FILE NO. 2-66461
FILE NO. 811-2995
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
---------
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 22 (X)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 25 (X)
---------
JOHN HANCOCK CASH RESERVE, INC.
(Exact Name of Registrant as Specified in Charter)
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, (617) 375-1700
---------
SUSAN S. NEWTON
Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and Address of Agent for Service)
---------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
(X) on May 1, 1999 pursuant to paragraph (b) of Rule 485
( ) 75 days after filing pursuant to paragraph (a) of Rule 485
( ) on (date) pursuant to paragraph (a) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
- --------------------------------------------------------------------------------
JOHN HANCOCK
Cash Reserve,
Inc.
[LOGO] Prospectus
May 1, 1999
- --------------------------------------------------------------------------------
As with all mutual funds, the Securities and Exchange Commission has not judged
whether this fund is a good investment or whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
On September 10, 1996, the Directors voted to close the Fund to new purchases,
except shares purchased with reinvested Fund Dividends effective October 1,
1996.
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
<PAGE>
Contents
- --------------------------------------------------------------------------------
A summary of the fund's Further information on the fund.
goals, strategies, risks,
performance and expenses. Cash Reserve, Inc. 4
Policies and instructions Your account
for opening, maintaining
and closing an account in Selling shares 6
the fund.
Transaction policies 8
Dividends and account policies 8
Additional investor services 9
Fund details
Business structure 10
Further information on the For more information back cover
fund.
3
<PAGE>
Cash Reserve, Inc.
GOAL AND STRATEGY
[Clipart] The fund seeks maximum current income consistent with capital
preservation and liquidity. It invests only in high-quality money market
instruments and seeks to maintain a stable share price of $1.
The fund invests only in dollar-denominated securities rated within the two
highest short-term credit categories (and their unrated equivalents). These
securities have a maximum remaining maturity of 365 days and may be issued by:
o U.S. corporations
o U.S. and Canadian banks and their foreign branches
o U.S. savings and loan associations
o U.S. and Canadian governments
o U.S. agencies, states, and municipalities
The fund may also invest in repurchase agreements based on these securities. The
fund maintains an average dollar-weighted maturity of 90 days or less.
The fund may invest more than 25% of its assets in finance companies or domestic
banks.
In managing the portfolio, the managers search aggressively for the best values
on securities that meet the fund's credit and maturity requirements. The
managers tend to favor corporate securities and look for relative yield
advantages between, for example, a company's secured and unsecured short-term
debt obligations.
================================================================================
PAST PERFORMANCE
[Clipart] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time. This information may help
provide an indication of the fund's risk. On December 22,1994, John Hancock
Advisers, Inc. became the investment adviser of the fund. The fund's total
returns for the previous periods during which the fund was advised by another
adviser are not shown. All figures assume dividend reinvestment. Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1995 1996 1997 1998
5.38% 5.00% 5.20% 4.91%
YIELD INFORMATION
- --------------------------------------
For the fund's 7-day effective yield,
call the Easi-Line 1-800-225-5291
PORTFOLIO MANAGERS
- ---------------------------------------
Team of money market research
analysts and portfolio managers
1999 total return as of March 31: 1.05%
Best quarter: Q4 '97, 1.32%
Worst quarter: Q2 '96, 1.08%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
1 year 4.91%
Life of fund 5.12%
4
<PAGE>
MAIN RISKS
[Clipart] The value of your investment will be most affected by short-term
interest rates. If interest rates rise sharply, the fund could underperform its
peers or lose money.
An issuer of securities held by the fund could default, or have its credit
rating downgraded.
Foreign investments carry additional risks, including inadequate or inaccurate
financial information, and social or political upheavals.
o If the fund concentrates in finance companies or banks, its performance could
be tied more closely to those industries than to the market as a whole.
An investment in the fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the fund seeks to
preserve the value of your investment at $1.00 share, it is possible to lose
money by investing in the fund.
================================================================================
YOUR EXPENSES
[Clipart] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- -----------------------------------------------------------------------------
Shareholder transaction expenses
- -----------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price none
Maximum deferred sales charge (load)
(as a % of purchase or sales price, whichever is less) none
- -----------------------------------------------------------------------------
Annual operating expenses
- -----------------------------------------------------------------------------
Management fee 0.35%
Distribution fees 0.00%
Other expenses 0.40%
Total fund operating expenses 0.75%
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
$77 $240 $417 $930
FUND CODES
- ---------------------------
Ticker --
CUSIP 41014T104
Newspaper --
SEC number 811-2995
JH fund number 42
5
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Selling shares
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Designed for To sell some or all of your shares
By letter
[Clipart] o Accounts of any type. o Write a letter of instruction or complete a stock power indicating the fund
o Sales of any amount. name, your account number, the name(s) in which the account is registered and
the dollar value or number of shares you wish to sell.
o Include all signatures and any additional documents that may be required (see
next page).
o Mail the materials to Signature Services.
o A check will be mailed to the name(s) and address in which the account is
registered, or otherwise according to your letter of instruction.
By phone
[Clipart] o Most accounts. o For automated service 24 hours a day using your touch-tone phone, call the
o Sales of up to $100,000. EASI-Line at 1-800-338-8080.
o To place your order with a representative at John Hancock Funds, call Signature
Services between 8 A.M. and 4 P.M. Eastern Time on most business days.
By wire or electronic funds transfer (EFT)
[Clipart] o Requests by letter to sell any amount (accounts of any type).
o Requests by phone to sell up to $100,000 (accounts with telephone redemption
privileges).
o To verify that the telephone redemption privilege is in place on an account,
or to request the form to add it to an existing account, call Signature
Services.
o Amounts of $1,000 or more will be wired on the next business day. A $4 fee
will be deducted from your account.
o Amounts of less than $1,000 may be sent by EFT or by check. Funds from EFT
transactions are generally available by the second business day. Your bank may
charge a fee for this service.
By exchange
[Clipart] o Accounts of any type. o Obtain a current prospectus for the fund into which you are exchanging by
o Sales of any amount. calling your financial representative or Signature Services.
o Call your financial representative or Signature Services to request an exchange.
</TABLE>
----------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA02217-1000
To sell shares through a systematic Phone Number: 1-800-225-5291
withdrawal plan, see Or contact your financial representative
"Additional investor services." for instructions and assistance.
----------------------------------------
6 YOUR ACCOUNT
<PAGE>
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
o your address of record has changed within the past
30 days
o you are selling more than $100,000 worth of shares
o you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You will need to obtain your signature guarantee from a member of the Signature
Guarantee Medallion Program. Most brokers and securities dealers are
members of this program. A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
- --------------------------------------------------------------------------------
[Clipart]
Owners of individual, joint, sole o Letter of instruction.
proprietorship, UGMA/UTMA (custodial
accounts for minors) or general o On the letter, the signatures and
partner accounts. titles of all persons authorized to
sign for the account, exactly as
the account is registered.
o Signature guarantee if applicable
(see above).
Owners of corporate or association o Letter of instruction.
accounts.
o Corporate resolution, certified
within the past 12 months.
o On the letter and the resolution,
the signature of the person(s)
authorized to sign for the account.
o Signature guarantee if applicable
(see above).
Owners or trustees of trust accounts. o Letter of instruction.
o On the letter, the signature(s) of
the trustee(s).
o Provide a copy of the trust
document certified within the past
12 months.
o Signature guarantee if applicable
(see above).
Joint tenancy shareholders with rights o Letter of instruction signed by
of surviorship whose co-tenants are surviving tenant.
deceased.
o Copy of death certificate.
o Signature guarantee if applicable
(see above).
Executors of shareholder estates. o Letter of instruction signed by
executor.
o Copy of order appointing executor,
certified within the past 12
months.
o Signature guarantee if applicable
(see above).
Administrators, conservators, o Call 1-800-225-5291 for
guardians and other sellers or account instructions.
types not listed above.
YOUR ACCOUNT 7
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for the fund is
determined twice each business day at 12 noon and at the close of regular
trading on the New York Stock Exchange (typically 4 P.M. Eastern Time), by
dividing a class's net assets by the number of its shares outstanding. To help
the fund maintain its $1 constant share price, portfolio investments are valued
at cost, and any discount or premium created by market movements is amortized to
maturity.
Execution of requests The fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after Signature Services receives your
request in good order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, the fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. Also for your protection, telephone
transactions are not permitted on accounts whose names or addresses have changed
within the past 30 days. Proceeds from telephone transactions can only be mailed
to the address of record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other. The registration for both accounts involved must be
identical. If no sales charge was paid on your share, you will pay the sales
charge imposed by the new fund. Otherwise, your shares will be exchanged with-
out a sales charge.
To protect the interests of other investors in the fund, the fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. The fund may also refuse any exchange
order. The fund may change or cancel its exchange policies at any time, upon 60
days' notice to its shareholders.
Certificated shares All money market fund shares are electronically recorded.
Certificated shares are not available.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The fund generally declares dividends daily and pay them monthly.
Purchases by wire or other federal funds that are accepted before 12 noon
Eastern Time will receive the dividend declared that day. Other orders,
including those that are not accompanied by federal funds, will begin receiving
dividends the following day. Redemption orders accepted before 12 noon Eastern
Time will not receive that day's dividends.
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund. If you choose this option, or if you do not
indicate any choice, your dividends will be reinvested on the dividend record
date. Alternatively, you can choose to have a check for your dividends mailed to
you. However, if the check is not deliverable, your dividends will be
reinvested.
8 YOUR ACCOUNT
<PAGE>
Taxability of dividends Dividends you receive from a money market fund, whether
reinvested or taken as cash, are generally considered taxable as ordinary
income. Some dividends paid in January may be taxable as if they had been paid
the previous December.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you. However, as long as the fund maintains a
stable share price, you will not have a gain or loss on shares you sell or
exchange.
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
Year 2000 compliance The adviser and the fund's service providers are taking
steps to address any year 2000-related computer problems. However, there is some
risk that these problems could disrupt the issuers in which the fund invests,
the fund's operations or financial markets generally.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
o Complete the appropriate parts of your account
application.
o If you are using MAAP to open an account, make
out a check for your first investment amount payable to "John Hancock
Signature Services, Inc." Deliver your check and application to your financial
representative or Signature Services.
Systematic withdrawal plan This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Specify the payee(s). The payee may be yourself or any other party, and there
is no limit to the number of payees you may have, as long as they are all on
the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial representative
or Signature Services.
Retirement plans John Hancock Funds offers a range of retirement plans,
including traditional and Roth IRAs, SIMPLE Plans, SEPs, 401(k) Plans, and other
pension and profit-sharing plans. Using these plans, you can invest in any John
Hancock fund (except this fund and the tax-free income funds) with a low minimum
investment of $250 or, for some group plans, no minimum investment at all. To
find out more, call Signature Services at 1-800-225-5291.
YOUR ACCOUNT 9
<PAGE>
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the fund. The
fund's board of directors oversees the fund's business activities and retains
the services of the various firms that carry out the fund's operations.
Management fee For the last fiscal year the fund paid management fees at an
annual rate of 0.35% to the investment adviser.
The management firm The fund is managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Mutual Life Insurance Company and manages more than $30 billion in assets.
[The following information was represented as a flow chart in the printed
material.]
-----------------
Shareholders
-----------------
Distribution and
shareholder services
-------------------------------------------------
Financial services firms and
their representatives
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
-------------------------------------------------
-------------------------------------------------
Principal distributor
John Hancock Funds, Inc.
Markets the funds and distributes shares
through selling brokers, financial planners
and other financial representatives.
-------------------------------------------------
------------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
Handles shareholder services, including record-
keeping and statements, distribution of dividends,
and processing of buy and sell requests.
------------------------------------------------------
Asset
management
------------------------------------
Investment adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
------------------------------------
------------------------------------
Custodian
Investors Bank & Trust Co.
State Street Bank and Trust Co.
Holds the funds' assets, settles all
portfolio trades and collects most of
the valuation data required for
calculating each fund's NAV.
------------------------------------
------------------------------------
Trustees
Oversee the funds' activities.
------------------------------------
10 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
This table details the performance of the fund's shares, including total return
information showing how much an investment in the fund has increased or
decreased each year.
Cash Reserve, Inc.
Figures audited by Ernst & Young LLP
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
Period ended: 12/94(1) 12/95 12/96 12/97 12/98
- ---------------------------------------------------------------------------------------------------------------------------
<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 0.04 0.05 0.05 0.05 0.05
Less distributions:
Dividends from net investment income (0.04) (0.05) (0.05) (0.05) (0.05)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
Total investment return at net asset value(2) (%) 3.74 5.38 5.00 5.20 4.91
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 142,301 119,763 67,003 37,822 29,708
Ratio of expenses to average net assets (%) 0.62 0.73 0.65 0.61 0.75
Ratio of net investment income (loss)
to average net assets (%) 3.72 5.30 4.85 5.07 4.81
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(2) Total investment return assumes dividend reinvestment.
FUND DETAILS 11
<PAGE>
For more information
Two documents are available that offer further information on John Hancock Cash
Reserve, Inc.:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affect performance, as well as the
auditors' report (in annual report only).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the fund. The
current annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated
by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Signature
Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By phone: 1-800-225-5291
By EASI-Line: 1-800-338-8080
By TDD: 1-800-544-6713
On the Internet: www.jhancock.com/funds
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public
Reference Room in Washington, DC
By phone: 1-800-SEC-0330
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
101 Huntington Avenue
Boston, Massachusetts
02199-7603
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts (C) 1999 John Hancock Funds, Inc.
02199-7603 420PN 5/99
John Hancock(R)
<PAGE>
JOHN HANCOCK CASH RESERVE, INC.
Statement of Additional Information
May 1, 1999
On September 10, 1996, the Directors voted to close the Fund to new purchases,
except shares purchased with reinvested Fund dividends effective October 1,
1996.
This Statement of Additional Information provides information about John Hancock
Cash Reserve Fund, Inc. (the "Fund") in addition to the information that is
contained in the Prospectus (the "Prospectus"), dated May 1, 1999.
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Organization of the Fund.................................................... 2
Investment Objective and Policies........................................... 2
Investment Restrictions..................................................... 5
Those Responsible for Management............................................ 7
Investment Advisory and Other Services...................................... 17
Distribution Contract....................................................... 18
Net Asset Value............................................................. 19
Description of the Fund's Shares............................................ 20
Tax Status.................................................................. 21
Calculation ofYield......................................................... 22
Brokerage Allocation........................................................ 23
Transfer Agent Services..................................................... 25
Custody of Portfolio........................................................ 25
Independent Auditors........................................................ 25
Appendix.................................................................... A-1
Financial Statements........................................................ F-1
<PAGE>
ORGANIZATION OF THE FUND
The Fund is a diversified open-end investment management company organized as a
corporation under the laws of the state of Maryland on January 17, 1980. Prior
to the approval of John Hancock Advisers, Inc. (the "Adviser") an indirect
wholly-owned subsidiary of John Hancock Mutual Life Insurance Company (the "Life
Company"), a Massachusetts life insurance company chartered in 1862, with
national headquarters at John Hancock Place, Boston, Massachusetts as the Fund's
Adviser, effective December 22, 1994, the Fund was known as Transamerica Cash
Reserve, Inc.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus. The Fund's investment
objective policies and restrictions except as noted are fundamental and may only
be changed with shareholder approval. There is no assurance that the Fund will
achieve its investment objective.
The Fund's investment objective is to obtain maximum current income consistent
with the preservation of capital and maintenance of liquidity. The Fund seeks to
achieve its objective by investing in high quality money market instruments
maturing within one year from the date of purchase with an average portfolio
maturity of 90 days or less. Securities in which the Fund may invest may not
earn as high a level of current income as long-term or lower quality securities
which generally have less liquidity, greater market risk and more fluctuation in
market value.
The Fund will invest only in U.S. dollar denominated securities determined by
the Board of Directors to present minimal credit risk and which are rated high
quality by any major rating service or, if unrated, determined to be of
comparable quality by the Board of Directors. These include commercial paper and
similar short-term obligations of U.S. issuers which generally meet the highest
quality standards at the time of investment, in conformity with securities
regulations governing money market mutual funds. The Fund may also purchase
other marketable, non-convertible corporate debt securities of U.S. issuers.
These investments include bonds, debentures, floating rate obligations, and
issues with optional maturities which in each case must have remaining
maturities of one year or less and be rated at least AA by Standard and Poor's
Ratings Group ("S&P") or Aa by Moody's Investor Services, Inc. ("Moody's") at
the time of investment, see Appendix A.
Investments will also include bank obligations such as certificates of deposit,
time or demand deposits and bankers acceptances. Bank obligations are limited to
U.S. or Canadian banks having total assets over $1 billion. Investments in
savings association obligations are limited to U.S. savings and loan
associations with total assets over $1 billion. Investments in bank obligations
may include instruments issued by foreign branches of U.S. or Canadian banks.
The Fund may invest in U.S. Government securities. In addition, the Fund may
invest in U.S. dollar denominated securities issued or guaranteed by the
Government of Canada, a Province of Canada, or their instrumentalities in an
amount not to exceed 10% of its total assets at the time of purchase of such
government securities. The Fund may enter into repurchase agreements, invest in
restricted securities and is authorized to invest in participation interests and
to purchase securities on a delayed delivery basis. In addition, the Fund is
authorized, but presently does not intend, to engage in reverse repurchase
agreements and invest in variable amount master notes.
Government Securities. U.S. Government obligations are issued or guaranteed as
to principal and interest by the U.S. Government or one of its agencies or
instrumentalities. Treasury bills, bonds and notes and certain obligations of
Government agencies and instrumentalities, such as Government National Mortgage
Association pass through certificates are supported by the full faith and credit
of the Treasury. Other obligations such as securities
2
<PAGE>
of the Federal Home Loan Bank are supported by the right of the issuer to borrow
from the Treasury; while others such as bonds issued by the Federal National
Mortgage Association, which is a private corporation, are supported only by the
credit of the issuing instrumentality. Obligations not backed by the full faith
and credit of the United States may be secured, in whole or part, by a line of
credit with the U.S. Treasury or collateral consisting of cash or other
securities which are backed by the full faith and credit of the United States.
In the case of other obligations, the agency issuing or guaranteeing the
obligation must be looked to for ultimate repayment.
Corporate Obligations. For a description of the ratings of securities which are
eligible for investment by the Fund, see Appendix A.
Short-term corporate obligations may also include variable amount master demand
notes. Variable amount master notes are obligations that permit the investment
of fluctuating amounts by the Fund at varying rates of interest pursuant to
direct arrangements between the Fund, as lender, and the borrower. These notes
permit daily changes in the amounts borrowed. The Fund has the right to increase
the amount under the note at any time up to the full amount provided by the note
agreement, or to decrease the amount, and the borrower may repay up to the full
amount of the note without penalty. The borrower is typically a large industrial
or finance company which also issues commercial paper. Typically these notes
provide that the interest rate is set daily by the borrower; the rate is usually
the same as or similar to the interest rate on commercial paper being issued by
the borrower. Because variable amount master notes are direct lending
arrangements between the lender and borrower, it is not generally contemplated
that such instruments will be traded, and there is no secondary market for these
notes, although they are redeemable (and thus immediately repayable by the
borrower) at the face value, plus accrued interest, at any time. Accordingly,
the Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. In connection with master demand note
arrangements, the Fund considers earning power, cash flow, and other liquidity
ratios of the issuer. The Fund will only invest in master demand notes of U.S.
issuers. While master demand notes, as such, are not typically rated by credit
rating agencies, if not so rated the Fund may invest in them only if at the time
of an investment the issuer meets the criteria set forth in the Prospectus for
all other commercial paper issuers. The Fund will not invest more than 25% of
its assets in master demand notes. Although the Fund has previously invested in
one master demand note and might again own this type of note, it has no current
intention of doing so in the foreseeable future.
