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JOHN HANCOCK
MONEY MARKET
FUND
CLASS A AND CLASS B SHARES
PROSPECTUS
SEPTEMBER 12, 1995
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TABLE OF CONTENTS
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Page
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Expense Information................................................................... 2
The Fund's Financial Highlights....................................................... 3
Yield Information..................................................................... 4
Investment Objective and Policies..................................................... 4
Organization and Management of the Fund............................................... 5
The Fund's Expenses................................................................... 6
Dividends and Taxes................................................................... 7
How to Buy Shares..................................................................... 8
Share Price........................................................................... 10
How to Redeem Shares.................................................................. 13
Additional Services and Programs...................................................... 15
Investments, Techniques and Risk Factors.............................................. 18
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This Prospectus sets forth the information about John Hancock Money Market
Fund (the "Fund"), a diversified series of John Hancock Series, Inc. (the
"Company"), that you should know before investing. Please read and retain it for
future reference.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Additional information about the Fund and the Company has been filed with the
Securities and Exchange Commission (the "SEC"). You can obtain a copy of the
Fund's Statement of Additional Information, dated September 12, 1995, and
incorporated by reference into this Prospectus, free of charge by writing or
telephoning: John Hancock Investor Services Corporation, P.O. Box 9116, Boston,
Massachusetts 02205-9116, 1-800-225-5291 (1-800-554-6713 TDD).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various fees and expenses you will bear, directly or indirectly, when you
purchase Class A and Class B shares of the Fund. The operating expenses included
in the table and hypothetical example below are based on fees and expenses of
the Class B shares for the fiscal year ended October 31, 1994. No Class A shares
were actually outstanding during the period. Actual fees and expenses of Class A
and Class B shares in the future may be greater or less than those indicated.
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CLASS A CLASS B
SHARES SHARES
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SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a percentage of offering price)...................... None None
Maximum sales charge imposed on reinvested dividends............................................... None None
Maximum deferred sales charge...................................................................... None 5.00%
Redemption fee+.................................................................................... None None
Exchange fee....................................................................................... None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee..................................................................................... 0.50% 0.50%
12b-1 fee (net of reduction)*...................................................................... 0.15% 1.00%
Other expenses**................................................................................... 0.56% 0.56%
Total Fund operating expenses (net of reduction)***................................................ 1.21% 2.06%
<FN>
* The amount of the 12b-1 fee used to cover service expenses will be up to
0.15% and 0.25% of the Fund's average net assets attributable to Class A and
Class B shares, respectively, and any remaining portion will be used to
cover distribution expenses.
** Other Expenses include transfer agent, legal, audit, custody and other
expenses.
*** Total Fund operating expenses in the table reflect the current agreement
between the Fund and the Fund's distributor. In the future, the Class A
distribution fee could increase to 0.25%, in which case the total Fund
operating expenses of Class A shares would be 1.31%.
+ Redemption by wire fee (currently $4.00) not included.
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EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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You would pay the following expenses for the indicated period of years on a
hypothetical $1,000 investment, assuming 5% annual return:
Class A Shares................................................................. $12 $ 38 $ 67 $ 147
Class B Shares
-- Assuming complete redemption at end of period........................... $71 $ 95 $131 $ 217
-- Assuming no redemption.................................................. $21 $ 65 $111 $ 217
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(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown).
The Fund's payment of a distribution fee may result in a long-term shareholder
indirectly paying more than the economic equivalent of the maximum front-end
sales charge permitted under the National Association of Securities Dealers,
Inc.'s Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contracts."
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THE FUND'S FINANCIAL HIGHLIGHTS
The information in the following table of financial highlights has been
audited by Ernst & Young LLP, the Fund's independent auditors, whose unqualified
report is included in the Statement of Additional Information. Class A shares
are a new class of shares; no financial highlights exist for Class A shares.
Further information about the performance of the Fund is contained in the Fund's
Annual Report to shareholders which may be obtained free of charge by writing or
telephoning John Hancock Investor Services Corporation ("Investor Services") at
the address or telephone number listed on the front page of this Prospectus.
<TABLE>
Selected data for a Class B share outstanding throughout each period is as
follows:
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31, PERIOD ENDED
APRIL 30, 1995 ------------------------------------------------------------- OCTOBER 31,
(UNAUDITED)(1) 1994 1993 1992 1991 1990 1989 1988 1987(2)
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Net asset value,
beginning of
period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income....... $ 0.02 0.018 0.009 0.017 0.045 0.061 0.072 0.059 0.0007
LESS DISTRIBUTIONS
Dividends from net
investment income......... (0.02) (0.018) (0.009) (0.017) (0.045) (0.061) (0.072) (0.059) (0.0007)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end
of period................. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ======= ======= ======= ======= ======= ======= ========
Total Return(3)............. 1.88% 1.87% 0.85% 1.73% 4.61% 6.30% 7.40% 6.06% 0.06%
====== ====== ======= ======= ======= ======= ======= ======= ========
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to
average net assets........ 2.07%* 2.06% 2.44% 2.47% 2.23% 2.31% 2.59% 2.41% 0.03%
Ratio of expense reduction
to average net assets..... -- -- -- -- (0.12)% (0.15)% (0.47)% (0.90)% (0.02)%
------- ------- ------- ------- ------- ------- ------- ------- -------
Ratio of net expenses to
average net assets........ 2.07%* 2.06% 2.44% 2.47% 2.11% 2.16% 2.12% 1.51% 0.01%
======= ====== ======= ======= ======= ======= ======= ======= ========
Ratio of net investment
income to average net
assets.................... 3.76%* 1.97% 0.85% 1.69% 4.45% 6.11% 7.16% 6.01% 0.07%
Net Assets, end of
period (in thousands)..... $56,522 $58,366 $31,546 $31,480 $20,763 $21,099 $13,610 $ 7,692 $ 2,535
<FN>
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(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser to the Fund.
