.S. Treasury Bonds, 9.250%
Due 02-15-16 and 11.250% Due 02-15-15) - Note A 6.60% $1,894 $1,894,000
-----------
TOTAL JOINT REPURCHASE AGREEMENT
(Cost $1,894,000) (5.01%) 1,894,000
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TOTAL INVESTMENTS (97.75%) 36,971,624
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OTHER ASSETS AND LIABILITIES, NET (2.25%) 849,978
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TOTAL NET ASSETS (100.00%) $37,821,602
======== ===========
</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.
The percentage shown for each investment category is the total value of that
category expressed as a percentage of the total net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
10
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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. Effective October 1, 1996,
the Fund was closed to new shareholders.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS The Board of Directors has 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. Therefore, no federal income tax
provision is required.
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. Actual results could differ from these estimates.
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.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of John Hancock
Mutual Life Insurance Company. The Fund pays transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the year was at
an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr. , Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione 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. 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
11
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NOTES TO FINANCIAL STATEMENTS
------------------------------------------
John Hancock Funds - Cash Reserve, Inc.
the Fund's deferred compensation liability are recorded on the Fund's books as
an other asset. The deferred compensation 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.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities, other than obligations of the
U.S. government and its agencies, during the year ended December 31, 1997,
aggregated $1,436,847,767 and $1,467,106,011, respectively. Purchases and
proceeds from maturities of obligations of the U.S. government and its agencies
aggregated $37,389,471 and $36,310,469, respectively, during the year ended
December 31, 1997.
The cost of investments owned at December 31, 1997 for federal income tax
purposes was $36,971,624.
12
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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, 1997, 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, 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, 1997, the results of its
operations for the year then ended, 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 6, 1998
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the dividends of the Funds during the fiscal year ended December 31,
1997.
All of the dividends paid for the fiscal year are taxable as ordinary
income. None of the 1997 dividends qualify for the dividends received deduction
available to corporations.
Shareholders will be mailed a 1997 U.S. Treasury Department Form 1099-DIV
in January of 1998. This will reflect the total of all distributions which are
taxable for calendar year 1997.
13
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NOTES
------------------------------------------
John Hancock Funds - Cash Reserve, Inc.
14
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NOTES
------------------------------------------
John Hancock Funds - Cash Reserve, Inc.
15
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[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
INTERNET: www.jhancock.com/funds --------------
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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.
[LOGO] Printed on Recycled Paper 4200A 12/97
2/98