Participation Interests. The Fund may invest in participations issued by an
intermediary, usually a bank, which evidence ownership of a fractional interest
in a large, underlying money market instrument of a type in which the Fund is
otherwise permitted to invest. The Fund's ability to exercise its rights as a
lender and to trade these participations and any fractional notes from the
underlying issuer in the secondary market is normally less than if the Fund
owned the entire investment directly.
Bank Obligations. The Fund's ownership of obligations issued by banks may
involve social considerations. Normally, large domestic banks are members of the
Federal Reserve System and the Federal Deposit Insurance Corporation, but these
are not investment requirements. The purchase of obligations issued by foreign
branches of domestic banks and by Canadian banks or their foreign branches
involves special investment considerations, including the possible imposition of
withholding taxes on interest income, expropriation, confiscatory taxation, the
possible adoption of foreign governmental restrictions which might adversely
affect the payment of principal and interest on such obligations, limitations on
the removal of funds, or other adverse political or economic developments. In
addition, it may be more difficult to obtain and enforce a judgment against a
Canadian bank or foreign branch of a domestic or Canadian bank. The Fund will
not invest more than 25% of its assets in Canadian banks, including their
foreign branches. Some investments in foreign branches of domestic banks may be
considered to have the same investment risk as investing in instruments of the
domestic bank when the parent is unconditionally liable for the obligations of
its foreign branch; in all other cases the Fund will not invest more than 25% of
its assets in the instruments of foreign branches of domestic banks.
3
<PAGE>
Repurchase Agreements. For the purpose of realizing additional (taxable) income,
the Fund may enter into repurchase agreements. In a repurchase agreement, the
Fund buys a security subject to the right and obligation to sell it back to the
issuer at the same price plus accrued interest. The transaction must be fully
collateralized at all times. The Fund may reinvest any cash collateral in
short-term highly liquid debt securities. However, reverse repurchase agreements
may involve some credit risk to the Fund if the other party should default on
its obligation and the Fund is delayed in or prevented from recovering the
collateral.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements which involve the sale of any of the money market securities held by
the Fund and an agreement to repurchase those securities at an agreed upon
price, date, and interest payment. The Fund would then use the proceeds of
reverse repurchase agreements to make other investments which either mature or
are under an agreement to resell at a date simultaneous with or prior to the
expiration of the reverse repurchase agreement. The Fund may utilize reverse
repurchase agreements only if the interest income to be earned from the
investment of proceeds of the transaction is greater than the interest expense
of the reverse repurchase transaction. In the view of the staff of the
Securities and Exchange Commission ("SEC") (a) reverse repurchase arrangements
are borrowings under the Investment Company Act of 1940 and (b) if entered into
with other than banks, the Fund must maintain, in a segregated account,
marketable short-term securities equal to the aggregate amount of its reverse
repurchase obligations. If the Fund enters into reverse repurchase arrangements
with other than banks, it will maintain such a segregated account. In addition,
the Fund would not enter into reverse repurchase agreements exceeding in the
aggregate (provided that overall borrowings do not exceed 1/3 of the Fund's
total assets) more than 20% of the value of its total net assets. To avoid the
potential leveraging effects of the Fund's borrowings, additional investments
will not be made while borrowings (including reverse repurchase agreements) are
in excess of 5% of the Fund's total assets. In addition, the Fund would enter
into reverse repurchase agreements only with financial institutions which are
approved in advance as being creditworthy by the Board of Directors. Under
procedures established by the Board of Directors, the Investment Adviser will
monitor the creditworthiness of the firms involved. The Fund has not invested in
reverse repurchase agreements in the past and has no current intention of doing
so.
When-Issued and Forward Commitments. Although it is not typically the practice
with respect to money market securities, some new issues of the securities in
which the Fund may invest could be offered on a delayed delivery (including a
when-issued) basis, that is, delivery and payment for the securities would be
scheduled to take place after a typical settlement date with the price, interest
rate, and settlement date being fixed at the time of commitment. The Fund will
not effect delayed delivery transactions with scheduled delivery dates of more
than one year after the date of its commitment. The Fund would only make such
commitments to purchase securities with the intention of actually acquiring
them, and no new commitment will be made if, as a result, more than 20% of the
Fund's net assets would be so committed. The Fund will at all times maintain in
a segregated account cash or liquid, high-grade money market instruments in an
amount equal to these commitments. However, the Fund could meet its obligations
to pay for delayed delivery securities from sale of the delayed delivery
securities themselves, which may have a value greater or less than the Fund's
payment obligation and thus produce a realized gain or loss.
The Fund's investment restrictions permit it to invest more than 25% of its
assets in all finance companies as a group and all domestic banks as a group
when, in the opinion of the Investment Adviser, yield differentials and money
market conditions suggest and when cash is available for such investment and
instruments are available for purchase which fulfill the Fund's objectives in
terms of quality and marketability.
4
<PAGE>
Restricted Illiquid Securities. The Fund may invest up to 10% of its net assets
in illiquid investments, which include repurchase agreements maturing in more
than seven days, restricted securities and securities not readily marketable.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. Short-term trading may have the effect of increasing portfolio
turnover and may increase net short-term capital gains, distributions from which
would be taxable to shareholders as ordinary income. The Fund does not intend to
invest for the purpose of seeking short-term profits. The Fund's portfolio
securities may be changed, however, without regard to the holding period of
these securities (subject to certain tax restrictions), when the Adviser deems
that this action will help achieve the Fund's objective given a change in an
issuer's operations or changes in general market conditions.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without the approval of a majority of the Fund's outstanding
voting securities, which as used in the Prospectus and this Statement of
Additional Information, means the approval by the lesser of (1) the holders of
67% or more of the Fund's shares represented at a meeting if more than 50% of
the Fund's outstanding shares are present in person or by proxy at the meeting
or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
1. Borrow money except from banks for temporary or emergency purposes
(including meeting redemptions without immediately selling securities,
but not to purchase investment securities) in an amount not to exceed
1/3 of the value (including the proceeds of the loan) of the Fund's
total assets;
2. Mortgage, pledge, or hypothecate assets, except to an extent not
greater than 10% of total assets to secure borrowings made in
accordance with restriction 1 above;
3. Invest more than 5% of its total assets in the securities of any one
issuer, except for: securities issued or guaranteed by the United
States government or by one of its agencies or instrumentalities; and,
with respect to 25% of its total assets, obligations of domestic
commercial banks (although under current regulations, an investment in
the obligations of any one commercial bank may not exceed 5% of the
Fund's total assets, subject to an exception permitting investment in
certain obligation of any one such bank at any one time for a period of
up to three business days);
4. Invest more than 25% of the Fund's total assets in the securities of
issuers (other than domestic banks and the U.S. Government, its
agencies, and instrumentalities) in the same industry. Electric,
natural gas distribution, natural gas pipeline, combined electric and
natural gas, and telephone utilities are considered separate industries
for purposes of this restriction, and finance companies as a group
shall not be considered a single industry;
5. Make loans to others, except through the purchase of various kinds of
publicly distributed debt obligations, investments in variable amount
master demand notes, participations, and repurchase agreement
transactions;
6. Purchase or sell real estate; however, the Fund may purchase marketable
securities issued by companies which invest in real estate or interest
therein;
7. Purchase securities on margin or sell short;
5
<PAGE>
8. Purchase or sell commodities or commodity futures contracts, or oil,
gas, or mineral exploration or development programs;
9. Underwrite securities of other issuers;
10. Acquire more than 10% of any class of securities of an issuer. For this
purpose, all outstanding bonds and other evidences of indebtedness
shall be deemed within a single class regardless of maturities,
priorities, coupon rates, series, designations, conversion rights,
security, or other differences;
11. Purchase securities (other than under repurchase agreements of not more
than one week's duration considering only the remaining days to
maturity of each existing repurchase agreement) for which there exists
no readily available market, or for which there are legal or
contractual restrictions on resale (excepting from this restriction
securities which are subject to such resale restrictions but which, in
the judgment of the Fund's investment adviser, are readily redeemable
on demand), if as a result of any such purchase, more than 10% of the
Fund's net assets would be invested in such securities;
12. Purchase warrants, or write, purchase or sell puts, calls, straddles,
spreads, or combinations thereof; and
13. Enter into reverse repurchase agreements, if as a result, the Fund's
obligations with respect to all reverse repurchase agreements would be
greater than 20% of net assets.
14. Issue any senior security (as that term is defined in the Investment
Company Act of 1940) if such issuance is specifically prohibited by the
1940 Act or the rules and regulations promulgated thereunder. For the
purpose of this restriction, collateral arrangements with respect to
options, futures contracts and options on futures contracts and
collateral arrangements with respect to initial and variation margins
are not deemed to be the issuance of a senior security.
Non-Fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Directors without
shareholder approval.
The Fund may not:
(a) Purchase a security if, as a result, (i) more than 10% of the
Fund's total assets would be invested in the securities of other
investment companies, (ii) the Fund would hold more than 3% of the
total outstanding voting securities of any one investment company, or
(iii) more than 5% of the Fund's total assets would be invested in the
securities of any one investment company. These limitations do not
apply to (a) the investment of cash collateral, received by the Fund in
connection with lending the Fund's portfolio securities, in the
securities of open-end investment companies or (b) the purchase of
shares of any investment company in connection with merger,
consolidation, reorganization or purchase of substantially all of the
assets of another investment company. Subject to the above percentage
limitations, the Fund may, in connection with the John Hancock Group of
Funds Deferred Compensation Plan for Independent Trustees/Directors,
purchase securities of other investment companies within the John
Hancock Group of Funds.
(b) Purchase securities of any issuer for the purpose of exercising control
or management;
6
<PAGE>
With respect to investment restrictions (a) and (b), to avoid the potential
leveraging effects of the Fund's borrowings, additional investments will not be
made while borrowings (including reverse repurchase agreements) are in excess of
5% of the Fund's total assets.
If a percentage restriction or rating restriction on investment or utilization
of assets as set forth above is adhered to at the time an investment is made or
assets are so utilized, a later change in percentage resulting from changes in
value of the Fund's portfolio securities or a later change in the rating of a
portfolio security will not be considered a violation of policy.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Directors who elect officers who are
responsible for the day-to-day operations of the Fund and who execute policies
formulated by the Directors. Several of the officers and Directors of the Fund
are also officers and directors of the Adviser or officers and Directors of the
Fund's principal distributor, John Hancock Funds, Inc. ("John Hancock Funds").
7
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman, Director and Chief
101 Huntington Avenue Executive Officer (1, 2) Executive Officer, the Adviser;
Boston, MA 02199 Chairman, Director and Chief
October 1944 Executive Officer, The Berkeley
Financial Group, Inc. ("The
Berkeley Group"); Chairman and
Director, NM Capital Management,
Inc. ("NM Capital"), John Hancock
Advisers International Limited
("Advisers International") and
Sovereign Asset Management
Corporation ("SAMCorp"); Chairman
and Chief Executive Officer, John
Hancock Funds, Inc. ("John Hancock
Funds"); Chairman, First Signature
Bank and Trust Company; Director,
John Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), John
Hancock Advisers International
(Ireland) Limited ("International
Ireland"), John Hancock Capital
Corporation and New England/Canada
Business Council; Member,
Investment Company Institute Board
of Governors; Director, Asia
Strategic Growth Fund, Inc.;
Trustee, Museum of Science;
Director, John Hancock Freedom
Securities Corporation (until
September 1996); Director, John
Hancock Signature Services, Inc.
("Signature Services") (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
8
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
James F. Carlin Trustee Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc.
Natick, MA 01760 (management/investments); Director,
April 1940 Arbella Mutual (insurance), Health
Plan Services, Inc., Massachusetts
Health and Education Tax Exempt
Trust, Flagship Healthcare, Inc.,
Carlin Insurance Agency, Inc., West
Insurance Agency, Inc. (until May
1995), Uno Restaurant Corp.;
Chairman, Massachusetts Board of
Higher Education (since 1995).
William H. Cunningham Trustee Chancellor, University of Texas
601 Colorado Street System and former President of the
O'Henry Hall University of Texas, Austin, Texas;
Austin, TX 78701 Lee Hage and Joseph D. Jamail
January 1944 Regents Chair of Free Enterprise;
Director, LaQuinta Motor Inns, Inc.
(hotel management company)
(1985-1998); Jefferson-Pilot
Corporation (diversified life
insurance company) and LBJ
Foundation Board (education
foundation); Advisory Director,
Chase Bank (formerly Texas Commerce
Bank - Austin).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
9
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Ronald R. Dion Trustee President and Chief Executive
250 Boylston Street Officer, R.M. Bradley & Co., Inc.;
Boston, MA 02116 Director, The New England Council
March 1946 and Massachusetts Roundtable;
Trustee, North Shore Medical Center
and a corporator of the Eastern
Bank; Trustee, Emmanuel College.
Harold R. Hiser, Jr. Trustee Executive Vice President,
123 Highland Avenue Schering-Plough Corporation
Short Hill, NJ 07078 (pharmaceuticals) (retired 1996);
October 1931 Director, ReCapital Corporation
(reinsurance) (until 1995).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
10
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer,
101 Huntington Avenue Chief Investment Officer and
Boston, MA 02199 Director, the Adviser, The Berkeley
August 1953 Group; Executive Vice President and
Director, John Hancock Funds;
Director, Advisers International,
Insurance Agency, Inc. and
International Ireland; President and
Director, SAMCorp. and NM Capital;
Executive Vice President, the
Adviser (until December 1994);
Director, Signature Services (until
January 1997).
Charles L. Ladner Trustee Senior Vice President and Chief
UGI Corporation Financial Officer, UGI Corporation
P.O. Box 858 (Public Utility Holding Company)
Valley Forge, PA 19482 (retired 1998); Vice President and
February 1938 Director for AmeriGas, Inc. (retired
1998); Vice President of AmeriGas
Partners, L.P. (until 1997);
Director, EnergyNorth, Inc. (until
1995).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
11
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Leo E. Linbeck, Jr. Trustee Chairman, President, Chief Executive
3810 W. Alabama Officer and Director, Linbeck
Houston, TX 77027 Corporation (a holding company
August 1934 engaged in various phases of the
construction industry and
warehousing interests); Former
Chairman, Federal Reserve Bank of
Dallas (1992, 1993); Chairman of
the Board, Linbeck Construction
Corporation; Director, Duke Energy
Corporation (a diversified energy
company), Daniel Industries, Inc.
(manufacturer of gas measuring
products and energy related
equipment), GeoQuest International
Holdings, Inc. (a geophysical
consulting firm); Director, Greater
Houston Partnership.
Steven R. Pruchansky Trustee (1) Director and President, Mast
4327 Enterprise Avenue Holdings, Inc. (since 1991);
Naples, FL 34104 Director, First Signature Bank &
August 1944 Trust Company (until August 1991);
Director, Mast Realty Trust (until
1994); President, Maxwell Building
Corp. (until 1991).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
12
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Mutual
John Hancock Place Life Insurance Company; Director,
P.O. Box 111 the Adviser, John Hancock Funds,
Boston, MA 02117 Signator Investors, Inc., Insurance
August 1937 Agency, Inc., John Hancock
Subsidiaries, Inc., SAMCorp. and NM
Capital; The Berkeley Group; JH
Networking Insurance Agency, Inc.;
Signature Services (until January
1997).
Norman H. Smith Trustee Lieutenant General, United States
243 Mt. Oriole Lane Marine Corps; Deputy Chief of Staff
Linden, VA 22642 for Manpower and Reserve Affairs,
March 1933 Headquarters Marine Corps;
Commanding General III Marine
Expeditionary Force/3rd Marine
Division (retired 1991).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
13
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
John P. Toolan Trustee Director, The Smith Barney Muni Bond
13 Chadwell Place Funds, The Smith Barney Tax-Free
Morristown, NJ 07960 Money Funds, Inc., Vantage Money
September 1930 Market Funds (mutual funds), The
Inefficient-Market Fund, Inc.
(closed-end investment company) and
Smith Barney Trust Company of
Florida; Chairman, Smith Barney
Trust Company (retired December,
1991); Director, Smith Barney,
Inc., Mutual Management Company and
Smith Barney Advisers, Inc.
(investment advisers) (retired
1991); Senior Executive Vice
President, Director and member of
the Executive Committee, Smith
Barney, Harris Upham & Co.,
Incorporated (investment bankers)
(until 1991).
Osbert M. Hood Senior Vice President and Chief Senior Vice President , Chief
101 Huntington Avenue Financial Officer Financial Officer and Treasurer, the
Boston, MA 02199 Adviser, the Berkeley Group and John
August 1952 Hancock Funds, Inc.; Vice President
and Chief Financial Officer, John
Hancock Mutual Life Insurance
Company Retail Sector (until 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
14
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services, John Hancock
July 1950 Funds, NM Capital and SAMCorp.;
Clerk, Insurance Agency, Inc.;
Counsel, John Hancock Mutual Life
Insurance Company (until February
1996).
Susan S. Newton Vice President and Secretary Vice President, the Adviser; John
101 Huntington Avenue Hancock Funds, Signature Services
Boston, MA 02199 and The Berkeley Group.
March 1950
James J. Stokowski Vice President, Treasurer and Chief Vice President, the Adviser.
101 Huntington Avenue Accounting Officer
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
15
<PAGE>
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Directors. The three non-Independent Directors, Messrs. Boudreau,
Scipione and Ms. Hodsdon, and each of the officers of the Fund are interested
persons of the Adviser, are compensated by the Adviser and/or its affiliates and
receive no compensation from the Fund for their services. The compensation to
the Director from the Fund shown below is for the fiscal year ended December 31,
1998.
Total
Compensation from
all Funds in John
Aggregate Hancock Fund
Compensation Complex to
Directors from the Fund(1) Directors(2)
--------- ---------------- ------------
James F. Carlin $ 264 $ 74,000
William H. Cunningham* 264 74,000
Ronald R. Dion 50 18,500
Charles F. Fretz 205 57,121
Harold R. Hiser, Jr.* 252 70,000
Charles L. Ladner 273 77,100
Leo E. Linbeck, Jr. 264 74,000
Patricia P. McCarter* 153 43,696
Steven R. Pruchansky* 273 77,100
Norman H. Smith* 280 79,350
John P. Toolan* 273 77,100
------ --------
Total $2,551 $721,967
(1) Compensation is for the fiscal year ended December 31, 1998.
(2) Total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is for the calendar year ended December 31, 1998. As
of this date, there were sixty-seven funds in the John Hancock Fund
Complex, with each of these Independent Trustees serving on thirty-three
funds. Effective October 1, 1998, Mr. Fretz and Ms. McCarter resigned as
Trustees of the Complex.
* As of December 31, 1998, the value of the aggregate accrued deferred
compensation from all Funds in the John Hancock Fund Complex for Mr.
Cunningham was $330,943, Mr. Hiser was $115,084, for Ms. McCarter was
$183,645, for Mr. Pruchansky was $ 75,016, for Mr. Smith was $109,807 and
for Mr. Toolan was $403,714 under the John Hancock Deferred Compensation
Plan for Independent Trustees (the "Plan").