(2) Financial highlights, including total return, are for the period from
October 26, 1987 (date of the Fund's initial offering of shares to the
public) to October 31, 1987 and have not been annualized.
(3) Total return does not include the effect of the contingent deferred sales
charge.
* Annualized basis.
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YIELD INFORMATION
For the seven days ended April 30, 1995, the Fund's annualized yield and
effective yield on Class B shares was 4.04% and 4.12%, respectively. On April
30, 1995, the Fund's average portfolio maturity was 37 days.
Current information on the Fund's annualized yield during a recent seven-day
period may be obtained by calling the Easi-Line at 1-800-338-8080 or a John
Hancock customer service representative, 1-800-225-5291.
Yield for Class B shares reflect the deduction of the applicable contingent
deferred sales charge imposed on a redemption of shares held for the applicable
period. The yield of Class A and Class B shares will be calculated separately
and, because each class is subject to different expenses, the yield may differ
with respect to that class for the same period. For information on how the Fund
calculates its annualized yield see the Statement of Additional Information.
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to provide maximum current income consistent with capital
preservation and liquidity. The Fund's investments will be subject to the market
fluctuations and risks inherent in all securities, and there is no assurance
that the investment objective will always be achieved.
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THE FUND SEEKS TO PROVIDE MAXIMUM CURRENT
INCOME CONSISTENT WITH CAPITAL
PRESERVATION AND LIQUIDITY.
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The Fund seeks to achieve its objective by investing in money market instruments
including, but not limited to, U.S. Government, municipal and foreign
governmental securities; obligations of supranational organizations (e.g. the
World Bank and the International Monetary Fund); obligations of U.S. and foreign
banks and other lending institutions; corporate obligations; repurchase
agreements and reverse repurchase agreements. As a fundamental policy, the Fund
may not invest more than 25% of its total assets in obligations issued by (i)
foreign banks and (ii) foreign branches of U.S. banks where John Hancock
Advisers, Inc. (the "Adviser"), the Fund's investment adviser, has determined
that the U.S. bank is not unconditionally responsible for the payment
obligations of the foreign branch. All of the Fund's investments will be
denominated in U.S. dollars.
At the time the Fund acquires its investments, they will be rated (or issued by
an issuer that is rated with respect to a comparable class of short-term debt
obligations) in one of the two highest rating categories for short-term debt
obligations assigned by at least two nationally recognized rating organizations
(or one rating organization if the obligation was rated by only one such
organization). These high quality securities are divided into "first tier" and
"second tier" securities. First tier securities have received the highest rating
from at least two rating organizations (or one, if only one has rated the
security). Second tier securities have received ratings within the two highest
categories from at least two rating agencies (or one, if only one has rated the
security), but do not qualify as first tier securities. The Fund may also
purchase obligations that are not rated, but are determined by the Adviser,
based on procedures adopted by the Fund's Board of Directors, to be of
comparable quality to rated first or second tier securities. The Fund may not
purchase any second tier security if, as a result of its purchase (a) more than
5% of its total assets would be invested in second tier securities or (b) more
than 1% of its total assets or $1 million (whichever is greater) would be
invested in the second tier securities of a single issuer. For a description of
the ratings assigned by the rating organizations, see the Statement of
Additional Information.
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THE FUND INVESTS ONLY IN HIGH-QUALITY
SECURITIES BELIEVED TO PRESENT MINIMAL
CREDIT RISKS, UNDER PROCEDURES ADOPTED BY
THE BOARD OF DIRECTORS.
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All of the Fund's investments will mature in 397 days or less. The Fund will
maintain an average dollar-weighted portfolio maturity of 90 days or less.
The Fund has adopted certain investment restrictions that are enumerated in
detail in the Statement of Additional Information, where they are classified as
fundamental or nonfundamental. Those restrictions designated as fundamental may
not be changed without shareholder approval. The Fund's investment objective
and, except as otherwise expressly provided, its investment policies are
nonfunda-
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BY LIMITING THE MATURITY OF ITS
INVESTMENTS, THE FUND SEEKS TO LESSEN THE
CHANGES IN THE VALUE OF ITS ASSETS CAUSED
BY MARKET FACTORS.
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mental and may be changed by a vote of the Board of Directors without
shareholder approval. Notwithstanding the Fund's fundamental investment
restriction prohibiting investments in other investment companies, the Fund may,
pursuant to an order granted by the SEC, invest in other investment companies in
connection with a deferred compensation plan for the non-interested directors of
the John Hancock funds.
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THE FUND FOLLOWS CERTAIN POLICIES THAT MAY
HELP TO REDUCE INVESTMENT RISK.