All of the officers listed are officers or employees of the Adviser or the
Affiliated Companies. Some of the Directors and officers may also be officers
and/or directors and/or trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
16
<PAGE>
As of April 1, 1999, the officers and Directors of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund. As of
that date, no person or entity owned beneficially or of record 5% or more of the
outstanding shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $30 billion in assets under management
in its capacity as investment adviser to the Fund and the other mutual funds and
publicly traded investment companies in the John Hancock group of funds having a
combined total of over 1,400,000 shareholders. The Adviser is an affiliate of
the Life Company, one of the most recognized and respected financial
institutions in the nation. With total assets under management of over $100
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries high ratings from Standard & Poor's and A.M.
Best. Founded in 1862, the Life Company has been serving clients for over 130
years.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser. Pursuant to the Advisory Agreement, the Adviser
will: (a) furnish continuously an investment program for the Fund and determine,
subject to the overall supervision and review of the Directors, which
investments should be purchased, held, sold or exchanged, and (b) provide
supervision over all aspects of the Fund's operations except those which are
delegated to a custodian, transfer agent or other agent.
The Fund bears all costs of its organization and operation, including but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices, prospectuses, proxy statements and reports to regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders their account statements; taxes; expenses of redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodians including those for keeping books and accounts,
maintaining a committed line of credit, and calculating the net asset value of
shares; fees and expenses of transfer agents and dividend disbursing agents;
legal, accounting, financial, management, tax and auditing fees and expenses of
the Fund (including an allocable portion of the cost of the Adviser's employees
rendering such services to the Fund; the compensation and expenses of Trustees
who are not otherwise affiliated with the Trust, the Adviser or any of their
affiliates; expenses of Trustees' and shareholders' meetings; trade association
memberships; insurance premiums; and any extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly fees computed at the annual percentage rate of 0.35% of the
Fund's average daily net assets. Fees are calculated and accrued daily and, at
the end of each month, the Adviser is entitled to a portion of the annual fee,
based on the average daily net assets of the Fund through the last day of the
month for which payment is made, less any previous payments made to the Adviser
for the fiscal year.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser or for other funds or clients for which the Adviser
renders investment advice arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds or clients in a manner deemed equitable to all of them. To the
extent that transactions on behalf of more than one client of the Adviser or its
respective affiliates may increase the demand for securities being purchased or
the supply of securities being sold, there may be an adverse effect on price.
17
<PAGE>
Pursuant to the Advisory Agreement, the Adviser is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from its reckless disregard of
the obligations and duties under the Advisory Agreement.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Fund's
Advisory Agreement is no longer in effect, the Fund (to the extent that it
lawfully can) will cease to use such name or any other name indicating that it
is advised by or otherwise connected with the Adviser. In addition, the Adviser
or the Life Company may grant the non-exclusive right to use the name "John
Hancock" or any similar name to any other corporation or entity, including but
not limited to any investment company of which the Life Company or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
The continuation of the Advisory Agreement and Distribution Agreement (discussed
below) was approved by all Directors. The Advisory Agreement and Distribution
Agreement will continue in effect from year to year, provided that its
continuance is approved annually both (i) by a vote of a majority of the
Directors of the Fund who are not interested persons of one of the parties to
the contract, cast in person at a meeting called for the purpose of voting on
such approval, and (ii) by either a majority of the Directors or the holders of
a majority of the Fund's outstanding voting securities. Both agreements may be
terminated on 60 days written notice by any party or by a majority of
outstanding voting securities of the Fund by the Directors or by the Adviser and
will terminate automatically if assigned.
For the fiscal year ended December 31, 1998, 1997 and 1996, the advisory fee
paid to the Adviser amounted to $115,468, $170,018 and $363,452.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal year ended December 31, 1998, 1997 and 1996,
the Fund paid the Adviser $5,321, $8,877 and $19,471 for services under this
Agreement.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser and
the Fund have adopted extensive restrictions on personal securities trading by
personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
DISTRIBUTION CONTRACT
The Fund has a Distribution Agreement with John Hancock Funds. Under the
Distribution Agreement, John Hancock Funds is obligated to use its best efforts
to sell shares on behalf of the Fund. Shares of the Fund are also sold by
selected broker-dealers (the "Selling Brokers") which have entered into selling
agency agreements with John Hancock Funds. John Hancock Funds accepts orders for
the purchase of the shares of the Fund which are continually offered at net
asset value (normally $1.00 per share). The Fund is a no-load Fund and John
Hancock Funds and Selling Brokers' representatives do not receive any sales
commissions in connection with the sales of shares of the Fund.
18
<PAGE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
The Fund utilizes the amortized cost valuation method of valuing portfolio
instruments in the absence of extraordinary or unusual circumstances. Under the
amortized cost method, assets are valued by constantly amortizing over the
remaining life of an instrument the difference between the principal amount due
at maturity and the cost of the instrument to the Fund. The Directors will from
time to time review the extent of any deviation of the net asset value, as
determined on the basis of the amortized cost method, from net asset value as it
would be determined on the basis of available market quotations. If any
deviation occurs which may result in unfairness either to new investors or
existing shareholders, the Directors will take such actions as they deem
appropriate to eliminate or reduce such unfairness to the extent reasonably
practicable. These actions may include selling portfolio instruments prior to
maturity to realize gains or losses or to shorten the Fund's average portfolio
maturity, withholding dividends, splitting, combining or otherwise
recapitalizing outstanding shares or utilizing available market quotations to
determine net asset value per share.
Since a dividend is declared to shareholders each time net asset value is
determined, the net asset value per share of the Fund will normally remain
constant at $1.00 per share. There is no assurance that the Fund can maintain
the $1.00 per share value. Monthly, any increase in the value of a shareholder's
investment from dividends is reflected as an increase in the number of shares in
the shareholder's account or is distributed as cash if a shareholder has so
elected.
It is expected that the Fund's net income will be positive each time it is
determined. However, if because of a sudden rise in interest rates or for any
other reason the net income of the Fund determined at any time is a negative
amount, the Fund will offset the negative amount against income accrued during
the month for each shareholder account. If at the time of payment of a
distribution such negative amount exceeds a shareholder's portion of accrued
income, the Fund may reduce the number of its outstanding shares by treating the
shareholder as having contributed to the capital of the Fund that number of full
or fractional shares which represent the amount of excess. By investing in the
Fund, shareholders are deemed to have agreed to make such a contribution. This
procedure permits the Fund to maintain its net asset value at $1.00 per share.
If in the view of the Directors it is inadvisable to continue the practice of
maintaining net asset value at $1.00 per share, the Directors reserve the right
to alter the procedures for determining net asset value. The Fund will notify
shareholders of any such alteration.
The Fund is permitted to redeem shares in kind. Nevertheless, the Fund has filed
with the Securities and Exchange Commission a notification of election
committing itself to pay in cash on redemption by a shareholder of record,
limited during any 90-day period to the lesser of $250,000 or 1% of the net
asset value of the Fund at the beginning of such period.
The NAV for the fund and class is determined twice each business day at 12 noon
and at the close of regular trading on the New York Stock Exchange (typically 4
p.m. Eastern Time), by dividing a class's net assets by the number of its shares
outstanding. To help the Fund maintain its $1 constant share price, portfolio
investments are valued at cost, and any discount or premium created by market
movements is amortized to maturity.
19
<PAGE>
DESCRIPTION OF THE FUND'S SHARES
Capitalization and Voting Rights. The Fund's total authorized capital stock is
4,000,000,000 common shares of the par value of one cent ($.01) per share. The
Board of Directors has the authority to designate additional series of Common
Stock without seeking the approval of shareholders.
All shares have equal rights as to voting, dividends and liquidation. The voting
rights of shares of the Fund are noncumulative. Consequently, holders of more
than 50% of the shares voting for the election of directors can elect all of the
directors of the Fund if they choose to do so, and in such event, the holders of
the remaining less than 50% of the shares voting will not be able to elect any
person or persons to the Board of Directors. In addition, shareholders may
request in writing that the Fund call a special meeting of shareholders for
various purposes, including removal of a director provided that such request
represents at least 10% of all the votes entitled to be cast at the meeting. The
Fund will assist shareholders with any communications, including shareholder
proposals, in accordance with provisions of Section 16 of the Investment Company
Act of 1940. All shares of the Fund issued and outstanding are, and all shares
offered by the Prospectus, when issued, will be fully paid and nonassessable.
Shares have no conversion, preemptive or other subscription rights and are
freely transferable on the books of the Fund.
Reports to Shareholders. Shareholders of the Fund will receive annual and
semiannual reports showing diversification of investments, securities owned and
other information regarding the Fund's activities. The financial statements of
the Fund are audited at least once a year by the Fund's independent auditors.
Registration Statement. This Statement of Additional Information and the
Prospectus do not contain all of the information set forth in the Fund's
Registration Statement filed with the SEC. The complete Registration Statement
may be obtained from the SEC upon payment of the fee prescribed by the rules and
regulations of the SEC.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept credit card, starter or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Use of information provided on the account application may be used by the
Fund to verify the accuracy of the information or for background or financial
history purposes. A joint account will be administered as a joint tenancy with
right of survivorship unless the joint owners notify Signature Services of a
different intent. A shareholder's account is governed by the laws of The
Commonwealth of Massachusetts. For telephone transactions, the transfer agent
will take measures to verify the identity of the caller, such as asking for
name, account number, Social Security or other taxpayer ID number and other
relevant information. If appropriate measures are taken, the transfer agent is
not responsible for any losses that may occur to any account due to an
unauthorized telephone call. Also for your protection telephone transactions are
not permitted on accounts whose names or addresses have changed within the past
30 days. Proceeds from telephone transactions can only be mailed to the address
of record.
Selling activities for the Fund may not take place outside the U.S. except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
20
<PAGE>
TAX STATUS
The Fund has qualified and has elected to be treated as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), and intends to continue to so qualify for each taxable year. As
such and by complying with the applicable provisions of the Code regarding the
sources of its income, the timing of its distributions, and the diversification
of its assets, the Fund will not be subject to Federal income tax on taxable
income (including net realized capital gains, if any) which is distributed to
shareholders at least annually in accordance with the timing requirements of the
Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to avoid liability for such tax by satisfying
such distribution requirements.
Distributions of net investment income (which include original issue discount
and accrued, recognized market discount) and any net realized short-term capital
gains, as computed for Federal income tax purposes, will be taxable as described
in the Prospectus whether taken in shares or in cash. Although the Fund does not
expect to realize any net long-term capital gains, distributions from such
gains, if any, would be taxable as long-term capital gains. Shareholders
electing to receive distributions in the form of additional shares will have a
cost basis for Federal income tax purposes in each share so received equal to
the amount of cash they would have received had they elected the distribution in
cash, divided by the number of shares received.
Upon a redemption of shares (including by exercise of the exchange privilege) a
shareholder ordinarily will not realize a taxable gain or loss if, as
anticipated, the Fund maintains a constant net asset value per share. If the
Fund is not successful in maintaining a constant net asset value per share, a
redemption may produce a taxable gain or loss.
Distributions from the Fund will not qualify for the dividends-received
deduction for corporate shareholders.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset net capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent capital gains are
offset by such losses, they would not result in Federal income tax liability to
the Fund and would not be distributed as such to shareholders.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments, if any, in foreign securities. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.
If more than 50% of the value of the total assets of the Fund at the close of
any taxable year consists of securities of foreign corporations, the Fund may
file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their pro rata
shares of foreign income taxes paid by the Fund even though not actually
received, and (ii) treat such respective pro rata portions as foreign income
taxes paid by them.
21
<PAGE>
If the election is made, shareholders of the Fund may then deduct such pro rata
portions of foreign income taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of foreign taxes paid by the Fund, although such
shareholders will be required to include their shares of such taxes in gross
income. Shareholders who claim a foreign tax credit for such foreign taxes may
be required to treat a portion of dividends received from the Fund as a separate
category of income for purposes of computing the limitations on the foreign tax
credit. Tax-exempt shareholders will ordinarily not benefit from this election.
Each year that the Fund files the election described above, its shareholders
will be notified of the amount of (i) each shareholder's pro rata share of
foreign income taxes paid by the Fund and (ii) the portion of Fund dividends
which represents income from each foreign country.
The foregoing discussion relates solely to U.S. Federal income tax laws
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions (if any), and ownership of
or gains realized (if any) on the exchange or redemption of shares of the Fund
may also be subject to state and local taxes. Shareholders should consult their
own tax advisers as to the Federal, state or local tax consequences of ownership
of shares of, and receipt of distribution from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above. These investors may be
subject to non-resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from the Fund. Non-U.S. investors should consult their tax advisers regarding
such treatment and the application of foreign taxes to an investment in the
Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
The Fund anticipates that, provided that the Fund qualifies as a regulated
investment company under the Code, it will not be required to pay any
Massachusetts income tax.
CALCULATION OF YIELD
For the purposes of calculating yield, daily income per share consists of
interest and discount earned on the Fund's investments less provision for
amortization of premiums and applicable expenses, divided by the number of
shares outstanding, but does not include realized or unrealized appreciation or
depreciation.
In any case in which the Fund reports its annualized yield, it will also furnish
information as to the average portfolio maturities of the Fund. It will also
report any material effect of realized gains or losses or unrealized
appreciation on dividends which have been excluded from the computation of
yield.
Yield calculations are based on the value of a hypothetical preexisting account
with exactly one share at the beginning of the seven day period. Yield is
computed by determining the net change in the value of the account during the
base period and dividing the net change by the value of the account at the
beginning of the base period to obtain the base period return. Base period is
multiplied by 365/7 and the resulting figure is carried to the nearest 100th of
a percent. Net change in account value during the base period includes dividends
declared on the original share, dividends declared on any shares purchased with
dividends of that share and any account or sales charges that would affect an
account of average size, but excludes any capital changes.
22
<PAGE>
Effective yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical preexisting account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then compounding the base period return by adding 1, raising
the sum to a power equal to 365 divided by 7, and subtracting 1 from the result,
according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1
The yield of the Fund is not fixed or guaranteed. Yield quotations should not be
considered to be representations of yield of the Fund for any period in the
future. The yield of the Fund is a function of available interest rates on money
market instruments, which can be expected to fluctuate, as well as of the
quality, maturity and types of portfolio instruments held by the Fund and of
changes in operating expenses. The Fund's yield may be affected if, through net
sales of its shares, there is a net investment of new money in the Fund which
the Fund invests at interest rates different from that being earned on current
portfolio instruments. Yield could also vary if the Fund experiences net
redemptions, which may require the disposition of some of the Fund's current
portfolio instruments.
From time to time, in reports and promotional literature, the Fund's yield and
total return will be ranked or compared to indices of mutual funds and bank
deposit vehicles such as Lipper Analytical Services, Inc. "Lipper-Fixed Income
Fund Performance Analysis," a monthly publication which tracks net assets, total
return, and yield on fixed income mutual funds in the United States or
"IBC/Donahue's Money Fund Report," a similar publication. Comparisons may also
be made to bank Certificates of Deposit, which differ from mutual funds like the
Fund, in several ways. The interest rate established by the sponsoring bank is
fixed for the term of a CD, there are penalties for early withdrawal from CD's
and the principal on a CD is insured. Unlike CD's, which are insured as to
principal, an investment in the Fund is not insured or guaranteed.
Performance rankings and ratings, reported periodically in national financial
publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRONS, will also be
utilized.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities are made by
the Adviser pursuant to recommendations made by an investment committee of the
Adviser, which consists of officers and directors of the Adviser and affiliates
and officers and Directors who are interested persons of the Fund. Orders for
purchases and sales of securities are placed in a manner which, in the opinion
of the officers of the Fund, will offer the best price and market for the
execution of each such transaction. Purchases from underwriters of portfolio
securities may include a commission or commissions paid by the issuer and
transactions with dealers serving as market makers reflect a "spread." Debt
securities are generally traded on a net basis through dealers acting for their
own account as principals and not as brokers; no brokerage commissions are
payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the NASD and other policies that the Directors may
determine, the Adviser may consider sales of shares of the Fund as a factor in
the selection of broker-dealers to execute the Fund's portfolio transactions.
23
<PAGE>
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser of the Fund, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitments to allocate portfolio transactions upon any
prescribed basis. While the Adviser's officers will be primarily responsible for
the allocation of the Fund's brokerage business, their policies and practices in
this regard must be consistent with the foregoing and will at all times be
subject to review by the Directors. For the fiscal years ended December 31,
1998, 1997 and 1996, no negotiated brokerage commissions were paid on portfolio
transactions.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Directors that the price is
reasonable in light of the services provided and to policies that the Directors
may adopt from time to time. During the fiscal year ended December 31, 1998, the
Fund did not pay commissions as compensation to any brokers for research
services such as industry, economic and company reviews and evaluations of
securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of Signator Investors, Inc. a broker-dealer (until January 1, 1999,
John Hancock Distributors, Inc.) ("Signator" or "Affiliated Broker"). Pursuant
to procedures determined by the Trustees and consistent with the above policy of
obtaining best net results, the Fund may execute portfolio transactions with or
through the Affiliated Broker. During the years ended December 31, 1998, 1997
and 1996, the Fund did not execute any portfolio transactions with the
Affiliated Broker.
Signator may act as broker for the Fund on exchange transactions, subject,
however, to the general policy of the Fund set forth above and the procedures
adopted by the Trustees pursuant to the 1940 Act. Commissions paid to an
Affiliated Broker must be at least as favorable as those which the Trustees
believe to be contemporaneously charged by other brokers in connection with
comparable transactions involving similar securities being purchased or sold. A
transaction would not be placed with an Affiliated broker if the Fund would have
to pay a commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers, except for accounts for which the Affiliated Broker
acts as a clearing broker for another brokerage firm, and any customers of the
Affiliated Broker not comparable to the Fund as determined by a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Fund, the Adviser or the Affiliated Broker. Because the Adviser, which is
affiliated with the Affiliated Broker, has, as an investment adviser to the
Fund, the obligation to provide investment management services, which includes
elements of research and related investment skills, such research and related
skills will not be used by the Affiliated Broker as a basis for negotiating
commissions at a rate higher than that determined in accordance with the above
criteria.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Fund with those to be sold or purchased for
other clients managed by it in order to obtain best execution.
24
<PAGE>
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc. ("Signature Services"), 1 John Hancock
Way, Suite 1000, Boston MA 02217-1000, a wholly owned indirect subsidiary of the
Life Company, is the transfer and dividend paying agent for the Fund. The Fund
pays Signature Services monthly a transfer agent fee equal to $20.00 per
shareholder account, on an annual basis, plus certain out-of-pocket expenses.
CUSTODY OF PORTFOLIO
State Street Bank and Trust Company ("SSB"), 225 Franklin Street, Boston,
Massachusetts, serves as custodian of the cash and investment securities of the
Fund. SSB is also responsible for, among other things, receipt and delivery of
the Fund's investment securities in accordance with procedures and conditions
specified in the custody agreement.
INDEPENDENT AUDITORS
Ernst & Young LLP has been selected as the independent auditor of the Fund.
The financial statements of the Fund for the fiscal year ended December 31,
1998 included in the Prospectus and this Statement of Additional Information
have been audited by Ernst & Young LLP for the periods indicated in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon authority of such firm as experts in accounting and auditing.
25
<PAGE>
APPENDIX A
CORPORATE AND TAX-EXEMPT BOND RATINGS
Moody's Investors Service, Inc. ("Moody's")
Aaa, Aa, A and Baa - Tax-exempt bonds rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to bonds that are of "high quality by all
standards," but long-term risks appear somewhat larger than Aaa rated bonds. The
Aaa and Aa rated bonds are generally known as "high grade bonds." The foregoing
ratings for tax-exempt bonds are sometimes presented in parentheses preceded
with a "con" indicating that the bonds are rated conditionally. Bonds for which
the security depends upon the completion of some act or upon the fulfillment of
some condition are rated conditionally. These are bonds secured by (a) earnings
of projects under construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals that begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. Such parenthetical
ratings denotes the probable credit stature upon completion of construction or
elimination of the basis of the condition. Bonds rated A are considered as upper
medium grade obligations. Principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future. Bonds rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected or poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact, have speculative characteristics as well.
Standard & Poor's Corporation ("S&P")
AAA, AA, A and BBB - Bonds rated AAA bear the highest rating assigned to debt
obligations and indicates an extremely strong capacity to pay principal and
interest. Bonds rated AA are considered "high grade," are only slightly less
marked than those of AAA ratings and have the second strongest capacity for
payment of debt service. Bonds rated A have a strong capacity to pay principal
and interest, although they are somewhat susceptible to the adverse effects or
changes in circumstances and economic conditions. The foregoing ratings are
sometimes followed by a "p" indicating that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the bonds being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. Although a provisional rating addresses credit quality subsequent of
completion of the project, it makes no comment on the likelihood of, or the risk
of default upon failure of, such completion. Bonds rated BBB are regarded as
having an adequate capacity to repay principal and pay interest. Whereas they
normally exhibit protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to repay principal
and pay interest for bonds in this category than for bonds in the A category.
A-1
<PAGE>
Fitch Investors Service ("Fitch")
AAA, AA, A, BBB - Bonds rated AAA are considered to be investment grade and of
the highest quality. The obligor has an extraordinary ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events. Bonds rated AA are considered to be investment grade and of high
quality. The obligor's ability to pay interest and repay principal, while very
strong, is somewhat less than for AAA rated securities or more subject to
possible change over the term of the issue. Bonds rated A are considered to be
investment grade and of good quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with higher
ratings. Bonds rated BBB are considered to be investment grade and of
satisfactory quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to weaken this ability than bonds with
higher ratings.
TAX-EXEMPT NOTE RATINGS
Moody's - MIG-1 and MIG-2. Notes rated MIG-1 are judged to be of the best
quality, enjoying strong protection from established cash flow of funds for
their services or from established and broad-based access to the market for
refinancing or both. Notes rated MIG-2 are judged to be of high quality with
ample margins of protection, through not as large as MIG-1.
S&P - SP-1 and SP-2. SP-1 denotes a very strong or strong capacity to pay
principal and interest. Issues determined to possess overwhelming safety
characteristics are given a plus (+) designation (SP-1+). SP-2 denotes a
satisfactory capacity to pay principal interest.
Fitch - FIN-1 and FIN-2. Notes assigned FIN-1 are regarded as having the
strongest degree of assurance for timely payment. A plus symbol may be used to
indicate relative standing. Notes assigned FIN-2 reflect a degree of assurance
for timely payment only slightly less in degree than the highest category.
CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
Moody's-Commercial Paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Prime-1, indicates highest quality repayment capacity of rated
issue and Prime-2 indicates higher quality.
S&P-Commercial Paper ratings are a current assessment of the likelihood of
timely payment of debts having an original maturity of no more than 365 days.
Issues rated A have the greatest capacity for a timely payment and the
designation 1, 2 and 3 indicates the relative degree of safety. Issues rated
"A-1+" are those with an "overwhelming degree of credit protection."
Fitch-Commercial Paper ratings reflect current appraisal of the degree of
assurance of timely payment. F-1 issues are regarded as having the strongest
degree of assurance for timely payment. (+) is used to designate the relative
position of an issuer within the rating category. F-2 issues reflect an
assurance of timely payment only slightly less in degree than the strongest
issues. The symbol (LOC) may follow either category and indicates that a letter
of credit issued by a commercial bank is attached to the commercial paper note.
Other Considerations-The ratings of S&P, Moody's, and Fitch represent their
respective opinions of the quality of the municipal securities they undertake to
rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, municipal securities with the same
maturity, coupon and rating may have different yields and municipal securities
of the same maturity and coupon with different ratings may have the same yield.
A-2
<PAGE>
FINANCIAL STATEMENTS
The financial statements listed below are included in and incorporated in the
Fund's 1998 Annual Report to Shareholders for the year ended December 31, 1998
(filed electronically on March 4, 1999, accession number 0001010521-99-000154)
and are included in and incorporated by reference into Part B of this
registration statement of John Hancock Cash Reserve, Inc. (file nos. 811-2995
and 2-66461).
John Hancock Cash Reserve, Inc.
Statement of Assets and Liabilities as of December 31, 1998.
Statement of Operations for the year ended December 31, 1998.
Statement of Changes in Net Assets for each of the periods
indicated therein.
Financial Highlights for each of the 5 years indicated therein.
Schedule of Investments as of December 31, 1998.
Notes to Financial Statements.
Report of Independent Auditors.
F-1
<PAGE>
JOHN HANCOCK CASH RESERVE, INC.
PART C.
OTHER INFORMATION
Item. 23. Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit Index
hereto and are incorporated herein by reference.
Item 24. Persons Controlled by or under Common Control with Registrant.
No person is directly or indirectly controlled by or under common control with
Registrant.
Item 25. Indemnification
(a) Indemnification provisions relating to the Registrant's Directors,
officers, employees and agents is set forth in Article V of the Registrant's By
Laws included as Exhibit 2 herein.
(b) Under Section 12 of the Distribution Agreement, John Hancock Funds,
Inc. ("John Hancock Funds" ) has agreed to indemnify the Registrant and its
Directors, officers and controlling persons against claims arising out of
certain acts and statements of John Hancock Funds.
Section 9(a) of the By-Laws of the John Hancock Mutual Life Insurance
Company (" the "Insurance Company") provides, in effect, that the Insurance
Company will, subject to limitations of law, indemnify each present and former
director, officer and employee of the of the Insurance Company who serves as a
Directors or officer of the Registrant at the direction or request of the
Insurance Company against litigation expenses and liabilities incurred while
acting as such, except that such indemnification does not cover any expense or
liability incurred or imposed in connection with any matter as to which such
person shall be finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interests of the Insurance
Company. In addition, no such person will be indemnified by the Insurance
Company in respect of any liability or expense incurred in connection with any
matter settled without final adjudication unless such settlement shall have been
approved as in the best interests of the Insurance Company either by vote of the
Board of Directors at a meeting composed of directors who have no interest in
the outcome of such vote, or by vote of the policyholders. The Insurance Company
may pay expenses incurred in defending an action or claim in advance of its
final disposition, but only upon receipt of an undertaking by the person
indemnified to repay such payment if he should be determined to be entitled to
indemnification.
Article IX of the respective By-Laws of John Hancock Funds and John Hancock
Advisers, Inc. (the "Adviser") provide as follows:
C-1
<PAGE>
"Section 9.01. Indemnity: Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation a director, officer, employee or agent of the
Corporation, or is or was at any time since the inception of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified by the Corporation against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and the liability was not incurred by reason of gross
negligence or reckless disregard of the duties involved in the conduct of his
office, and expenses in connection therewith may be advanced by the Corporation,
all to the full extent authorized by the law."
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided
by Section 9.01 shall not be deemed exclusive of any other right to which those
indemnified may be entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person."
Insofar as indemnification for liabilities under the Securities Act of 1933 (the
"Act") may be permitted to Directors, officers and controlling persons of the
Registrant pursuant to the Registrant's Amended and Restated Articles of
Incorporation and By-Laws, the Distribution Agreement, the By-Laws of John
Hancock Funds, the Adviser, or the Insurance Company or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Directors, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of such
issue.
Item 26. Business and Other Connections of Investment Advisers
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of the Adviser,
reference is made to Form ADV (801-8124) filed under the Investment Advisers Act
of 1940, which is incorporated herein by reference.
Item 27. Principal Underwriters
(a) John Hancock Funds acts as principal underwriter for the Registrant and also
serves as principal underwriter or distributor of shares for John Hancock Cash
Reserve, Inc., John Hancock Bond Trust, John Hancock Current Interest, John
Hancock Series Trust, John Hancock Tax-Free Bond Trust, John Hancock California
Tax-Free Income Fund, John Hancock Capital Series, John Hancock Special Equities
Fund, John Hancock Sovereign Bond Fund, John Hancock Tax-Exempt Series, John
Hancock Strategic Series, John Hancock Series Trust and John Hancock World Fund,
John Hancock Investment Trust, John Hancock Institutional Series Trust, John
Hancock Investment Trust II, and Hancock Investment Trust III.
(b) The following table lists, for each director and officer of John
Hancock Funds, the information indicated.
C-2
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C>
Edward J. Boudreau, Jr. Chairman, and Chief Director, Chairman and Chief
101 Huntington Avenue Executive Officer Executive Officer
Boston, Massachusetts
Robert H. Watts Director, Executive Vice None
John Hancock Place President and Chief Compliance
P.O. Box 111 Officer
Boston, Massachusetts
James V. Bowhers President None
101 Huntington Avenue
Boston, Massachusetts
Osbert M. Hood Senior Vice President and Senior Vice President and
101 Huntington Avenue Chief Financial Officer Chief Financial Officer
Boston, Massachusetts
David A. King Director None
101 Huntington Avenue
Boston, Massachusetts
Richard O. Hansen Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
John A. Morin Vice President and Secretary Vice President
101 Huntington Avenue
Boston, Massachusetts
C-3
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
Susan S. Newton Vice President Vice President
101 Huntington Avenue and Secretary
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard S. Scipione Director Director
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Anne C. Hodsdon Director and President, Chief Investment Officer
101 Huntington Avenue Executive Vice President and Chief Operating Officer
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
C-4
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
David F. D'Alessandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Foster Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
Renee M. Humphrey Vice President None
101 Huntington Avenue
Boston, Massachusetts
Kathleen M. Graveline Senoir Vice President None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Peter F. Mawn Senior Vice President None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Charles H. Womack Senior Vice President None
6501 Americas Parkway
Suite 950
Albuquerque, New Mexico
Anthony P. Petrucci Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Keith F. Harstein Vice President None
101 Huntington Avenue
Boston, Massachusetts
Karen F. Walsh Vice President None
101 Huntington Avenue
Boston, Massachusetts
J. William Benintende Vice President None
101 Huntington Avenue
Boston, Massachusetts
Gary Cronin Vice President None
101 Huntington Avenue
Boston, Massacusetts
Kristine Pancare Vice President None
101 Huntington Avenue
Boston, Massachusetts
</TABLE>
C-5
<PAGE>
(c) None.
Item 30. Location of Accounts and Records
The Registrant maintains the records required to be maintained by it
under Rules 31a-1 (a), 31a-1(b), and 31a-2(a) under the Investment
Company Act of 1940 at its principal executive offices at 101
Huntington Avenue, Boston Massachusetts 02199-7603. Certain records,
including records relating to Registrant's shareholders and the
physical possession of its securities, may be maintained pursuant to
Rule 31a-3 at the main offices of Registrant's Transfer Agent and
Custodian.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable
(b) Not applicable
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus with respect to a series of the Registrant is delivered with a copy
of the latest annual report to shareholders with respect to that series upon
request and without charge.
(d) Registrant undertakes to comply with Section 16(c) of the Investment
Company Act of 1940, as amended which relates to the assistance to be rendered
to shareholders by the Trustees of the Registrant in calling a meeting of
shareholders for the purpose of voting upon the question of the removal of a
trustee.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement to Rule 485(b)
under the Securities Act of 1933 and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Boston, and the Commonwealth of Massachusetts on the 27th day of April,
1999.
JOHN HANCOCK CASH RESERVE, INC.
By: *
------------------------------------
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman and Chief Executive
- -------------------------- Officer (Principal Executive
Edward J. Boudreau, Jr. Officer)
/s/ James J. Stokowski Vice President, Treasurer April 27, 1999
- -------------------------- and Chief Accounting Officer
James J. Stokowski
* Director
- --------------------------
James F. Carlin
* Director
- --------------------------
William H. Cunningham
* Director
- --------------------------
Ronald R. Dion
C-7
<PAGE>
Signature Title Date
--------- ----- ----
* Director
- --------------------------
Harold R. Hiser, Jr.
Director
- --------------------------
Anne C. Hodsdon
* Director
- --------------------------
Charles L. Ladner
* Director
- --------------------------
Leo E. Linbeck
* Director
- --------------------------
Steven R. Pruchansky
* Director
- --------------------------
Norman H. Smith
* Director
- --------------------------
John P. Toolan
*By: /s/ Susan S. Newton April 27, 1999
-----------------------
Susan S. Newton,
Attorney-in-Fact under
Power of Attorney dated
June 25, 1996, and January 1, 1999.
</TABLE>
C-8
<PAGE>
POWER OF ATTORNEY
The undersigned Trustee of John Hancock Bank and Thrift Opportunity
Fund, John Hancock Bond Trust, John Hancock California Tax-Free Income Fund,
John Hancock Current Interest, John Hancock Institutional Series Trust, John
Hancock Investment Trust, John Hancock Patriot Global Dividend Fund, John
Hancock Patriot Preferred Dividend Fund, John Hancock Patriot Premium Dividend
Fund I, John Hancock Patriot Premium Dividend Fund II, John Hancock Patriot
Select Dividend Trust, John Hancock Series Trust, and John Hancock Tax-Free Bond
Trust, (each a "Trust"), and Director of John Hancock Cash Reserve, Inc., (a
"Corporation") does hereby severally constitute and appoint Edward J. Boudreau,
Jr., Susan S. Newton, and James J. Stokowski, and each acting singly, to be my
true, sufficient and lawful attorneys, with full power to each of them, and each
acting singly, to sign for me, in my name and in the capacity indicated below,
any Registration Statement on Form N-1A and any Registration Statement on Form
N-14 to be filed by the Trust or the Corporation under the Investment Company
Act of 1940, as amended ( the "1940 Act"), and under the Securities Act of 1933,
as amended (the "1933 Act"), and any and all amendments to said Registration
Statements, with respect to the offering of shares and any and all other
documents and papers relating thereto, and generally to do all such things in my
name and on my behalf in the capacity indicated to enable the Trust or
Corporation to comply with the 1940 Act and the 1933 Act, and all requirements
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by said attorneys or each of them to
any such Registration Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 1st day of January, 1999.
/s/James F. Carlin /s/Leo E. Linbeck
- ------------------ -----------------
Jams F. Carlin, Trustee Leo E. Linbeck, Jr., Trustee
/s/William H. Cunningham /s/Steven R. Pruchansky
- ------------------------ -----------------------
William H. Cunningham, Trustee Steven R. Pruchansky, Trustee
/s/Ronald R. Dion /s/Norman H. Smith
- ----------------- ------------------
Ronald R. Dion, Trustee Norman H. Smith, Trustee
/s/Harold R. Hiser /s/John P. Toolan
- ------------------ -----------------
Harold R. Hiser, Jr., Trustee John P. Toolan, Trustee
/s/Charles L. Ladner
- --------------------
Charles L. Ladner, Trustee
s:corpsecty:trustees\pwrattypanel B
<PAGE>
POWER OF ATTORNEY
The undersigned Trustee of John Hancock Bank and Thrift Opportunity
Fund, John Hancock Bond Trust, John Hancock California Tax-Free Income Fund,
John Hancock Capital Series, John Hancock Current Interest, John Hancock
Declaration Trust, John Hancock Income Securities Trust, John Hancock
Institutional Series Trust, John Hancock Investment Trust, John Hancock
Investment Trust II, John Hancock Investment Trust III, John Hancock Investors
Trust, John Hancock Patriot Global Dividend Fund, John Hancock Patriot Preferred
Dividend Fund, John Hancock Patriot Premium Dividend Fund I, John Hancock
Patriot Premium Dividend Fund II, John Hancock Patriot Select Dividend Trust,
John Hancock Series Trust, John Hancock Sovereign Bond Fund, John Hancock
Special Equities Fund, John Hancock Strategic Series, John Hancock Tax-Exempt
Series Fund, John Hancock Tax-Free Bond Trust, and John Hancock World Fund,
(each a "Trust"), and Director of John Hancock Cash Reserve, Inc., (a
"Corporation") does hereby severally constitute and appoint Susan S. Newton, and
James J. Stokowski, and each acting singly, to be my true, sufficient and lawful
attorneys, with full power to each of them, and each acting singly, to sign for
me, in my name and in the capacity indicated below, any Registration Statement
on Form N-1A and any Registration Statement on Form N-14 to be filed by the
Trust or the Corporation under the Investment Company Act of 1940, as amended (
the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933
Act"), and any and all amendments to said Registration Statements, with respect
to the offering of shares and any and all other documents and papers relating
thereto, and generally to do all such things in my name and on my behalf in the
capacity indicated to enable the Trust or Corporation to comply with the 1940
Act and the 1933 Act, and all requirements of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by said attorneys or each of them to any such Registration Statements and
any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 1st day of January, 1999.
/s/Edward J. Boudreau, Jr.
- --------------------------
Edward J. Boudreau, Jr., Trustee
s:corpsecty:trustees\pwrtyattypanelsAB EJB
<PAGE>
POWER OF ATTORNEY
The undersigned Trustee of John Hancock Bank and Thrift Opportunity
Fund, John Hancock Bond Trust, John Hancock California Tax-Free Income Fund,
John Hancock Capital Series, John Hancock Current Interest, John Hancock
Declaration Trust, John Hancock Income Securities Trust, John Hancock
Institutional Series Trust, John Hancock Investment Trust, John Hancock
Investment Trust II, John Hancock Investment Trust III, John Hancock Investors
Trust, John Hancock Patriot Global Dividend Fund, John Hancock Patriot Preferred
Dividend Fund, John Hancock Patriot Premium Dividend Fund I, John Hancock
Patriot Premium Dividend Fund II, John Hancock Patriot Select Dividend Trust,
John Hancock Series Trust, John Hancock Sovereign Bond Fund, John Hancock
Special Equities Fund, John Hancock Strategic Series, John Hancock Tax-Exempt
Series Fund, John Hancock Tax-Free Bond Trust, and John Hancock World Fund,
(each a "Trust"), and Director of John Hancock Cash Reserve, Inc., (a
"Corporation") does hereby severally constitute and appoint Edward J. Boudreau,
Jr., Susan S. Newton, and James J. Stokowski, and each acting singly, to be my
true, sufficient and lawful attorneys, with full power to each of them, and each
acting singly, to sign for me, in my name and in the capacity indicated below,
any Registration Statement on Form N-1A and any Registration Statement on Form
N-14 to be filed by the Trust or the Corporation under the Investment Company
Act of 1940, as amended ( the "1940 Act"), and under the Securities Act of 1933,
as amended (the "1933 Act"), and any and all amendments to said Registration
Statements, with respect to the offering of shares and any and all other
documents and papers relating thereto, and generally to do all such things in my
name and on my behalf in the capacity indicated to enable the Trust or
Corporation to comply with the 1940 Act and the 1933 Act, and all requirements
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by said attorneys or each of them to
any such Registration Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 1st day of January, 1999.