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The primary consideration in choosing brokerage firms to carry out the Fund's
transactions is execution at the most favorable prices, taking into account the
broker's professional ability and quality of service. Consideration may also be
given to the broker's sales of Fund shares. Pursuant to procedures determined by
the Board of Directors, the Adviser may place securities transactions with
brokers affiliated with the Adviser. The brokers include Tucker Anthony
Incorporated, Sutro and Company, Inc. and John Hancock Distributors, Inc., which
are indirectly owned by the John Hancock Mutual Life Insurance Company (the
"Life Company"), which in turn indirectly owns the Adviser.
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BROKERS ARE CHOSEN ON BEST PRICE AND
EXECUTION.
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See "Investments, Techniques and Risk Factors" for more information about the
Fund's investments.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a diversified series of the Company, which is an open-end management
investment company organized as a Maryland corporation in 1987. The Company
reserves the right to create and issue a number of series of shares, or funds or
classes of these series, which are separately managed and have different
investment objectives. The Directors have authorized the issuance of three
classes of the Fund, designated Class A, Class B and Class S. The shares of each
class represent an interest in the same portfolio of investments of the Fund.
Each class has equal rights as to voting, redemption, dividends and liquidation.
However, each class is subject to different fees and expenses (which affect
performance), has different minimum investment requirements, is entitled to
different services and, in the case of Class S shares, may be offered only
through certain brokers. Also, Class A, Class B and Class S shareholders have
exclusive voting rights with respect to their distribution plans. Class S shares
of the Fund are available exclusively to investors who maintain brokerage
accounts with certain brokers who offer the Fund's shares as part of a sweep
account arrangement. Class S shares are not subject to a sales charge on
purchases, redemptions or reinvested dividends, nor are they subject to deferred
sales charges or an exchange fee. Class S expenses are identical to those of
Class A shares except that the 12b-1 fee is 0.40% of average daily net assets on
Class S shares. Information regarding Class S shares may be obtained from an
investor's sales representative or from the Fund by calling the number on the
back cover of this Prospectus. The Company is not required to and does not
intend to hold annual meetings of shareholders, although special meetings may be
held for such purposes as electing or removing Directors, changing fundamental
policies or approving a management contract. The Fund, under certain
circumstances, will assist in shareholder communications with other shareholders
of the Fund.
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THE BOARD OF DIRECTORS ELECTS OFFICERS AND
RETAINS THE INVESTMENT ADVISER WHO IS
RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS
OF THE FUND, SUBJECT TO THE BOARD OF
DIRECTORS' POLICIES AND SUPERVISION.
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The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Fund,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds, Inc.
("John Hancock Funds") distributes shares for all of the John Hancock mutual
funds through brokers who have arrangements with John Hancock Funds ("Selling
Brokers"). Certain Fund officers are also officers of the Adviser and John
Hancock Funds.
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JOHN HANCOCK ADVISERS, INC. ADVISES
INVESTMENT COMPANIES HAVING A TOTAL ASSET
VALUE OF MORE THAN $13 BILLION.
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In order to avoid any conflict with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities trading
by personnel of the Adviser and its affiliates. Some of these restrictions are:
preclearance for all personal trades and a ban on the purchase of initial public
offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a monthly fee to
the Adviser based on a stated percentage of the Fund's average daily net assets.
During the fiscal year ended October 31, 1994, the Fund paid advisory fees in an
amount equal to 0.50% of the Fund's average daily net assets to the Fund's
former investment adviser.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). Under these Plans, John Hancock Funds and the Fund have agreed to
limit the distribution and service fees pursuant to the Plans to 0.15% of the
Class A shares' average daily net assets and to 1.00% of the Class B shares'
average daily net assets. In the future, the Class A distribution fee could
increase to 0.25%. In the case of the Class A Plan and the Class B Plan, up to
0.15% and 0.25%, respectively, is for service expenses and the remaining amount
is for distribution expenses. The distribution fees will be used to reimburse
John Hancock Funds for its distribution expenses, including but not limited to:
(i) initial and ongoing sales compensation to Selling Brokers and others
(including affiliates of John Hancock Funds) engaged in the sale of Fund shares;
(ii) marketing, promotional and overhead expenses incurred in connection with
the distribution of Fund shares; (iii) unreimbursed distribution expenses under
the Fund's prior distribution plans for Class B shares; (iv) distribution
expenses incurred by other investment companies which sell all or substantially
all of their assets to, merge with or otherwise engage in a reorganization
transaction with the Fund; and (v) with respect to Class B shares only, interest
expenses on unreimbursed distribution expenses. The service fees will be used to
compensate Selling Brokers for providing personal and account maintenance
services to shareholders.
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THE FUND PAYS DISTRIBUTION AND SERVICE
FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
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In the event John Hancock Funds is not fully reimbursed for payments it makes or
expenses it incurs under the Class A Plan, these expenses will not be carried
beyond one year from the date they were incurred. Unreimbursed expenses under
the Class B Plan will be carried forward together with interest on the balance
of these unreimbursed expenses.
For the fiscal year ended October 31, 1994, an aggregate of $1,233,281 of
distribution expenses or 2.88% of the average net assets of the Fund's Class B
shares was not reimbursed or recovered by John Hancock Funds through the receipt
of deferred sales charges or Rule 12b-1 fees in prior periods.
The higher ongoing distribution fee of Class B shares will cause these shares to
have higher expenses than Class A shares. To the extent that any dividends are
paid by the Fund, these higher expenses will also result in lower dividends than
those paid on Class A shares.
Information on the Fund's total expenses is in the Financial Highlights section
of this Prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund generally declares dividends daily and distributes
dividends monthly, representing all or substantially all of its net investment
income.
Purchase orders which are received together with Federal funds by wire before
12:00 noon New York time will receive the dividend declared that day and other
purchase orders, including any order with payment other than by Federal funds,
will begin receiving dividends the following business day. Redemption orders
received prior to 12:00 noon New York time will not receive that day's
dividends.
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THE FUND GENERALLY DECLARES DIVIDENDS
DAILY AND DISTRIBUTES DIVIDENDS MONTHLY.
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Dividends are reinvested in additional shares of your class unless you elect the
option to receive them in cash. If you elect the cash option and the U.S. Postal
Service cannot deliver your checks, your election will be converted to the
reinvestment option. Because of the higher expenses associated with Class B
shares, any dividend on these shares will be lower than those on the Class A
shares. See "Share Price."
TAXATION. Dividends from the Fund's net investment income and net short-term
capital gains are taxable to you as ordinary income. Dividends from the Fund's
net
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long-term capital gains, if any, are taxable as long-term capital gain. The Fund
does not anticipate that it will generally realize any long-term capital gains.
Dividends are taxable, whether received in cash or reinvested in additional
shares. Certain dividends may be paid by the Fund in January of a given year but
may be treated as if you received them the previous December. The Fund will send
you a statement by January 31 showing the federal tax status of the dividends
you received for the prior year.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, the Fund will not be
subject to Federal income tax on any net investment income or net realized
capital gains distributed to its shareholders within the time period prescribed
by the Code.
On the account application, you must certify that the social security or other
taxpayer identification number you provide is your correct number and that you
are not subject to backup withholding of Federal income tax. If you do not
provide this information or are otherwise subject to this withholding, the Fund
may be required to withhold 31% of your dividends.
In addition to Federal taxes, you may be subject to state and local or foreign
taxes with respect to your investment in and distributions from the Fund. A
state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the Fund's distributions are
derived from interest on (or, in the case of intangibles taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in some
states that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Non-U.S. shareholders and tax-exempt shareholders
are subject to different tax rules not described herein. You should consult your
tax adviser for specific advice.
HOW TO BUY SHARES
Initial purchases of Class A and Class B shares of the Fund may be made either
directly or by exchanging amounts from the same class of another John Hancock
mutual fund.
Due to the fee under the distribution plan and the contingent deferred sales
charge, Class B shares of the Fund are intended only as a temporary investment
pending exchanges into Class B shares of other John Hancock mutual funds. If you
do not intend to exchange your shares of the Fund for Class B shares of another
John Hancock mutual fund, you should purchase Class A shares.
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The minimum initial investment in Class A and Class B shares is $1,000 ($250 for
group investments and retirement plans). Complete the Account Application attached
to this Prospectus. Indicate whether you are making an initial purchase of Class A
or Class B shares. If you do not specify which class of shares you are purchasing,
Investor Services will assume that you are investing in Class A shares.
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OPENING AN ACCOUNT
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BY CHECK 1. Make your check payable to John Hancock Investor Services
Corporation, P.O. Box 9115, Boston, MA 02205-9115.
2. Deliver the completed application and check to your registered
representative or Selling Broker or mail it directly to
Investor Services.
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BY WIRE 1. Obtain an account number by contacting your registered
representative or Selling Broker, or by calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Money Market Fund
Class A or Class B shares
Your Account Number Name(s) under which account is
registered
3. Deliver the completed application to your registered
representative or Selling Broker or mail it directly to
Investor Services.
4. SAME DAY. To receive the dividend declared on the same day you
wire funds, you must telephone your order to Investor Services
toll free 1-800-225-5291 by 12:00 noon New York time that day.
See "Dividends and Taxation."
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MONTHLY 1. Complete the "Automatic Investing" and "Bank Information"
AUTOMATIC sections on the Account Privileges Application designating a
ACCUMULATION bank account from which funds may be drawn.
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BUYING ADDITIONAL CLASS A AND CLASS B
SHARES
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PROGRAM 2. The amount you elect to invest will be automatically withdrawn
(MAAP) from your bank or credit union account.
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BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information" sections
on the Account Privileges Application designating a bank
account from which your funds may be drawn. Note that in order
to invest by phone, your account must be in a bank or credit
union that is a member of the Automated Clearing House system
(ACH).
2. After your authorization form has been processed, you may
purchase additional Class A or Class B shares by calling
Investor Services toll-free 1-800-225-5291.
3. Give the Investor Services representative the name(s) in which
your account is registered, the Fund name, the class of shares
you own, your account number, and the amount you wish to invest
in Class A shares.
4. Your investment normally will be credited to your account the
business day following your phone request.
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BY CHECK 1. Either complete the detachable stub included on your account
statement or include a note with your investment listing the
name of the Fund, the class of shares you own, your account
number and the name(s) in which the account is registered.
2. Make your check payable to John Hancock Investor Services
Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling
Broker.
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BY WIRE Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Money Market Fund
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
SAME DAY. To receive the dividend declared on the same day you
wire funds, you must telephone your order to Investor Services
toll free 1-800-225-5291 by 12:00 noon New York time that day.
See "Dividends and Taxation."