/s/Anne C. Hodsdon
- ------------------
Anne C. Hodsdon, Trustee
/s/Richard S. Scipione
- ----------------------
Richard S. Scipione, Trustee
s:corpsecty:trustees\pwrattypanelsAB
<PAGE>
John Hancock Cash Reserve, Inc.
EXHIBIT INDEX
99.(a) Articles of Incorporation.*
99.(b) By-laws. Amended By-Laws of Registrant.**
99.(c) Instruments Defining Rights of Securities Holders. See Exhibits
99.(a) and 99.(b).
99.(d) Investment Advisory Agreement between John Hancock Advisers, Inc.
and the Registrant.**
99.(d).1 Administrative Services Agreement between John Hancock Advisers,
Inc. and the Registrant.**
99.(d).2 Sub-Advisory Agreement.**
99.(e) Underwriting Contracts. Distribution Agreement between
Registrant and John Hancock Funds, Inc. and the Registrant.**
99.(e).1 Soliciting Dealer Agreement between John Hancock Funds, Inc. and
the John Hancock funds.**
99.(e).2 Form of Financial Institution Sales and Service Agreement between
John Hancock Fund's, Inc. and the John Hancock funds.**
99.(f) Bonus or Profit Sharing Contracts. Not Applicable.
99.(g) Custodian Agreements. Master Custodian Agreement between the
John Hancock funds and State Street Bank.**
99.(g).1 Amended and Restated Master Custodian Agreement between John
Hancock Mutual Funds and State Street Bank and Trust Company
dated March 9, 1999.+
99.(h) Other Material Contracts. Transfer Agency Agreement.*
99.(h).1 Accounting and Legal Services Agreement between John Hancock
Advisers, Inc. and the Registrant as of January 1, 1996.***
99.(i) Legal Opinions.+
99.(j) Other Opinions.+
99.(k) Omitted Financial Statements. Not Applicable.
99.(l) Initial Capital Agreements. Not Applicable.
99.(m) Rule 12b-1 Plan. Not Applicable.
Financial Data Schedule.
99.(n).1A Cash Reserve, Inc.
99.(o) Rule 18f-3. Not Applicable.
C-9
<PAGE>
Exhibit No. Description
- ----------- -----------
* Previously filed with Pre-Effective Amendment #1 and incorporated herein by
reference.
** Previoiusly filed electronically with post-effective number 17 (file nos.
811-2995 and 2-66461) on April 24, 1995, accession number
0000950135-95-000990.
*** Previously filed electronically with post-effective amendment number 18
(file nos. 811-2995 and 2-66461) on April 30, 1996, accession number
0001010521-96-000050.
+ Filed herewith.
C-10
MASTER CUSTODIAN AGREEMENT
between
JOHN HANCOCK MUTUAL FUNDS
and
STATE STREET BANK AND TRUST COMPANY
Amended and Restated
March 9, 1999
<PAGE>
TABLE OF CONTENTS
1. Definitions.............................................................1-3
2. Employment of Custodian and Property to be Held by It.....................3
3. The Custodian as a Foreign Custody Manager................................3
A. Definitions......................................................3-4
B. Delegation to the Custodian as Foreign Custody Manager.............4
C. Countries Covered..................................................4
D. Scope of Delegated Responsibilities..............................4-6
E. Standard of Care as Foreign Custody Manager of the Fund............7
F. Reporting Requirements.............................................7
G. Representations with respect to Rule 17f-5.........................7
H. Effective Date and Termination of the Custodian as Foreign.........7
Custody Manager
I. Withdrawal of Custsodian as Foreign Custody Manager................8
with Respect to Designated Countries and with Respect
to Eligible Foreign Custodians
J. Guidelines for the Exercise of Delegated Authority...............8-9
and Provision of Information Regarding Country Risk
K. Most Favored Client.............................................9-10
L. Direction as to Eligible Foreign Custodians.......................10
4. Duties of the Custodian with Respect to..................................10
Property of the Fund
A. Safekeeping and Holding of Property...............................10
B. Delivery of Securities.........................................10-13
i
<PAGE>
C. Registration of Securities........................................13
D. Bank Accounts..................................................13-14
E. Payments for Shares of the Fund...................................14
F. Investment and Availability of Federal Funds......................14
G. Collections....................................................14-15
H. Payment of Fund Moneys.........................................15-16
I. Liability for Payment in Advance of............................16-17
Receipt of Securities Purchased
J. Payments for Repurchases of Redemptions...........................17
of Shares of the Fund
K. Appointment of Agents by the Custodian............................17
L. Deposit of Fund Portfolio Securities in........................18-19
Securities Systems
M. Deposit of Fund Commercial Paper in an Approved................19-21
Book-Entry System for Commercial Paper
N. Segregated Account................................................22
O. Ownership Certificates for Tax Purposes...........................22
P. Proxies...........................................................22
Q. Communications Relating to Fund Portfolio......................22-23
Securities
R. Exercise of Rights; Tender Offers................................23
S. Depository Receipts............................................23-24
T. Interest Bearing Call or Time Deposits............................24
U. Options, Futures Contracts and Foreign.........................24-25
Currency Transactions
V. Actions Permitted Without Express Authority....................25-26
ii
<PAGE>
5. Duties of Bank with Respect to Books of Account and......................26
Calculations of Net Asset Value
6. Records and Miscellaneous Duties......................................26-27
7. Opinion of Fund's Independent Public Accountants.........................27
8. Compensation and Expenses of Bank........................................27
9. Responsibility of Bank................................................27-28
10. Persons Having Access to Assets of the Fund...........................28-29
11. Effective Period, Termination and Amendment;..........................29-30
Successor Custodian
12. Interpretive and Additional Provisions...................................30
13. Certification as to Authorized Officers..................................30
14. Notices..................................................................30
15. Massachusetts Law to Apply; Limitations on Liability..................30-31
16. Adoption of the Agreement by the Fund....................................31
iii
<PAGE>
MASTER CUSTODIAN AGREEMENT
This Agreement made as of June 15, 1994 as amended and restated March 9,
1999 between each investment company advised by John Hancock Advisers, Inc.
which has adopted this Agreement in the manner provided herein and State Street
Bank and Trust Company (hereinafter called "Bank", "Custodian" and "Agent"), a
trust company established under the laws of Massachusetts with a principal place
of business in Boston, Massachusetts.
Whereas, each such investment company is registered under the Investment
Company Act of 1940 and has appointed the Bank to act as Custodian of its
property and to perform certain duties as its Agent, as more fully hereinafter
set forth; and
Whereas, the Bank is willing and able to act as each such investment
company's Custodian and Agent, subject to and in accordance with the provisions
hereof;
Now, therefore, in consideration of the premises and of the mutual
covenants and agreements herein contained, each such investment company and the
Bank agree as follows:
1. Definitions
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
(a) "Fund" shall mean the investment company which has adopted this
Agreement and is listed on Appendix A hereto. If the Fund is a Massachusetts
business trust or Maryland corporation, it may in the future establish and
designate other separate and distinct series of shares, each of which may be
called a "portfolio"; in such case, the term "Fund" shall also refer to each
such separate series or portfolio.
(b) "Board" shall mean the board of directors/trustees/managing general
partners/director general partners of the Fund, as the case may be.
(c) "The Depository Trust Company", a clearing agency registered with
the Securities and Exchange Commission under Section 17A of the Securities
Exchange Act of 1934 which acts as a securities depository and which has been
specifically approved as a securities depository for the Fund by the Board.
(d) "Authorized Officer", shall mean any of the following officers of
the Fund : The Chairman of the Board of Trustees, the President, a Vice
President, the Secretary, the Treasurer or Assistant Secretary or Assistant
Treasurer, or any other officer of the Fund duly authorized to sign by
appropriate resolution of the Board of Trustees. .
(e) "Participants Trust Company", a clearing agency registered with the
Securities and Exchange Commission under Section 17A of the Securities Exchange
Act of 1934 which acts as a securities depository and which has been
specifically approved as a securities depository for the Fund by the Board.
1
<PAGE>
(f) "Approved Clearing Agency" shall mean any other domestic clearing
agency registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934 which acts as a securities depository but
only if the Custodian has received a certified copy of a vote of the Board
approving such clearing agency as a securities depository for the Fund.
(g) "Federal Book-Entry System" shall mean the book-entry system
referred to in Rule 17f-4(b) under the Investment Company Act of 1940 for United
States and federal agency securities (i.e., as provided in Subpart O of Treasury
Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350, and the book-entry
regulations of federal agencies substantially in the form of Subpart O).
(h) "Approved Book-Entry System for Commercial Paper" shall mean a
system maintained by the Custodian or by a subcustodian employed pursuant to
Section 2 hereof for the holding of commercial paper in book-entry form but only
if the Custodian has received a certified copy of a vote of the Board approving
the participation by the Fund in such system.
(i) The Custodian shall be deemed to have received "proper instructions"
in respect of any of the matters referred to in this Agreement upon receipt of
written or facsimile instructions signed by such one or more person or persons
as the Board shall have from time to time authorized to give the particular
class of instructions in question. Electronic instructions for the purchase and
sale of securities which are transmitted by John Hancock Advisers, Inc. (the
"Adviser") to the Custodian shall be deemed to be proper instructions; the Fund
shall cause all such instructions to be confirmed in writing. Different persons
may be authorized to give instructions for different purposes. A certified copy
of a vote of the Board may be received and accepted by the Custodian as
conclusive evidence of the authority of any such person to act and may be
considered as in full force and effect until receipt of written notice to the
contrary. Such instructions may be general or specific in terms and, where
appropriate, may be standing instructions. Unless the vote delegating authority
to any person or persons to give a particular class of instructions specifically
requires that the approval of any person, persons or committee shall first have
been obtained before the Custodian may act on instructions of that class, the
Custodian shall be under no obligation to question the right of the person or
persons giving such instructions in so doing. Oral instructions will be
considered proper instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be confirmed
in writing. The Fund authorizes the Custodian to
2
<PAGE>
tape record any and all telephonic or other oral instructions given to the
Custodian. "Proper instructions" may also include communications effected
directly between electromechanical or electronic devices provided that the
President and Treasurer of the Fund and the Custodian are satisfied that such
procedures afford adequate safeguards for the Fund's assets. In performing its
duties generally, and more particularly in connection with the purchase, sale
and exchange of securities made by or for the Fund, the Custodian may take
cognizance of the provisions of the governing documents and registration
statement of the Fund as the same may from time to time be in effect (and votes,
resolutions or proceedings of the shareholders or the Board), but, nevertheless,
except as otherwise expressly provided herein, the Custodian may assume unless
and until notified in writing to the contrary that so-called proper instructions
received by it are not in conflict with or in any way contrary to any provisions
of such governing documents and registration statement, or votes, resolutions or
proceedings of the shareholders or the Board.
2. Employment of Custodian and Property to be Held by It
The Fund hereby appoints and employs the Bank as its Custodian and Agent
in accordance with and subject to the provisions hereof, and the Bank hereby
accepts such appointment and employment. The Fund agrees to deliver to the
Custodian all securities, participation interests, cash and other assets owned
by it, and all payments of income, payments of principal and capital
distributions and adjustments received by it with respect to all securities and
participation interests owned by the Fund from time to time, and the cash
consideration received by it for such new or treasury shares ("Shares") of the
Fund as may be issued or sold from time to time. The Custodian shall not be
responsible for any property of the Fund held by the Fund and not delivered by
the Fund to the Custodian. The Fund will also deliver to the Bank from time to
time copies of its currently effective charter (or declaration of trust or
partnership agreement, as the case may be), By-Laws, prospectus, statement of
additional information and distribution agreement with its principal
underwriter, together with such resolutions, votes and other proceedings of the
Fund as may be necessary for or convenient to the Bank in the performance of its
duties hereunder.
The Custodian may from time to time employ one or more subcustodians to
perform such acts and services upon such terms and conditions as shall be
approved from time to time by the Board. Any such subcustodian so employed by
the Custodian shall be deemed to be the agent of the Custodian, and the
Custodian shall remain primarily responsible for the securities, participation
interests, moneys and other property of the Fund held by such subcustodian. For
the purposes of this Agreement, any property of the Fund held by any such
subcustodian (domestic or foreign) shall be deemed to be held by the Custodian
under the terms of this Agreement.
3. The Custodian as a Foreign Custody Manager
A. Definitions Capitalized terms in this Article 3 shall have the
following meanings:
(a) "Country risk" means all factors reasonably related to the systemic
risk of holding Foreign Assets in a particular country including, but not
limited to, a country's political environment; economic and financial
infrastructure (including financial institutions such as any Mandatory
Securities Depositories operating in the country); prevailing custody and
settlement practices; and laws and regulations applicable to the
safekeeping and recovery of Foreign Assets held in custody in that country.
(b) "Eligible Foreign Custodian" has the meaning set forth in section
(a)(1) of Rule 17f-5 and also includes a U.S. Bank.
3
<PAGE>
(c) "Foreign Assets" means any of the Fund's investments (including foreign
currencies) for which the primary market is outside the United States and
cash and cash equivalents as are reasonably necessary to effect the Fund's
transactions in these investments.
(d) "Foreign Custody Manager" has the meaning set forth in section (a)(2)
of Rule 17f-5; it is a Fund's Board of Directors or any person serving as
the Board's delegate under sections (b) or (d) of Rule 17f-5.
(e) "Mandatory Securities Depository" means a Securities Depository the use
of which is mandatory (i) by law or regulation; (ii) because securities
cannot be withdrawn from the depository; (iii) because maintaining
securities outside the Securities Depository would impair the liquidity of
the securities because settlement within the depository is mandatory and
the period of time required to deposit securities is longer than the
settlement period or where particular classes of transactions, such as
large trades or turn-around trades, are not available if the securities are
held in physical form; or (iv) because maintaining securities outside of
the Securities Depository is not consistent with prevailing custodial or
market practices generally accepted by institutional investors.
(f) "Securities Depository" has the same meaning set forth in section
(a)(6) of Rule 17f-5: it is a system for the central handling of securities
where all securities are of a particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred
or pledged by bookkeeping entry without physical delivery of the
securities.
(g) "U.S. Bank" means a bank which qualifies to serve as a custodian of
assets of investment companies under ss.17(f) of the Investment Company Act
of 1940, as amended.
B. Delegation to the Custodian as Foreign Custody Manager Each Fund,
by resolution adopted by its Board, hereby appoints the Custodian
as the Foreign Custody Manager of the Fund and delegates to the
Custodian, the responsibilities set forth in this Article 3 with
respect to Foreign Assets held outside the United States, and the
Custodian hereby accepts this delegation.
C. Countries Covered The Foreign Custody Manager shall be responsible
for performing the delegated responsibilities defined below only
with respect to the countries listed on Schedule A, which may be
amended from time to time by the Foreign Custody Manager.
Mandatory Securities Depositories are listed on Schedule B, which
may be amended from time to time by the Foreign Custody Manager.
Schedules A and B may also be amended in accordance with
subsection F of Article 3.
D. Scope of Delegated Responsibilities
1) Selection of Eligible Foreign Custodians Subject to the
provisions of this Article 3 and Rule 17f-5 (and any other
applicable law), the Foreign Custody Manager may place and
maintain the Foreign Assets in the care of an Eligible
Foreign Custodian selected by the Foreign Custody Manager in
each country listed
4
<PAGE>
on Schedule A, as amended from time to time. In addition,
the Foreign Custody Manager shall provide the Fund with all
requisite forms and documentation to open an account in any
country listed on Schedule A as requested by any Authorized
Officer and shall assist the Fund with the filing and
processing of these forms and documents. Execution of this
amended and restated Agreement by the Fund shall be deemed
to be a Proper Instruction to open an account, or to place
or maintain Foreign Assets in each country listed on
Schedule A.
In performing its delegated responsibilities as Foreign
Custody Manager to place or maintain Foreign Assets with an
Eligible Foreign Custodian, the Foreign Custody Manager
shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to
custodians in the country in which the Foreign Assets will
be held by that Eligible Foreign Custodian, after
considering all factors relevant to the safekeeping of those
assets. These factors include, without limitation:
(i) the Eligible Foreign Custodian's practices, procedures
and internal controls, including but not limited to, the
physical protections available for certificated securities
(if applicable), its methods of keeping custodial records
and its security and data protection practices;
(ii) whether the Eligible Foreign Custodian has the
requisite financial strength to provide reasonable care for
Foreign Assets;
(iii) the Eligible Foreign Custodian's general reputation
and standing and, in the case of any Securities Depository,
the Securities Depository's operating history and the number
of participants; and
(iv) whether the Fund will have jurisdiction over and be
able to enforce judgments against the Eligible Foreign
Custodian, such as by virtue of the existence of any offices
of the Eligible Foreign Custodian in the United States or
the Eligible Foreign Custodian's consent to service of
process in the United States.
2) Contracts With Eligible Foreign Custodians For each Eligible
Foreign Custodian selected by the Foreign Custody Manager,
the Foreign Custody Manager shall (or, in the case of a
Securities Depository which is not a Mandatory Securities
Depository, may under the rules or established practices or
procedures of the Securities Depository) enter into a
written contract governing the Fund's foreign custody
arrangements with the Eligible Foreign Custodian. The
Foreign Custody Manager shall determine that each contract
will provide reasonable care for the Foreign Assets held by
that Eligible Foreign Custodian based on the standards
specified in paragraph 1 of subsection D of Article 3 of
this Agreement. Each contract shall include provisions that
provide:
5
<PAGE>
(i) for indemnification or insurance arrangements (or any
combination of the foregoing) so that the Fund will be
adequately protected against the risk of loss of the
Foreign Assets held in accordance with the contract;
(ii) that the Foreign Assets will not be subject to any
right, security interest, lien or claim of any kind in
favor of the Eligible Foreign Custodian or its creditors
except a claim of payment for their safe custody or
administration or, in the case of cash deposits, liens or
rights in favor of creditors of the Eligible Foreign
Custodian arising under bankruptcy, insolvency or similar
laws;
(iii) that beneficial ownership of the Foreign Assets will
be freely transferable without the payment of money or
value other than for safe custody or administration;
(iv) that adequate records will be maintained identifying
the Foreign Assets as belonging to the Fund or as being
held by a third party for the benefit of the Fund;
(v) that the Fund's independent public accountants will be
given access to those records or confirmation of the
contents of those records; and
(vi) that the Fund will receive periodic reports with
respect to the safekeeping of the Foreign Assets,
including, but not limited to, notification of any
transfer of the Foreign Assets to or from the Fund's
account or a third party account containing the Foreign
Assets held for the benefit of the Fund, or, in lieu of
any or all of the provisions set forth in (i) through (vi)
above, such other provisions that the Foreign Custody
Manager determines will provide, in their entirety, the
same or greater level of care and protection for the
Foreign Assets as the provisions set forth in (i) through
(vi) above in their entirety.
3) Monitoring In each case in which the Foreign Custody
Manager maintains Foreign Assets with an Eligible Foreign
Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall establish a system to
monitor at reasonable intervals the initial and continued
appropriateness of (i) maintaining the Foreign Assets with
the Eligible Foreign Custodian and (ii) the contract
governing the custody arrangements established by the
Foreign Custody Manager with the Eligible Foreign
Custodian. The Foreign Custody Manager shall consider all
factors and criteria set forth in subparagraphs 1 and 2 of
subsection D of Article 3 of this Agreement.