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Other Requirements: All purchases must be made in U.S. dollars. Checks written on
foreign banks will delay purchases until U.S. funds are received, and a collection
charge may be imposed. Shares of the Fund are priced at the offering price based
on the net asset value computed after Investor Services receives notification of
the dollar equivalent from the Fund's custodian bank. Wire purchases normally take
two or more hours to complete and, to be accepted the same day, must be received
by 4:00 p.m., New York time. Your bank may charge a fee to wire funds. Telephone
transactions are recorded to verify information. Certificates are not issued
unless a request is made to Investor Services.
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You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
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YOU WILL RECEIVE STATEMENTS REGARDING YOUR
ACCOUNT, WHICH YOU SHOULD KEEP TO HELP
WITH YOUR PERSONAL RECORDKEEPING.
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SHARE PRICE
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of outstanding
shares of that class. The NAV of each class can differ. Securities in the Fund's
portfolio are valued at amortized cost, which the Board of Directors has
determined approximates market value. Under the amortized cost pricing method, a
portfolio investment is valued at its cost and thereafter any discount or
premium is amortized to maturity, regardless of the impact of fluctuating
interest rates on the market value of the investment. Amortized cost pricing
facilitates the maintenance of a $1.00 constant net asset value per share, but,
of course, this cannot be guaranteed.
-------------------------------------------------------------------------------
THE PRICE OF YOUR SHARES IS THEIR NET
ASSET VALUE PER SHARE, WHICH WILL NORMALLY
BE CONSTANT AT $1.00.
-------------------------------------------------------------------------------
The NAV is calculated twice daily, at 12:00 noon Eastern time and as of the
close of regular trading on the New York Stock Exchange (the "Exchange")
(generally at 4:00 P.M., New York time) on each day that the Exchange is open.
The price you pay for shares of the Fund equals the NAV computed after your
investment is accepted in good order by John Hancock Funds, which will normally
be constant at $1.00 per share. If you buy shares of the Fund through a Selling
Broker, the Selling Broker must receive your investment before the close of
regular trading on the Exchange and transmit it to John Hancock Funds before its
close of business to receive that day's price.
CLASS A SHARES. You will not incur a sales charge when you purchase Class A
shares.
10
<PAGE> 11
CLASS B SHARES -- CONTINGENT DEFERRED SALES CHARGE. Class B shares are offered
at net asset value per share without an initial sales charge. However, Class B
shares redeemed within six years of purchase will be subject to a contingent
deferred sales charge ("CDSC") at the rates set forth below. This charge will be
assessed on an amount equal to the lesser of the current market value or the
original purchase cost of the Class B shares being redeemed. Accordingly, you
will not be assessed a CDSC on increases in account value above the initial
purchase price, including Class B shares derived from dividend reinvestment.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from Class B shares you have
held beyond the applicable CDSC redemption period or those you acquired through
reinvestment of dividends, and next from the Class B shares you have held the
longest during the CDSC redemption period. The CDSC is waived on redemptions in
certain circumstances. See discussion "Waiver of Contingent Deferred Sales
Charges" below.
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses
part of them to defray its expenses related to providing the Fund with
distribution services to the Fund in connection with the sale of the Class B
shares, such as compensating Selling Brokers for selling these shares. The
combination of the CDSC and the distribution and service fees makes it possible
for the Fund to sell the Class B shares without deducting a sales charge at the
time of the purchase.
The amount of the CDSC, if any, will vary depending on the number of years from
the time you purchased your Class B shares or you purchased Class B shares of
another John Hancock mutual fund which were subsequently exchanged into Class B
shares of the Fund until the time you redeem your Class B shares of the Fund.
Solely for the purpose of determining this holding period, any payments you make
during the month will be aggregated and deemed to have been made on the last day
of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
YEAR IN WHICH CLASS B SHARES CHARGE AS A PERCENTAGE OF
REDEEMED FOLLOWING PURCHASE AMOUNT REDEEMED
---------------------------- -------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision of
personal and account maintenance services to shareholders during the twelve
months following the sale, and thereafter the service fee is paid in arrears.
11
<PAGE> 12
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in these circumstances:
- Redemptions of Class B shares made under Systematic Withdrawal Plan (see "How
to Redeem Shares"), as long as your annual redemptions do not exceed 10% of
your account value, at the time you establish your Systematic Withdrawal Plan
and 10% of the value of your subsequent investments (less redemptions) in that
account at the time you notify Investor Services. This waiver does not apply
to systematic withdrawal plan redemptions of Class A shares that are subject
to a CDSC.
-------------------------------------------------------------------------------
UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON
CLASS B SHARE AND CERTAIN CLASS A SHARE
REDEMPTIONS WILL BE WAIVED.
-------------------------------------------------------------------------------
- Redemptions made to effect distributions from an Individual Retirement Account
either before or after age 59 1/2, as long as the distributions are based on
the life expectancy or the joint-and-last survivor life expectancy of you and
your beneficiary. These distributions must be free from penalty under the
Code.
- Redemptions made to effect mandatory distributions under the Code after age
70 1/2 from a tax-deferred retirement plan.
- Redemptions made to effect distributions to participants or beneficiaries from
certain employer-sponsored retirement plans including those qualified under
Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the
Code and deferred compensation plans under Section 457 of the Code. The waiver
also applies to certain returns of excess contributions made to these plans.
In all cases, the distributions must be free from penalty under the Code.
- Redemptions due to death or disability.
- Redemptions made under the Reinvestment Privilege, as described in "Additional
Services and Programs" of this Prospectus.
- Redemptions made pursuant to the Fund's right to liquidate your account if you
have less than $500 invested in the Fund.
- Redemptions made in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
- Redemptions from certain IRA and retirement plans that purchased shares prior
to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services either directly or through your Selling Broker at the time you
make your redemption. The waiver will be granted once Investor Services has
confirmed that you are entitled to the waiver.
CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of
reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following eight years
after the shares were purchased, and will result in lower annual distribution
fees. If you exchanged Class B shares into this Fund from another John Hancock
fund, the calculation will be based on the time you purchased the shares in the
original fund. The Fund has been advised that the conversion of Class B shares
to Class A
12
<PAGE> 13
shares should not be taxable for Federal income tax purposes, nor should it
change your tax basis or tax holding period for the converted shares.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services, less any applicable CDSC. The Fund
may hold payment until reasonably satisfied that investments which were recently
made by check or Invest-by-Phone have been collected (which may take up to 10
calendar days).
-------------------------------------------------------------------------------
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION
REQUEST, PLEASE FOLLOW THESE PROCEDURES.
-------------------------------------------------------------------------------
Once your shares are redeemed, the Fund generally sends you payment on the next
business day. Under unusual circumstances, the Fund may suspend redemptions or
postpone payment for up to seven days or longer, as permitted by Federal
securities laws.
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
BY CHECK You may elect the checkwriting privilege which allows you to
write checks in amounts from a minimum of $100. Checks may not be
written against shares in your account which have been purchased
within the last 10 days, except for shares purchased by wire
transfer (which are immediately available).
---------------------------------------------------------------------------------
BY TELEPHONE All Fund shareholders are automatically eligible for the
telephone redemption privilege. Call 1-800-225-5291, from 8:00
A.M. to 4:00 P.M. (New York time), Monday through Friday,
excluding days on which the Exchange is closed. Investor Services
employs the following procedures to confirm that instructions
received by telephone are genuine. Your name, the account number,
taxpayer identification number applicable to the account and
other relevant information may be requested. In addition,
telephone instructions are recorded.
You may redeem up to $100,000 by telephone, but the address on
the account must not have changed for the last thirty days. A
check will be mailed to the exact name(s) and address shown on
the account.
If reasonable procedures, such as those described above, are not
followed, the Fund may be liable for any loss due to unauthorized
or fraudulent telephone instructions. In all other cases, neither
the Fund nor Investor Services will be liable for any loss or
expense for acting upon telephone instructions made in accordance
with the telephone transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or shares of the Fund that are in
certificated form.
During periods of extreme economic conditions or market changes,
telephone requests may be difficult to implement due to a large
volume of calls. During these times, you should consider placing
redemption requests in writing or use EASI-Line. EASI-Line's
telephone number is 1-800-338-8080.
---------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
BY WIRE If you have a telephone redemption form on file with the Fund,
redemption proceeds of $1,000 or more can be wired to your
designated bank account, and a fee (currently $4.00) will be
deducted.
SAME DAY. To receive redemption proceeds the same day, you must
telephone Investor Services at 1-800-225-5291 before 12:00 noon
New York time. Dividends will not be received for that day.
NEXT DAY. If same day wiring is not so requested, redemption
proceeds will be wired on the next business day.
You may also use electronic funds transfer to your assigned bank
account, and the funds are usually collectible after two business
days. Your bank may or may not charge a fee for this service.
Redemptions of less than $1,000 will be sent by check or
electronic funds transfer.
This feature may be elected by completing the "Telephone
Redemption" section on the Account Privileges Application
included with this Prospectus.
---------------------------------------------------------------------------------
IN WRITING Send a stock power or "letter of instruction" specifying the name
of the Fund, the dollar amount or the number of shares to be
redeemed, your name, class of shares, your account number and the
additional requirements listed below that apply to your
particular account.
---------------------------------------------------------------------------------
<CAPTION>
TYPE OF
REGISTRATION REQUIREMENTS
------------- -----------------------------------------------------------------
<S> <C> <C> <C>
Individual, Joint Tenants, Sole A letter of instruction signed (with titles
Proprietorship, Custodial where applicable) by all persons authorized to
(Uniform Gifts or Transfer to sign for the account, exactly as it is
Minors Act), General Partners registered with the signature(s) guaranteed.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s) authorized to
act on the account with the signature(s)
guaranteed.
Trusts A letter of instruction signed by the
Trustee(s) with the signature(s) guaranteed.
(If the Trustee's name is not registered on
your account, also provide a copy of the trust
document, certified within the last 60 days.)
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
A signature guarantee is a widely accepted way to protect you and the Fund by
verifying the signature on your request. It may not be provided by a notary
public. If the net asset value of the shares redeemed is $100,000 or less, John
Hancock Funds may guarantee the signature. The following institutions may
provide you with a signature guarantee, provided that the institution meets
credit standards established by Investor Services: (i) a bank; (ii) a securities
broker or dealer, including a government or municipal securities broker or
dealer, that is a member of a clearing corporation or meets certain net capital
requirements; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association; or (v) a
national securities exchange, a registered securities exchange or a clearing
agency.
</TABLE>
-------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR SIGNATURE.
-------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
---------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption.
Contact your broker for instructions.