6
<PAGE>
E. Standard of Care as Foreign Custody Manager of the Fund In
performing the responsibilities delegated to it, the Foreign
Custody Manager agrees to exercise reasonable care, prudence and
diligence as a person having responsibility for the safekeeping of
assets of management investment companies registered under the
Investment Company Act of 1940, as amended, would exercise. The
Foreign Custody Manager agrees to notify immediately the Adviser
and the Board if, at any time, the Foreign Custody Manager
believes it cannot perform, in accordance with the foregoing
standard of care, its duties hereunder generally or with respect
to any country specified in Schedule A.
F. Reporting Requirements The Foreign Custody Manager shall list on
Schedule A the Eligible Foreign Custodians selected by the Foreign
Custody Manager to maintain the Fund's assets. The Foreign
Custody Manager shall report the withdrawal of the Foreign Assets
from an Eligible Foreign Custodian and the placement of the
Foreign Assets with another Eligible Foreign Custodian by
providing to the Adviser an amended Schedule A promptly. The
Foreign Custody Manager shall make written reports notifying the
Adviser and the Board of any other material change in the foreign
custody arrangements of the Fund described in this Article 3.
Amended Schedules A or B and material change reports shall be
provided to the Board quarterly, provided that, if the Foreign
Custody Manager or the Adviser determines that any matter should
be reported sooner, the Foreign Custody Manager shall promptly,
following the occurrence of the event, direct the report to the
Fund's Secretary for forwarding to the Board. At least annually,
the Foreign Custody Manager shall provide the Adviser and the
Board a written statement enabling the Board to determine that it
is reasonable to rely on the Foreign Custody Manager to perform
its delegated duties under this Article 3 and that the foreign
custody arrangements delegated to the Foreign Custody Manager
continue to meet the requirements of Rule 17f-5 under the
Investment Company Act of 1940, as amended. The Foreign Custody
Manager will also provide monthly reports on each Eligible Foreign
Custodian listing all holdings and current market values.
G. Representations with respect to Rule 17f-5 The Foreign Custody
Manager represents to the Fund that it is a U.S. Bank as defined
in section (a)(7) of Rule 17f-5.
The Fund represents to the Custodian that the Board has determined
that it is reasonable for the Board to rely on the Custodian to
perform the responsibilities delegated pursuant to this Article as
the Foreign Custody Manager of the Fund.
H. Effective Date and Termination of the Custodian as Foreign Custody
Manager The Board's delegation to the Custodian as Foreign Custody
Manager of the Fund shall be effective as of the date of execution
of this amended and restated Agreement and shall remain in effect
until terminated at any time, without penalty, by written notice
from the terminating party to the non-terminating party.
Termination will become effective sixty days after receipt by the
non-terminating party of the notice.
7
<PAGE>
I. Withdrawal of Custodian as Foreign Custody Manager with respect to
Designated Countries and with respect to Eligible Foreign
Custodians Following the receipt of Proper Instructions directing
the Foreign Custody Manager to close the account of the Fund with
the Eligible Foreign Custodian selected by the Foreign Custody
Manager in a designated country and to remove that country from
Schedule A, the delegation by the Board to the Custodian as
Foreign Custody Manager for that country shall be deemed to have
been withdrawn with respect to that country and the Custodian
shall cease to be the Foreign Custody Manager of the Fund with
respect to that country after settlement of all pending trades.
The Foreign Custody Manager may withdraw its acceptance of
delegated responsibilities with respect to a country listed on
Schedule A upon written notice to the Fund in accordance with
subsection F. Sixty days (or other period agreed to by the parties
in writing) after receipt of any notice by the Fund, the Custodian
shall have no further responsibility as Foreign Custody Manager to
the Fund with respect to that country.
In the event the Foreign Custody Manager determines that the
custody arrangements with an Eligible Foreign Custodian it has
selected are no longer appropriate because the applicable Eligible
Foreign Custodian is no longer able to provide reasonable care for
Foreign Assets held in the country, or an arrangement no longer
meets the requirements of Rule 17f-5, the Foreign Custody Manager
shall notify the Adviser, the Board and the Fund in accordance
with subsection F hereunder. If the Adviser determines that
withdrawal is in the best interest of the Fund, the Foreign
Custody Manager shall withdraw all Foreign Assets from the
Eligible Foreign Custodian, as soon as reasonably practicable, and
shall provide alternative safe keeping acceptable to the Foreign
Custody Manager. If the Adviser determines that it is in the best
interest of the Fund to withdraw all Foreign Assets and this
withdrawal would require liquidation of any Foreign Assets or
would materially and adversely impair the liquidity, value or
other investment characteristic of any Foreign Assets, the Foreign
Custody Manager shall immediately provide information regarding
the particular circumstances to the Adviser and to the Board and
shall act in accordance with instructions received from an
Authorized Officer, with respect to the liquidation or other
withdrawal.
J. Guidelines for the Exercise of Delegated Authority and Provision
of Information Regarding Country Risk Nothing in this Article 3
shall require the Foreign Custody Manager to consider Country Risk
as part of its delegated responsibilities under subsection D of
Article 3. The Fund and the Custodian each expressly acknowledge
that the Foreign Custody Manager shall not be responsible for, or
liable for any loss in connection with the placement of Foreign
Assets with or withdrawal of Foreign Assets from a Mandatory
Securities Depository nor be delegated any responsibilities under
this Article 3 with respect to Mandatory Securities Depositories
other than those set forth below.
8
<PAGE>
With respect to the countries listed in Schedule A, or added
thereto, the Foreign Custody Manager agrees to provide annually to
the Board and the Adviser, information relating to the Country
Risks of holding Foreign Assets in such countries, including but
not limited to, the Mandatory Securities Depositories, if any,
operating in the country. In addition, the Foreign Custody Manager
shall use reasonable care in the gathering of this information and
with regard to, among other things, the completeness and accuracy
of this information. The information furnished annually by the
Foreign Custody Manager to the Board should include but not be
limited to the following, if available:
(i) Legal Opinion regarding whether applicable foreign law
would restrict the access of the Fund's independent public
accountants to the books and records of the foreign
custodian, whether applicable foreign law would restrict
the Fund's ability to recover its assets in the event of
bankruptcy of the foreign custodian, whether applicable
foreign law would restrict the Fund's ability to recover
assets lost while under the foreign custodian's control,
the likelihood of expropriation, nationalization, freezes
or confiscation of the Fund's assets and whether there are
reasonably foreseeable difficulties in converting the
Fund's cash into U.S. dollars, or such other form of Legal
Opinion as is customary in association with Rule 17f-5
from time to time,
(ii) audit report of the Foreign Custody Manager,
(iii) copy of balance sheet from annual report of the
custodian,
(iv) summary of Central Depository Information,
(v) country profile materials containing market practice
for: delivery versus payment, settlement method, currency
restrictions, buy-in practice, Foreign ownership limits
and unique market arrangements,
(vi) The Foreign Custody Manager shall also provide such
other information as may be reasonably available relating
to Mandatory Securities Depositories, and, in accordance
with applicable requirements promulgated by the SEC from
time to time, to the criteria as set forth on Appendix B
hereto, as such Appendix may be revised by the parties
hereto from time to time; and,
(vii) such other materials as the Board may reasonably
request from time to time, including copies of contracts
with the subcustodians.
K. Most Favored Client If at any time the Foreign Custody Manager
shall be a party to an agreement, to serve as a Foreign Custody
Manager to an investment company, that provides for either (a) a
standard of care with respect to the selection of Eligible Foreign
Custodians in any jurisdiction higher than that set forth in
paragraph 1 of subsection D of Article 3 of this Agreement or
(b) a standard of care with respect to the exercise of the Foreign
Custody Manager's duties other than
9
<PAGE>
that set forth in subsection F of Article 3 of this Agreement, the
Foreign Custody Manager agrees to notify the Fund of this fact and
to raise the applicable standard of care hereunder to the standard
specified in the other agreement. In the event that the Foreign
Custody Manager shall in the future offer review or information
services with respect to Mandatory Securities Depositories in
addition to any services provided hereunder, the Foreign Custody
Manager agrees that it shall notify the Fund of this fact and
shall offer these services to the Fund.
L. Direction as to Eligible Foreign Custodians Notwithstanding
Article 3 of this Agreement, the Fund or the Adviser may direct
the Custodian to place and maintain Foreign Assets with a
particular Eligible Foreign Custodian acceptable to the Foreign
Custody Manager. In such event, the Custodian shall be entitled to
rely on any instruction as a Proper Instruction and may limit its
duties under this Article 3 of the Agreement with respect to such
arrangements by describing any limitations in writing with respect
to each instance.
4. Duties of the Custodian with Respect to Property of the Fund
A. Safekeeping and Holding of Property The Custodian shall keep
safely all property of the Fund and on behalf of the Fund shall
from time to time receive delivery of Fund property for
safekeeping. The Custodian shall hold, earmark and segregate on
its books and records for the account of the Fund all property of
the Fund, including all securities, participation interests and
other assets of the Fund (1) physically held by the Custodian,
(2) held by any subcustodian referred to in Section 2 hereof or by
any agent referred to in Paragraph K hereof, (3) held by or
maintained in The Depository Trust Company or in Participants
Trust Company or in an Approved Clearing Agency or in the Federal
Book-Entry System or in an Approved Foreign Securities Depository,
each of which from time to time is referred to herein as a
"Securities System", and (4) held by the Custodian or by any
subcustodian referred to in Section 2 hereof and maintained in any
Approved Book-Entry System for Commercial Paper.
B. Delivery of Securities The Custodian shall release and deliver
securities or participation interests owned by the Fund held (or
deemed to be held) by the Custodian or maintained in a Securities
System account or in an Approved Book-Entry System for Commercial
Paper account only upon receipt of proper instructions, which may
be continuing instructions when deemed appropriate by the parties,
and only in the following cases:
1) Upon sale of such securities or participation interests
for the account of the Fund, but only against receipt of
payment therefor; if delivery is made in Boston or New
York City, payment therefor shall be made in accordance
with generally accepted clearing house procedures or by
use of Federal Reserve Wire System procedures; if delivery
is made elsewhere payment therefor shall be in accordance
with the then current "street delivery" custom or in
accordance with such procedures agreed to in writing from
time to time by the parties hereto; if the sale is
10
<PAGE>
effected through a Securities System, delivery and payment
therefor shall be made in accordance with the provisions
of Paragraph L hereof; if the sale of commercial paper is
to be effected through an Approved Book-Entry System for
Commercial Paper, delivery and payment therefor shall be
made in accordance with the provisions of Paragraph M
hereof; if the securities are to be sold outside the
United States, delivery may be made in accordance with
procedures agreed to in writing from time to time by the
parties hereto; for the purposes of this subparagraph, the
term "sale" shall include the disposition of a portfolio
security (i) upon the exercise of an option written by the
Fund and (ii) upon the failure by the Fund to make a
successful bid with respect to a portfolio security, the
continued holding of which is contingent upon the making
of such a bid;
2) Upon the receipt of payment in connection with any
repurchase agreement or reverse repurchase agreement
relating to such securities and entered into by the Fund;
3) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
4) To the issuer thereof or its agent when such securities or
participation interests are called, redeemed, retired or
otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to the
Custodian or any subcustodian employed pursuant to Section
2 hereof;
5) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee of the
Custodian or into the name or nominee name of any agent
appointed pursuant to Paragraph K hereof or into the name
or nominee name of any subcustodian employed pursuant to
Section 2 hereof; or for exchange for a different number
of bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided
that, in any such case, the new securities or
participation interests are to be delivered to the
Custodian or any subcustodian employed pursuant to Section
2 hereof;
6) To the broker selling the same for examination in
accordance with the "street delivery" custom; provided
that the Custodian shall adopt such procedures as the Fund
from time to time shall approve to ensure their prompt
return to the Custodian by the broker in the event the
broker elects not to accept them;
7) For exchange or conversion pursuant to any plan of merger,
consolidation, re capitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion of
such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof;
11
<PAGE>
8) In the case of warrants, rights or similar securities, the
surrender thereof in connection with the exercise of such
warrants, rights or similar securities, or the surrender
of interim receipts or temporary securities for definitive
securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian or any subcustodian employed pursuant to Section
2 hereof;
9) For delivery in connection with any loans of securities
made by the Fund (such loans to be made pursuant to the
terms of the Fund's current registration statement), but
only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund, which may
be in the form of cash or obligations issued by the United
States government, its agencies or instrumentalities.
10) For delivery as security in connection with any borrowings
by the Fund requiring a pledge or hypothecation of assets
by the Fund (if then permitted under circumstances
described in the current registration statement of the
Fund), provided, that the securities shall be released
only upon payment to the Custodian of the monies borrowed,
except that in cases where additional collateral is
required to secure a borrowing already made, further
securities may be released for that purpose; upon receipt
of proper instructions, the Custodian may pay any such
loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or
notes evidencing the loan;
11) When required for delivery in connection with any
redemption or repurchase of Shares of the Fund in
accordance with the provisions of Paragraph J hereof;
12) For delivery in accordance with the provisions of any
agreement between the Custodian (or a subcustodian
employed pursuant to Section 2 hereof) and a broker-dealer
registered under the Securities Exchange Act of 1934 and,
if necessary, the Fund, relating to compliance with the
rules of The Options Clearing Corporation or of any
registered national securities exchange, or of any similar
organization or organizations, regarding deposit or escrow
or other arrangements in connection with options
transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian (or a subcustodian
employed pursuant to Section 2 hereof), and a futures
commission merchant, relating to compliance with the rules
of the Commodity Futures Trading Commission and/or of any
contract market or commodities exchange or similar
organization, regarding futures margin account deposits or
payments in connection with futures transactions by the
Fund;
12
<PAGE>
14) For any other proper corporate purpose, but only upon
receipt of, in addition to proper instructions, a
certified copy of a vote of the Board specifying the
securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose
to be proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
C. Registration of Securities Securities held by the Custodian
(other than bearer securities) for the account of the Fund shall
be registered in the name of the Fund or in the name of any
nominee of the Fund or of any nominee of the Custodian, or in the
name or nominee name of any agent appointed pursuant to Paragraph
K hereof, or in the name or nominee name of any subcustodian
employed pursuant to Section 2 hereof, or in the name or nominee
name of The Depository Trust Company or Participants Trust Company
or Approved Clearing Agency or Federal Book-Entry System or
Approved Book-Entry System for Commercial Paper; provided, that
securities are held in an account of the Custodian or of such
agent or of such subcustodian containing only assets of the Fund
or only assets held by the Custodian or such agent or such
subcustodian as a custodian or subcustodian or in a fiduciary
capacity for customers. All certificates for securities accepted
by the Custodian or any such agent or subcustodian on behalf of
the Fund shall be in "street" or other good delivery form or shall
be returned to the selling broker or dealer who shall be advised
of the reason thereof.
D. Bank Accounts The Custodian shall open and maintain a separate
bank account or accounts in the name of the Fund, subject only to
draft or order by the Custodian acting in pursuant to the terms
of this Agreement, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or
for the account of the Fund other than cash maintained by the Fund
in a bank account established and used in accordance with Rule
17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for the Fund may be deposited by it to its credit as
Custodian in the banking department of the Custodian or in such
other banks or trust companies as the Custodian may in its
discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each
such bank or trust company and the funds to be deposited with each
such bank or trust company shall be approved in writing by an
Authorized Officer. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be subject to
withdrawal only by the Custodian in that capacity.
The Custodian may, on behalf of any Fund, open and cause to be
maintained outside the United States a bank account with (a) an
Eligible Foreign Custodian (as defined in Article 3) or (b) any
person with whom property of the Fund may be placed and maintained
outside of the United States under (i) ss.17(f) or 26(a) of the
1940 Act, without regard to Rule 17f-5 or (ii) an order of the
U.S. Securities and Exchange Commission (a "permissible Foreign
Custodian"). Such account(s) shall be subject only to draft or
order by the Custodian or Eligible Foreign Custodian or
Permissible Foreign Custodian acting pursuant to the terms of this
Agreement to hold cash received by or from or for the account of
the Fund.
13
<PAGE>
E. Payment for Shares of the Fund The Custodian shall make
appropriate arrangements with the Transfer Agent and the principal
underwriter of the Fund to enable the Custodian to make certain it
promptly receives the cash or other consideration due to the Fund
for such new or treasury Shares as may be issued or sold from time
to time by the Fund, in accordance with the governing documents
and offering prospectus and statement of additional information of
the Fund. The Custodian will provide prompt notification to the
Fund of any receipt by it of payments for Shares of the Fund.
F. Investment and Availability of Federal Funds Upon agreement
between the Fund and the Custodian, the Custodian shall, upon the
receipt of proper instructions, which may be continuing
instructions when deemed appropriate by the parties, invest in
such securities and instruments as may be set forth in such
instructions on the same day as received all federal funds
received after a time agreed upon between the Custodian and the
Fund.
G. Collections The Custodian shall promptly collect all income and
other payments with respect to registered securities held
hereunder to which the Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall promptly
collect all income and other payments with respect to bearer
securities if, on the date of payment by the issuer, such
securities are held by the Custodian or agent thereof and shall
credit such income, as collected, to the Fund's custodian account.
The Custodian shall do all things necessary and proper in connection with such
prompt collections and, without limiting the generality of the foregoing, the
Custodian shall
1) Present for payment all coupons and other income items
requiring presentations;
2) Present for payment all securities which may mature or be
called, redeemed, retired or otherwise become payable;
3) Endorse and deposit for collection, in the name of the
Fund, checks, drafts or other negotiable instruments;
4) Credit income from securities maintained in a Securities
System or in an Approved Book-Entry System for Commercial
Paper at the time funds become available to the Custodian;
in the case of securities maintained in The Depository
Trust Company funds shall be deemed available to the Fund
not later than the opening of business on the first
business day after receipt of such funds by the Custodian.
14
<PAGE>
The Custodian shall notify the Fund as soon as reasonably practicable whenever
income due on any security is not promptly collected. In any case in which the
Custodian does not receive any due and unpaid income after it has made demand
for the same, it shall immediately so notify the Fund in writing, enclosing
copies of any demand letter, any written response thereto, and memoranda of all
oral responses thereto and to telephonic demands, and await instructions from
the Fund; the Custodian shall in no case have any liability for any nonpayment
of such income provided the Custodian meets the standard of care set forth in
Section 8 hereof. The Custodian shall not be obligated to take legal action for
collection unless and until reasonably indemnified to its satisfaction.
The Custodian shall also receive and collect all stock dividends, rights and
other items of like nature, and deal with the same pursuant to proper
instructions relative thereto.