</TABLE>
-------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
-------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
---------------------------------------------------------------------------------
If you have certificates for your shares, you must submit them with your stock
power or a letter of instructions. Unless you specify to the contrary, any
outstanding Class A shares will be redeemed before Class B shares. You may not
redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining small accounts, the Fund
reserves the right to redeem at net asset value all shares in an account which
holds less than $500 (except accounts under retirement plans) and to mail the
proceeds to the shareholder, or the transfer agent may impose an annual fee of
$10.00. No account will be involuntarily redeemed or additional fee imposed, if
the value of the account is in excess of the Fund's minimum initial investment
or if the value of the account falls below the required minimum as a result of
market action. No CDSC will be imposed on involuntary redemptions of shares.
Shareholders will be notified before these redemptions are to be made or this
fee is imposed and will have 60 days to purchase additional shares to bring
their account balance up to the required minimum. Unless the number of shares
acquired by further purchases and dividend reinvestments, if any, exceeds the
number of shares redeemed, repeated redemptions from a smaller account may
eventually trigger this policy.
---------------------------------------------------------------------------------
</TABLE>
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
John Hancock offers other funds with a wide range of investment goals. Contact
your registered representative or Selling Broker and request a prospectus for
the John Hancock funds that interest you. Read the prospectus carefully before
exchanging your shares. You can exchange shares of each class of the Fund only
for shares of the same class of another John Hancock fund. For this purpose,
John Hancock funds with only one class of shares will be treated as Class A,
whether or not they have been so designated.
-------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES OF THE FUND ONLY
FOR SHARES OF THE SAME CLASS OF ANOTHER
JOHN HANCOCK FUND.
-------------------------------------------------------------------------------
Exchanges of Class A shares into Class A shares of another John Hancock fund
which carry a front-end sales charge will be subject to the sales charge
described in that fund's prospectus. Class A shares of the Fund acquired by
exchange of shares of another fund on which a front-end sales charge was
previously paid are exchanged at net asset value. Class B shares and certain
Class A shares of the Fund (those that are subject to a CDSC) may be exchanged
into Class B shares of another John Hancock fund without incurring the CDSC;
however, these shares will be subject to the CDSC schedule of the shares
acquired (except that exchanges into John Hancock Short-Term Strategic Income
Fund, John Hancock Limited-Term Government Fund and John Hancock Intermediate
Government Fund will be subject to the initial fund's CDSC unless your initial
investment in the Fund resulted from an exchange from one of those funds, in
which case the exchange will be subject to the respective CDSC schedule set
forth in one of these funds' prospectuses). For purposes of computing the CDSC
payable upon redemption of shares acquired in an exchange, the holding period of
the original shares is added to the holding period of the shares acquired in an
exchange.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers and
investment advisers may exchange their clients' Fund shares, subject to the
15
<PAGE> 16
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and other
restrictions that do not apply to exchanges requested by shareholders directly,
as described above.
Because Fund performance and shareholders can be hurt by excessive trading, the
Fund reserves the right to terminate the exchange privilege for any person or
group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely. The
Fund may also temporarily or permanently terminate the exchange privilege for
any person who makes seven or more exchanges out of the Fund per calendar year.
Accounts under common control or ownership will be aggregated for this purpose.
Although the Fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time.
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable to
the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
IN WRITING
1. In a letter, request an exchange and list the following:
-- the name and class of the Fund whose shares you currently own
-- your account number
-- the name(s) in which the account is registered
-- the name of the fund in which you wish your exchange to be invested
-- the number of shares, all shares or dollar amount you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
16
<PAGE> 17
SYSTEMATIC WITHDRAWAL PLAN
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You can
also obtain this application by calling your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
-------------------------------------------------------------------------------
YOU CAN PAY ROUTINE BILLS FROM YOUR
ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF
FUNDS FROM YOUR RETIREMENT ACCOUNT TO
COMPLY WITH IRS REGULATIONS.
-------------------------------------------------------------------------------
3. Payments from your account can be made monthly, quarterly, semi-annually or
annually or on a selected monthly basis to yourself or any other designated
payee.
4. There is no limit on the number of payees you may authorize, but all
payments must be made at the same time or intervals.
5. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks or if deposits to a bank account are returned for any reason.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
1. You can authorize an investment to be automatically withdrawn each month
from your bank, for investment in shares under the "Automatic Investing" and
"Bank Information" sections of the Account Privileges Application.
-------------------------------------------------------------------------------
YOU CAN MAKE AUTOMATIC INVESTMENTS AND
SIMPLIFY YOUR INVESTING.
-------------------------------------------------------------------------------
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
3. You can also authorize automatic investment through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
4. You can terminate your Monthly Automatic Accumulation Program plan at any
time.
5. There is no charge to you for this program, and there is no cost to the
Fund.
6. If you have payments being withdrawn from a bank account and we are notified
that the account has been closed, your withdrawals will be discontinued.
RETIREMENT PLANS
1. You may use the Fund as a funding medium for various types of qualified
retirement plans, including Individual Retirement Accounts, Keogh Plans (H.R.
10), Pension and Profit Sharing Plans (including 401(k) Plans), Tax Sheltered
Annuity Retirement Plans (403(b) Plans) and Section 457 Plans.
17
<PAGE> 18
2. The initial investment minimum or aggregate minimum for any of the above
plans is $250. However, accounts being established as group IRA, SEP, SARSEP,
TSA, 401(k) and Section 457 Plans will be accepted without an initial minimum
investment.