H. Payment of Fund Moneys Upon receipt of proper instructions, which
may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of the Fund in the
following cases only:
1) Upon the purchase of securities, participation interests,
options, futures contracts, forward contracts and options
on futures contracts purchased for the account of the Fund
but only (a) against the receipt of:
(i) such securities registered as provided in
Paragraph C hereof or in proper form for
transfer or
(ii) detailed instructions signed by an officer of the
Fund regarding the participation interests to be
purchased or
(iii) written confirmation of the purchase by the Fund
of the options, futures contracts, forward
contracts or options on futures contracts
by the Custodian (or by a subcustodian employed pursuant
to Section 2 hereof or by a clearing corporation of a
national securities exchange of which the Custodian is a
member or by any bank, banking institution or trust
company doing business in the United States or abroad
which is qualified under the Investment Company Act of
1940 to act as a custodian and which has been designated
by the Custodian as its agent for this purpose or by the
agent specifically designated in such instructions as
representing the purchasers of a new issue of privately
placed securities); (b) in the case of a purchase effected
through a Securities System, upon receipt of the
securities by the Securities System in accordance with the
conditions set forth in Paragraph L hereof; (c) in the
case of a purchase of commercial paper effected through an
Approved
15
<PAGE>
Book-Entry System for Commercial Paper, upon
receipt of the paper by the Custodian or subcustodian in
accordance with the conditions set forth in Paragraph M
hereof; (d) in the case of repurchase agreements entered
into between the Fund and another bank or a broker-dealer,
against receipt by the Custodian of the securities
underlying the repurchase agreement either in certificate
form or through an entry crediting the Custodian's
segregated, non-proprietary account at the Federal Reserve
Bank of Boston with such securities along with written
evidence of the agreement by the bank or broker-dealer to
repurchase such securities from the Fund; or (e) with
respect to securities purchased outside of the United
States, in accordance with written procedures agreed to
from time to time in writing by the parties hereto;
2) When required in connection with the conversion, exchange
or surrender of securities owned by the Fund as set forth
in Paragraph B hereof;
3) When required for the redemption or repurchase of Shares
of the Fund in accordance with the provisions of Paragraph
J hereof;
4) For the payment of any expense or liability incurred by
the Fund, including but not limited to the following
payments for the account of the Fund: advisory fees,
distribution plan payments, interest, taxes, management
compensation and expenses, accounting, transfer agent and
legal fees, and other operating expenses of the Fund
whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends or other distributions to
holders of Shares declared or authorized by the Board; and
6) For any other proper corporate purpose, but only upon
receipt of, in addition to proper instructions, a
certified copy of a vote of the Board, specifying the
amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose
to be a proper corporate purpose, and naming the person or
persons to whom such payment is to be made.
I. Liability for Payment in Advance of Receipt of Securities
Purchased In any and every case where payment for purchase of
securities for the account of the Fund is made by the Custodian in
advance of receipt of the securities purchased in the absence of
specific written instructions signed by two officers of the Fund
to so pay in advance, the Custodian shall be absolutely liable to
the Fund for such securities to the same extent as if the
securities had been received by the Custodian; except that in the
case of a repurchase agreement entered into by the Fund with a
bank which is a member of the Federal Reserve System, the
Custodian may transfer funds to the account of such bank prior to
the receipt of (i) the securities in certificate form subject to
such repurchase agreement
16
<PAGE>
or (ii) written evidence that the securities subject to such
repurchase agreement have been transferred by book-entry into a
segregated non-proprietary account of the Custodian maintained
with the Federal Reserve Bank of Boston or (iii) the safekeeping
receipt, provided that such securities have in fact been so
transferred by book-entry and the written repurchase agreement is
received by the Custodian in due course. With respect to
securities and funds held by a subcustodian, either directly or
indirectly (including by a Securities Depository or clearing
corporation), notwithstanding any provisions of this Agreement to
the contrary, payment for securities purchased and delivery of
securities sold may be made prior to receipt of securities or
payment respectively, and securities or payment may be received in
a form in accordance with (a) governmental regulations, (b) rules
of Securities Depositories and clearing agencies, (c) generally
accepted trade practice in the applicable local market, (d) the
terms and characteristics of the particular investment, or (e) the
terms of instructions.
J. Payments for Repurchases or Redemptions of Shares of the Fund From
such funds as may be available for the purpose, but subject to any
applicable votes of the Board and the current redemption and
repurchase procedures of the Fund, the Custodian shall, upon
receipt of written instructions from the Fund or from the Fund's
transfer agent or from the principal underwriter, make funds
and/or portfolio securities available for payment to holders of
Shares who have caused their Shares to be redeemed or repurchased
by the Fund or for the Fund's account by its transfer agent or
principal underwriter.
The Custodian may maintain a special checking account upon which
special checks may be drawn by shareholders of the Fund holding
Shares for which certificates have not been issued. Such checking
account and such special checks shall be subject to such rules and
regulations as the Custodian and the Fund may from time to time
adopt. The Custodian or the Fund may suspend or terminate use of
such checking account or such special checks (either generally or
for one or more shareholders) at any time. The Custodian and the
Fund shall notify the other immediately of any such suspension or
termination.
K. Appointment of Agents by the Custodian The Custodian may at any
time or times in its discretion appoint (and may at any time
remove) any other bank or trust company (provided such bank or
trust company is itself qualified under the Investment Company Act
of 1940 to act as a custodian or is itself an eligible foreign
custodian within the meaning of Rule 17f-5 under said Act) as the
agent of the Custodian to carry out such of the duties and
functions of the Custodian described in this Section 3 as the
Custodian may from time to time direct; provided, however, that
the appointment of any such agent shall not relieve the Custodian
of any of its responsibilities or liabilities hereunder, and as
between the Fund and the Custodian the Custodian shall be fully
responsible for the acts and omissions of any such agent. For the
purposes of this Agreement, any property of the Fund held by any
such agent shall be deemed to be held by the Custodian hereunder.
17
<PAGE>
L. Deposit of Fund Portfolio Securities in Securities Systems The
Custodian may deposit and/or maintain securities owned by the Fund
(1) in The Depository Trust Company;
(2) in Participants Trust Company;
(3) in any other Approved Clearing Agency;
(4) in the Federal Book-Entry System; or
(5) in a Securities Depository (as defined in
Article 3).
in each case only in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and
regulations, and at all times subject to the following
provisions:
(a) The Custodian may (either directly or through one or more
subcustodians employed pursuant to Section 2) keep securities of
the Fund in a Securities System provided that such securities are
maintained in a non-proprietary account ("Account") of the
Custodian or such subcustodian in the Securities System which
shall not include any assets of the Custodian or such subcustodian
or any other person other than assets held by the Custodian or
such subcustodian as a fiduciary, custodian, or otherwise for its
customers.
(b) The records of the Custodian with respect to securities of the
Fund which are maintained in a Securities System shall identify by
book-entry those securities belonging to the Fund, and the
Custodian shall be fully and completely responsible for
maintaining a record keeping system capable of accurately and
currently stating the Fund's holdings maintained in each such
Securities System.
(c) The Custodian shall pay for securities purchased in book-entry
form for the account of the Fund only upon (i) receipt of notice
or advice from the Securities System that such securities have
been transferred to the Account, and (ii) the making of any entry
on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund only upon
(i) receipt of notice or advice from the Securities System that
payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Fund.
Copies of all notices or advises from the Securities System of
transfers of securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by the Custodian and be
promptly provided to the Fund at its request. The Custodian shall
promptly send to the Fund confirmation of each transfer to or from
the account of the Fund in the form of a written advice or notice
of each such transaction, and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's transactions in the
Securities System for the account of the Fund on the next business
day.
18
<PAGE>
(d) The Custodian shall promptly send to the Fund any report or other
communication received or obtained by the Custodian relating to the
Securities System's accounting system, system of internal accounting
controls or procedures for safeguarding securities deposited in the
Securities System; the Custodian shall promptly send to the Fund any
report or other communication relating to the Custodian's internal
accounting controls and procedures for safeguarding securities
deposited in any Securities System; and the Custodian shall ensure that
any agent appointed pursuant to Paragraph K hereof or any subcustodian
employed pursuant to Section 2 hereof shall promptly send to the Fund
and to the Custodian any report or other communication relating to such
agent's or subcustodian's internal accounting controls and procedures
for safeguarding securities deposited in any Securities System. The
Custodian's books and records relating to the Fund's participation in
each Securities System will at all times during regular business hours
be open to the inspection of the Fund's Authorized Officers, employees
or agents.
(e) The Custodian shall not act under this Paragraph L in the absence
of receipt of a certificate of an Authorized Officer that the Board has
approved the use of a particular Securities System; the Custodian shall
also obtain appropriate assurance from an Authorized Officer that the
Board has annually reviewed and approved the continued use by the Fund
of each Securities System, so long as such review and approval is
required by Rule 17f-4 under the Investment Company Act of 1940, and
the Fund shall promptly notify the Custodian if the use of a Securities
System is to be discontinued; at the request of the Fund, the Custodian
will terminate the use of any such Securities System as promptly as
practicable.
(f) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any of its
agents or subcustodians or of any of its or their employees or from any
failure of the Custodian or any such agent or subcustodian to enforce
effectively such rights as it may have against the Securities System or
any other person; at the election of the Fund, it shall be entitled to
be subrogated to the rights of the Custodian with respect to any claim
against the Securities System or any other person which the Custodian
may have as a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any such loss or
damage.
M. Deposit of Fund Commercial Paper in an Approved Book-Entry System
for Commercial Paper Upon receipt of proper instructions with respect
to each issue of direct issue commercial paper purchased by the Fund,
the Custodian may deposit and/or maintain direct issue commercial paper
owned by the Fund in any Approved Book-Entry System for Commercial
Paper, in each case only in accordance with applicable Securities and
Exchange Commission rules, regulations, and no-action correspondence,
and at all times subject to the following provisions:
19
<PAGE>
(a) The Custodian may (either directly or through one or more
subcustodians employed pursuant to Section 2) keep
commercial paper of the Fund in an Approved Book-Entry
System for Commercial Paper, provided that such paper is
issued in book entry form by the Custodian or
subcustodian on behalf of an issuer with which the
Custodian or subcustodian has entered into a book-entry
agreement and provided further that such paper is
maintained in a non-proprietary account ("Account") of the
Custodian or such subcustodian in an Approved Book-Entry
System for Commercial Paper which shall not include any
assets of the Custodian or such subcustodian or any other
person other than assets held by the Custodian or such
subcustodian as a fiduciary, custodian, or otherwise for
its customers.
(b) The records of the Custodian with respect to commercial
paper of the Fund which is maintained in an Approved
Book-Entry System for Commercial Paper shall identify by
book-entry each specific issue of commercial paper
purchased by the Fund which is included in the System and
shall at all times during regular business hours be open
for inspection by authorized officers, employees or agents
of the Fund. The Custodian shall be fully and completely
responsible for maintaining a record keeping system
capable of accurately and currently stating the Fund's
holdings of commercial paper maintained in each such
System.
(c) The Custodian shall pay for commercial paper purchased in
book-entry form for the account of the Fund only upon
contemporaneous (i) receipt of notice or advice from the
issuer that such paper has been issued, sold and
transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such
purchase, payment and transfer for the account of the
Fund. The Custodian shall transfer such commercial paper
which is sold or cancel such commercial paper which is
redeemed for the account of the Fund only upon
contemporaneous (i) receipt of notice or advice that
payment for such paper has been transferred to the
Account, and (ii) the making of an entry on the records of
the Custodian to reflect such transfer or redemption and
payment for the account of the Fund. Copies of all
notices, advises and confirmations of transfers of
commercial paper for the account of the Fund shall
identify the Fund, be maintained for the Fund by the
Custodian and be promptly provided to the Fund at its
request. The Custodian shall promptly send to the Fund
confirmation of each transfer to or from the account of
the Fund in the form of a written advice or notice of each
such transaction, and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's
transactions in the System for the account of the Fund on
the next business day.
20
<PAGE>
(d) The Custodian shall promptly send to the Fund any report
or other communication received or obtained by the Custodian
relating to each System's accounting system, system of
internal accounting controls or procedures for safeguarding
commercial paper deposited in the System; the Custodian shall
promptly send to the Fund any report or other communication
relating to the Custodian's internal accounting controls and
procedures for safeguarding commercial paper deposited in any
Approved Book-Entry System for Commercial Paper; and the
Custodian shall ensure that any agent appointed pursuant to
Paragraph K hereof or any subcustodian employed pursuant to
Section 2 hereof shall promptly send to the Fund and to the
Custodian any report or other communication relating to such
agent's or subcustodian's internal accounting controls and
procedures for safeguarding securities deposited in any
Approved Book-Entry System for Commercial Paper.
(e) The Custodian shall not act under this Paragraph M in the
absence of receipt of a certificate of an officer of the Fund
that the Board has approved the use of a particular Approved
Book-Entry System for Commercial Paper; the Custodian shall
also obtain appropriate assurance from an Authorized Officer
that the Board has annually reviewed and approved the
continued use by the Fund of each Approved Book-Entry System
for Commercial Paper, so long as such review and approval is
required by Rule 17f-4 under the Investment Company Act of
1940, and the Fund shall promptly notify the Custodian if the
use of an Approved Book-Entry System for Commercial Paper is
to be discontinued; at the request of the Fund, the Custodian
will terminate the use of any such System as promptly as
practicable.
(f) The Custodian (or subcustodian, if the Approved Book-Entry
System for Commercial Paper is maintained by the subcustodian)
shall issue physical commercial paper or promissory notes
whenever requested to do so by the Fund or in the event of an
electronic system failure which impedes issuance, transfer or
custody of direct issue commercial paper by book-entry.
(g) Anything to the contrary in this Agreement notwithstanding,
the Custodian shall be liable to the Fund for any loss or
damage to the Fund resulting from use of any Approved
Book-Entry System for Commercial Paper by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or subcustodians or of any of its or their
employees or from any failure of the Custodian or any such
agent or subcustodian to enforce effectively such rights as it
may have against this System, the issuer of the commercial
paper or any other person; at the election of the Fund, it
shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against this System, the
issuer of the commercial paper or any other person which the
Custodian may have as a consequence of any such loss or damage
if and to the extent that the Fund has not been made whole for
any such loss or damage.
21
<PAGE>
N. Segregated Account The Custodian shall upon receipt of proper
instructions establish and maintain a segregated account or
accounts for and on behalf of the Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Paragraph L hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and any registered
broker-dealer (or any futures commission merchant), relating to
compliance with the rules of the Options Clearing Corporation and
of any registered national securities exchange (or of the
Commodity Futures Trading Commission or of any contract market or
commodities exchange), or of any similar organization or
organizations, regarding escrow or deposit or other arrangements
in connection with transactions by the Fund, (ii) for purposes of
segregating cash or U.S. Government securities in connection with
options purchased, sold or written by the Fund or futures
contracts or options thereon purchased or sold by the Fund, (iii)
for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper
purposes, but only, in the case of clause (iv), upon receipt of,
in addition to proper instructions, a certificate signed by two
officers of the Fund, setting forth the purpose such segregated
account and declaring such purpose to be a proper purpose.
O. Ownership Certificates for Tax Purposes The Custodian shall
execute ownership and other certificates and affidavits for all
foreign, federal and state tax purposes in connection with
receipt of income or other payments with respect to securities
of the Fund held by it and in connection with transfers of
securities.
P. Proxies The Custodian shall, with respect to the securities
held by it hereunder, cause to be promptly delivered to the Fund
all forms of proxies and all notices of meetings and any other
notices or announcements or other written information affecting
or relating to the securities, and upon receipt of proper
instructions shall execute and deliver or cause its nominee to
execute and deliver such proxies or other authorizations as may
be required. Neither the Custodian nor its nominee shall
vote upon any of the securities or execute any proxy to
vote thereon or give any consent or take any other action with
respect thereto (except as otherwise herein provided) unless
ordered to do so by proper instructions.
Q. Communications Relating to Fund Portfolio Securities The Custodian
shall deliver promptly to the Fund all written information
(including, without limitation, pendency of call and maturities
of securities and participation interests and expirations of
rights in connection therewith and notices of exercise of call
and put options written by the Fund and the maturity of futures
contracts purchased or sold by the Fund) received by the
Custodian from issuers and other persons relating to the
securities and participation interests being held for the Fund.
With respect to tender or exchange offers, the Custodian shall
deliver promptly to the Fund all written information received by
the Custodian from issuers and other persons relating to
the securities and participation interests whose tender or
exchange is sought and from the party (or his agents) making
the tender or exchange offer.
22
<PAGE>
R. Exercise of Rights; Tender Offers In the case of tender offers,
similar offers to purchase or exercise rights (including,
without limitation, pendency of calls and maturities of
securities and participation interests and expirations of rights
in connection therewith and notices of exercise of call and put
options and the maturity of futures contracts) affecting or
relating to securities and participation interests held by the
Custodian under this Agreement, the Custodian shall have
responsibility for promptly notifying the Fund of all such
offers in accordance with the standard of reasonable care set
forth in Section 8 hereof. For all such offers for which the
Custodian is responsible as provided in this Paragraph R, the
Fund shall have responsibility for providing the Custodian with
all necessary instructions in timely fashion. Upon receipt of
proper instructions, the Custodian shall timely deliver to the
issuer or trustee thereof, or to the agent of either,
warrants, puts, calls, rights or similar securities for
the purpose of being exercised or sold upon proper receipt
therefor and upon receipt of assurances satisfactory to the
Custodian that the new securities and cash, if any, acquired by
such action are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof. Upon receipt
of proper instructions, the Custodian shall timely deposit
securities upon invitations for tenders of securities upon proper
receipt therefor and upon receipt of assurances satisfactory to
the Custodian that the consideration to be paid or delivered or
the tendered securities are to be returned to the Custodian or
subcustodian employed pursuant to Section 2 hereof.
Notwithstanding any provision of this Agreement to the contrary,
the Custodian shall take all necessary action, unless otherwise
directed to the contrary by proper instructions, to comply with
the terms of all mandatory or compulsory exchanges, calls,
tenders, redemptions, or similar rights of security ownership, and
shall thereafter promptly notify the Fund in writing of such
action.
S. Depository Receipts The Custodian shall, upon receipt of proper
instructions, surrender or cause to be surrendered foreign
securities to the depository used by an issuer of American
Depository Receipts, European Depository Receipts or International
Depository Receipts (hereinafter collectively referred to as
"ADRs") for such securities, against a written receipt therefor
adequately describing such securities and written evidence
satisfactory to the Custodian that the depository has acknowledged
receipt of instructions to issue with respect to such securities
ADRs in the name of a nominee of the Custodian or in the name or
nominee name of any subcustodian employed pursuant to Section 2
hereof, for delivery to the Custodian or such subcustodian at such
place as the Custodian or such subcustodian may from time to time
designate. The Custodian shall, upon receipt of proper
instructions, surrender ADRs to the issuer thereof against a
written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian
that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depository to deliver the securities
underlying such ADRs to the Custodian or to a subcustodian
employed pursuant to Section 2 hereof.
23
<PAGE>
T. Interest Bearing Call or Time Deposits The Custodian shall, upon
receipt of proper instructions, place interest bearing fixed term
and call deposits with the banking department of such banking
institution (other than the Custodian) and in such amounts as
the Fund may designate. Deposits may be denominated in U.S.
Dollars or other currencies. The Custodian shall include in its
records with respect to the assets of the Fund appropriate
notation as to the amount and currency of each such deposit, the
accepting banking institution and other appropriate details
and shall retain such forms of advice or receipt evidencing the
deposit, if any, as may be forwarded to the Custodian by the
banking institution. Such deposits shall be deemed portfolio
securities of the applicable Fund for the purposes of this
Agreement, and the Custodian shall be responsible for the
collection of income from such accounts and the transmission of
cash to and from such accounts.
U. Options, Futures Contracts and Foreign Currency Transactions
1. Options. The Custodians shall, upon receipt of proper
instructions and in accordance with the provisions of any
agreement between the Custodian, any registered broker-dealer
and, if necessary, the Fund, relating to compliance with the
rules of the Options Clearing Corporation or of any registered
national securities exchange or similar organization or
organizations, receive and retain confirmations or other
documents, if any, evidencing the purchase or writing of an
option on a security, securities index, currency or other
financial instrument or index by the Fund; deposit and
maintain in a segregated account for each Fund separately,
either physically or by book-entry in a Securities System,
securities subject to a covered call option written by the
Fund; and release and/or transfer such securities or other
assets only in accordance with a notice or other communication
evidencing the expiration, termination or exercise of such
covered option furnished by the Options Clearing Corporation,
the securities or options exchange on which such covered
option is traded or such other organization as may be
responsible for handling such options transactions.
2. Futures Contracts The Custodian shall, upon receipt of
proper instructions, receive and retain confirmations and
other documents, if any, evidencing the purchase or sale of a
futures contract or an option on a futures contract by the
Fund; deposit and maintain in a segregated account, for the
benefit of any futures commission merchant, assets designated
by the Fund as initial, maintenance or variation "margin"
deposits (including mark-to-market payments) intended to
secure the Fund's performance of its obligations under any
futures contracts purchased or sold or any options on futures
contracts written by Fund, in accordance with the provisions
of any agreement or agreements among the Fund, the Custodian
and such futures commission merchant, designed to comply with
the rules of the Commodity Futures Trading Commission and/or
of any contract market or commodities exchange or similar
organization regarding such margin deposits or payments; and
release and/or transfer assets in such margin accounts only in
accordance with any such agreements or rules.
24
<PAGE>
3. Foreign Exchange Transactions The Custodian shall, pursuant
to proper instructions, enter into or cause a subcustodian to
enter into foreign exchange contracts, currency swaps or
options to purchase and sell foreign currencies for spot and
future delivery on behalf and for the account of the Fund.
Such transactions may be undertaken by the Custodian or
subcustodian with such banking or financial institutions or
other currency brokers, as set forth in proper instructions.
Foreign exchange contracts, swaps and options shall be deemed
to be portfolio securities of the Fund; and accordingly, the
responsibility of the Custodian therefor shall be the same as
and no greater than the Custodian's responsibility in respect
of other portfolio securities of the Fund. The Custodian shall
be responsible for the transmittal to and receipt of cash from
the currency broker or banking or financial institution with
which the contract or option is made, the maintenance of
proper records with respect to the transaction and the
maintenance of any segregated account required in connection
with the transaction. The Custodian shall have no duty with
respect to the selection of the currency brokers or banking or
financial institutions with which the Fund deals or for their
failure to comply with the terms of any contract or option.
Without limiting the foregoing, it is agreed that upon receipt
of proper instructions, the Custodian may, and insofar as
funds are made available to the Custodian for the purpose, (if
determined necessary by the Custodian to consummate a
particular transaction on behalf and for the account of the
Fund) make free outgoing payments of cash in the form of U.S.
dollars or foreign currency before receiving confirmation of a
foreign exchange contract or swap or confirmation that the
countervalue currency completing the foreign exchange contract
or swap has been delivered or received. The Custodian shall
not be responsible for any costs and interest charges which
may be incurred by the Fund or the Custodian as a result of
the failure or delay of third parties to deliver foreign
exchange; provided that the Custodian shall nevertheless be
held to the standard of care set forth in, and shall be liable
to the Fund in accordance with, the provisions of Section 9.
V. Actions Permitted Without Express Authority The Custodian may in its
discretion, without express authority from the Fund:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Agreement, provided, that all such
payments shall be accounted for by the Custodian to the
Treasurer of the Fund;
25
<PAGE>
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all nondiscretionary details in
connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the securities
and property of the Fund except as otherwise directed by
the Fund.
5. Duties of Bank with Respect to Books of Account and Calculations of Net
Asset Value
The Bank shall as Agent (or as Custodian, as the case may be) keep such books of
account and render as at the close of business on each day a detailed statement
of the amounts received or paid out and of securities received or delivered for
the account of the Fund during said day and such other statements, including a
daily trial balance and inventory of the Fund's portfolio securities; and shall
furnish such other financial information and data as from time to time requested
by the Treasurer or any Authorized Officer of the Fund; and shall compute and
determine, as of the close of regular trading on the New York Stock Exchange, or
at such other time or times as the Board may determine, the net asset value of a
share in the Fund, such computation and determination to be made in accordance
with the governing documents of the Fund and the votes and instructions of the
Board at the time in force and applicable, and promptly notify the Fund and its
investment adviser and such other persons as the Fund may request of the result
of such computation and determination. In computing the net asset value the
Custodian may rely upon security quotations received by telephone or otherwise
from sources or pricing services designated by the Fund by proper instructions,
and may further rely upon information furnished to it by any authorized officer
of the Fund relative (a) to liabilities of the Fund not appearing on its books
of account, (b) to the existence, status and proper treatment of any reserve or
reserves, (c) to any procedures established by the Board regarding the valuation
of portfolio securities, and (d) to the value to be assigned to any bond, note,
debenture, Treasury bill, repurchase agreement, subscription right, security,
participation interest or other asset or property for which market quotations
are not readily available.
6. Records and Miscellaneous Duties
The Bank shall create, maintain and preserve all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Fund. All books of account and
records maintained by the Bank in connection with the performance of its duties
under this Agreement shall be the property of the Fund, shall at all times
during the regular business hours of the Bank be open for inspection by
authorized officers, employees or agents of the Fund, and in the event of
termination of this Agreement shall be delivered to the Fund or to such other
person or persons as shall be designated by the Fund. Disposition of any account
or record after any required period of
26
<PAGE>
preservation shall be only in accordance with specific instructions received
from the Fund. The Bank shall assist generally in the preparation of reports to
shareholders, audits of accounts, and other ministerial matters of like nature;
and, upon request, shall furnish the Fund's auditors with an attested inventory
of securities held with appropriate information as to securities in transit or
in the process of purchase or sale and with such other information as said
auditors may from time to time request. The Custodian shall also maintain
records of all receipts, deliveries and locations of such securities, together
with a current inventory thereof, and shall conduct periodic verifications
(including sampling counts at the Custodian) of certificates representing bonds
and other securities for which it is responsible under this Agreement in such
manner as the Custodian shall determine from time to time to be advisable in
order to verify the accuracy of such inventory. The Bank shall not disclose or
use any books or records it has prepared or maintained by reason of this
Agreement in any manner except as expressly authorized herein or directed by the
Fund, and the Bank shall keep confidential any information obtained by reason of
this Agreement.
7. Opinion of Fund's Independent Public Accountants
The Custodian shall take all reasonable action, as the Fund may from time to
time request, to enable the Fund to obtain from year to year favorable opinions
from the Fund's independent public accountants with respect to its activities
hereunder in connection with the preparation of the Fund's registration
statement and Form N-SAR or other periodic reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
8. Compensation and Expenses of Bank
The Bank shall be entitled to reasonable compensation for its services as
Custodian and Agent, as agreed upon from time to time between the Fund and the
Bank. The Bank shall be entitled to receive from the Fund on demand
reimbursement for its cash disbursements, expenses and charges, including
counsel fees, in connection with its duties as Custodian and Agent hereunder,
but excluding salaries and usual overhead expenses.
9. Responsibility of Bank
So long as and to the extent that it is in the exercise of reasonable care, the
Bank as Custodian and Agent shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties.
The Bank as Custodian and Agent shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
The Bank as Custodian and Agent shall be held to the exercise of reasonable care
in carrying out the provisions of this Agreement but shall be liable only for
its own negligent or bad faith acts or failures to act. Notwithstanding the
foregoing, nothing contained in this paragraph is intended to nor shall it be
construed to modify the standards of care and responsibility set forth in
Section 2 hereof with respect to subcustodians and in subparagraph f of
Paragraph L of Section 3 hereof with respect to Securities Systems and in
subparagraph g of Paragraph M of Section 3 hereof with respect to an Approved
Book-Entry System for Commercial Paper.
27
<PAGE>
The Custodian shall be liable for the acts or omissions of a foreign banking
institution to the same extent as set forth with respect to subcustodians
generally in Section 2 hereof, provided that, regardless of whether assets are
maintained in the custody of a foreign banking institution, a foreign securities
depository or a branch of a U.S. bank, the Custodian shall not be liable for any
loss, damage, cost, expense, liability or claim resulting from, or caused by,
the direction of or authorization by the Fund to maintain custody of any
securities or cash of the Fund in a foreign county including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
acts of war, civil war or terrorism, insurrection, revolution, military or
usurped powers, nuclear fission, fusion or radiation, earthquake, storm or other
disturbance of nature or acts of God.
If the Fund requires the Bank in any capacity to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Bank, result in the Bank or its nominee assigned to the Fund
being liable for the payment of money or incurring liability of some other form,
the Fund, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or agents, to
advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of the Fund assets to
the extent necessary to obtain reimbursement.
Except as may arise from the Custodian's own negligence or bad faith, the
Custodian shall be without liability to any Fund for any loss, liability, claim
or expense resulting from or caused by anything which is (a) part of Country
Risk or (b) part of the "prevailing country risk" of the Fund, as that term is
used in SEC Release Nos. IC-22658; IS-1080 (May 12, 1997) or as that term is now
or in the future interpreted by the U.S. Securities and Exchange Commission or
by the staff of the Division of Investment Management of the Commission.
10. Persons Having Access to Assets of the Fund
(i) No trustee, director, general partner, officer, employee
or agent of the Fund shall have physical access to the
assets of the Fund held by the Custodian or be authorized
or permitted to withdraw any investments of the Fund, nor
shall the Custodian deliver any assets of the Fund to any
such person. No officer or director, employee or agent of
the Custodian who holds any similar position with the Fund
or the investment adviser of the Fund shall have access to
the assets of the Fund.
28
<PAGE>
(ii) Access to assets of the Fund held hereunder shall only be
available to duly Authorized Officers, employees,
representatives or agents of the Custodian or other
persons or entities for whose actions the Custodian shall
be responsible to the extent permitted hereunder, or to
the Fund's independent public accountants in connection
with their auditing duties performed on behalf of the
Fund.
(iii) Nothing in this Section 9 shall prohibit any Authorized
Officer, employee or agent of the Fund or of the
investment adviser of the Fund from giving instructions to
the Custodian or executing a certificate so long as it
does not result in delivery of or access to assets of the
Fund prohibited by paragraph (i) of this Section 9.
11. Effective Period, Termination and Amendment; Successor Custodian
This Agreement shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than sixty (60) days
after the date of such delivery or mailing; provided, that the Fund may at any
time by action of its Board, (i) substitute another bank or trust company for
the Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by the Federal Deposit Insurance
Corporation or by the Banking Commissioner of The Commonwealth of Massachusetts
or upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction. Upon termination of the
Agreement, the Fund shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
Unless the holders of a majority of the outstanding shares of the Fund vote to
have the securities, funds and other properties held hereunder delivered and
paid over to some other bank or trust company, specified in the vote, having not
less than $2,000,000 of aggregate capital, surplus and undivided profits, as
shown by its last published report, and meeting such other qualifications for
custodians set forth in the Investment Company Act of 1940, the Board shall,
forthwith, upon giving or receiving notice of termination of this Agreement,
appoint as successor custodian, a bank or trust company having such
qualifications. The Bank, as Custodian, Agent or otherwise, shall, upon
termination of the Agreement, deliver to such successor custodian, all
securities then held hereunder and all funds or other properties of the Fund
deposited with or held by the Bank hereunder and all books of account and
records kept by the Bank pursuant to this Agreement, and all documents held by
the Bank relative thereto. In the event that no such vote has
29
<PAGE>
been adopted by the shareholders and that no written order designating a
successor custodian shall have been delivered to the Bank on or before the date
when such termination shall become effective, then the Bank shall not deliver
the securities, funds and other properties of the Fund to the Fund but shall
have the right to deliver to a bank or trust company doing business in Boston,
Massachusetts of its own selection, having an aggregate capital, surplus and
undivided profits, as shown by its last published report, of not less than
$2,000,000, all funds, securities and properties of the Fund held by or
deposited with the Bank, and all books of account and records kept by the Bank
pursuant to this Agreement, and all documents held by the Bank relative thereto.
Thereafter such bank or trust company shall be the successor of the Custodian
under this Agreement.
12. Interpretive and Additional Provisions
In connection with the operation of this Agreement, the Custodian and the Fund
may from time to time agree on such provisions interpretive of or in addition to
the provisions of this Agreement as may in their joint opinion be consistent
with the general tenor of this Agreement. Any such interpretive or additional
provisions shall be in a writing signed by both parties and shall be annexed
hereto, provided that no such interpretive or additional provisions shall
contravene any applicable federal or state regulations or any provision of the
governing instruments of the Fund. No interpretive or additional provisions made
as provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.
13. Certification as to Authorized Officers
The Secretary of the Fund shall at all times maintain on file with the Bank his
certification to the Bank, in such form as may be acceptable to the Bank, of the
names and signatures of the Authorized Officers of each fund, it being
understood that upon the occurrence of any change in the information set forth
in the most recent certification on file (including without limitation any
person named in the most recent certification who has ceased to hold the office
designated therein), the Secretary of the Fund shall sign a new or amended
certification setting forth the change and the new, additional or omitted names
or signatures. The Bank shall be entitled to rely and act upon instructions from
any officers named in the most recent certification.
14. Notices
Notices and other writings delivered or mailed postage prepaid to the Fund
addressed to Susan S. Newton, John Hancock Advisers, Inc., 101 Huntington
Avenue, Boston, Massachusetts 02199, or to such other address as the Fund may
have designated to the Bank, in writing, or to State Street Bank and Trust
Company, shall be deemed to have been properly delivered or given hereunder to
the respective addressees.
15. Massachusetts Law to Apply; Limitations on Liability
This Agreement shall be construed and the provisions thereof interpreted under
and in accordance with the laws of The Commonwealth of Massachusetts.
30
<PAGE>
If the Fund is a Massachusetts business trust, the Custodian expressly
acknowledges the provision in the Fund's declaration of trust limiting the
personal liability of the trustees and shareholders of the Fund; and the
Custodian agrees that it shall have recourse only to the assets of the Fund for
the payment of claims or obligations as between the Custodian and the Fund
arising out of this Agreement, and the Custodian shall not seek satisfaction of
any such claim or obligation from the trustees or shareholders of the Fund. Each
Fund, and each series or portfolio of a Fund, shall be liable only for its own
obligations to the Custodian under this Agreement and shall not be jointly or
severally liable for the obligations of any other Fund, series or portfolio
hereunder.
16. Adoption of the Agreement by the Fund
The Fund represents that its Board has approved this Agreement and has duly
authorized the Fund to adopt this Agreement. This Agreement shall be deemed to
supersede and terminate, as of the date first written above, all prior
agreements between the Fund and the Bank relating to the custody of the Fund's
assets.
* * * * *
31
<PAGE>
In Witness Whereof, the parties hereto have caused this agreement to be executed
in duplicate as of the date first written above by their respective officers
thereunto duly authorized.
John Hancock Mutual Funds listed on Appendix A
by: /s/ Osbert Hood
---------------
Osbert Hood
Senior Vice President and Chief Financial Officer
Attest: Theresa Apruzzese
_______________________________
State Street Bank and Trust Company
by: /s/ Ronald Logue
----------------
Attest:
/s/ Gen Cioti
- -------------
s:\agrcont\agreement\custodia\state street amended with delegation
32
<PAGE>
APPENDIX B
Additional Information Relating to Mandatory Securities Depositories
The Foreign Custody Manager shall furnish annually to the Board such
information as may be reasonably available relating to the proposed
"safeharbor" criteria with respect to Mandatory Securities Depositories
as set forth below:
(a) whether an Eligible Foreign Custodian or a U.S. bank holding
assets at the depository undertakes to adhere to the rules, practices
and procedures of the depository;
(b) whether a regulatory authority with oversight responsibility for
the depository has issued a public notice that the depository is not in
compliance with any material capital, solvency, insurance, or other
similar financial strength requirements imposed by such authority, or,
in the case of such a notice having been issued, that such notice has
been withdrawn or the remedy of such noncompliance has been publicly
announced by the depository;
(c) whether a regulatory authority with oversight responsibility over
the depository has issued a public notice that the depository is not in
compliance with any material internal controls requirement imposed by
such authority, or, in the case of such notice having been issued, that
such notice has been withdrawn or the remedy of such noncompliance has
been publicly announced by the depository;
(d) whether the depository maintains the assets of the Fund's depositor
under no less favorable safekeeping conditions than those that apply
generally to depositors;
(e) whether the depository maintains records that segregate the
depository's own assets from the assets of depositors;
(f) whether the depository maintains records that identify the assets
of each of its depositors;
(g) whether the depository provides periodic reports to its depositors
with respect to the safekeeping of assets maintained by the depository,
including, but not limited to, notification of any transfer to or from
a depositor's account; and
(h) whether the depository is subject to periodic review, such as
audits by independent accountants or inspections by regulatory
authorities.
B-1
April 15, 1999
John Hancock Cash Reserve, Inc.
101 Huntington Avenue
Boston, MA 02199
RE: John Hancock Cash Reserve, Inc.
File Nos. 2-66461; 811-2995 (0000314721)
Ladies and Gentlemen:
In connection with the filing of Post-Effective Amendment No. 22 under the
Securities Act of 1933, as amended, Amendment No. 25 under the Investment
Company Act of 1940, as amended, John Hancock Cash Reserve, Inc. (the "Fund") it
is the opinion of the undersigned that such shares when sold will be legally
issued, fully paid and nonassessable.
In connection with this opinion it should be noted that the Fund is an entity of
the type generally known as a "Maryland corporation". The Corporation has been
duly organized and is validly existing under the laws of Maryland
Sincerely,
/s/Alfred P. Ouellette
----------------------
Alfred P. Ouellette
Assistant Secretary
Member of Massachusetts Bar
S:\Ouellette\letters\pea0499a
CONSENT OF ERNST& YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the John Hancock Cash Reserve, Inc. prospectus and "Independent
Auditors" and "Financial Statements" in the John Hancock Cash Reserve, Inc.,
Statement of Additional Information and to the incorporation by reference in
Post-Effective Amendment Number 22 to the Registration Statement (Form N-1A, No.
2-66461) of our report dated February 8, 1999 on the financial statements and
financial highlights of the John Hancock Cash Reserve, Inc.
/s/ERNST & YOUNG LLP
--------------------
ERNST & YOUNG LLP
Boston, Massachusetts
April 23, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> JOHN HANCOCK CASH RESERVE, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 29,415,519
<INVESTMENTS-AT-VALUE> 29,415,519
<RECEIVABLES> 325,961
<ASSETS-OTHER> 12,809
<OTHER-ITEMS-ASSETS> 772
<TOTAL-ASSETS> 29,755,061
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46,593
<TOTAL-LIABILITIES> 46,593
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,708,067
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 74
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 327
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 29,708,468
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,835,434
<OTHER-INCOME> 0
<EXPENSES-NET> 247,730
<NET-INVESTMENT-INCOME> 1,587,704
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,587,704
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,587,704
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 8,949,291
<SHARES-REINVESTED> 836,157
<NET-CHANGE-IN-ASSETS> 8,113,134
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 115,468
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 247,730
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