INVESTMENTS, TECHNIQUES AND RISK FACTORS
SECURITIES OF FOREIGN ISSUERS. Foreign issuers may not be subject to accounting
standards and government supervision comparable to U.S. companies and there is
often less publicly available information about their operations. Foreign
markets generally provide less liquidity than U.S. markets (and thus potentially
greater price volatility), and typically provide fewer regulatory protections
for investors. Foreign securities can also be affected by political or financial
instability abroad. Foreign branches of United States banks may be subject to
less stringent reserve requirements than domestic branches. United States
branches and agencies of foreign banks and foreign branches of United States
banks may provide less public information than, and may not be subject to, the
same accounting, auditing and financial record-keeping standards as domestic
banks.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its net
assets in illiquid investments, which include repurchase agreements maturing in
more than seven days, restricted securities and securities not readily
marketable. The Fund may also invest in restricted securities eligible for
resale to certain institutional investors pursuant to Rule 144A under the
Securities Act of 1933. These purchases are subject to the Fund's investment
restriction limiting all illiquid securities held by the Fund to not more than
10% of the Fund's net assets.
LENDING OF SECURITIES. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities. When the Fund
lends portfolio securities, there is a risk that the borrower may fail to return
the loaned securities. As a result, the Fund may incur a loss or, in the event
of the borrower's bankruptcy, the Fund may be delayed in or prevented from
liquidating the collateral. It is a fundamental policy of the Fund not to lend
portfolio securities having a total value in excess of 30% of its total assets.
REPURCHASE AGREEMENTS, FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. The Fund
may enter into repurchase agreements and may purchase securities on a forward
commitment or when-issued basis. In a repurchase agreement, the Fund buys a
security subject to the right and obligation to sell it back to the seller at a
higher price. These transactions must be fully collateralized at all times, but
involve some credit risk to the Fund if the other party defaults its obligation
and the Fund is delayed in or prevented from liquidating the collateral. The
Fund will segregate in a separate account cash or liquid, high grade debt
securities equal in value to its forward commitments and when-issued securities.
Purchasing debt securities for future delivery or on a when-issued basis may
increase the Fund's overall investment exposure and involves a risk of loss if
the value of the securities declines before the settlement date.
18
<PAGE> 19
NOTES
<PAGE> 20
JOHN HANCOCK
JOHN HANCOCK MONEY MARKET
MONEY MARKET FUND FUND
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CLASS A AND CLASS B SHARES
PRINCIPAL DISTRIBUTOR PROSPECTUS
John Hancock Funds, Inc. SEPTEMBER 12, 1995
101 Huntington Avenue
Boston, Massachusetts 02199-7603
A MONEY MARKET FUND THAT
SEEKS TO PROVIDE MAXIMUM
CURRENT INCOME CONSISTENT
WITH CAPITAL PRESERVATION
AND LIQUIDITY.
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services
Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For Service Information
For Telephone Exchange call 1-800-225-5291
For Investment-by-Phone
For Telephone Redemption
For TDD call 1-800-554-6713 101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
TELEPHONE 1-800-225-5291
4400P 9/95(LOGO) Printed on Recycled Paper
<PAGE> 21
JOHN HANCOCK MONEY MARKET FUND
CLASS S SHARES
PROSPECTUS
SEPTEMBER 12, 1995
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Expense Information ...................................................... 2
The Fund's Financial Highlights .......................................... 3
Yield Information ........................................................ 5
Investment Objective and Policies ........................................ 5
Organization and Management of the Fund .................................. 7
The Fund's Expenses ...................................................... 10
Dividends and Taxes ...................................................... 10
How to Buy Class S Shares ................................................ 12
Share Price .............................................................. 12
How to Redeem Class S Shares ............................................. 13
Investments, Techniques and Risk Factors ................................. 14
</TABLE>
This Prospectus sets forth the information about Class S shares of John
Hancock Money Market Fund (the "Fund"), a diversified series of John Hancock
Series, Inc. (the "Company"), that you should know before investing. Please read
and retain it for future reference. Class S shares of the Fund are offered
exclusively to investors who maintain brokerage accounts with certain brokers
who offer the Fund's shares as part of a sweep account (the "Selling Broker").
To invest in Class S shares of the Fund, the credit balances in your brokerage
account will be automatically invested or "swept" into the Fund, subject to the
terms of your brokerage account agreement.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Additional information about the Fund and the Company has been filed
with the Securities and Exchange Commission (the "SEC"). You can obtain a copy
of the Fund's Statement of Additional Information for Class S shares, dated
September 12, 1995, and incorporated by reference into this Prospectus, free of
charge by writing or telephoning: John Hancock Investor Services Corporation,
P.O. Box 9116, Boston, Massachusetts 02205-9116, 1-800-225-5291 (1-800-554-6713
TDD). If you have any service related questions you should contact your Selling
Broker.
<PAGE> 22
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-2-
<PAGE> 23
EXPENSE INFORMATION
The purpose of the following information is to help you to understand
the various fees and expenses you will bear, directly or indirectly, when you
purchase Class S shares of the Fund. The operating expenses included in the
table and hypothetical example below are based on fees and expenses of the Class
B shares of the Fund for the fiscal year ended October 31, 1994. No Class S
shares were actually outstanding during the period. Actual fees and expenses of
Class S shares in the future may be greater or less than those indicated.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) .................................... None
Maximum sales charge imposed on
reinvested dividends ................................................... None
Maximum deferred sales charge ........................................... None
Redemption fee+ ......................................................... None
Exchange fee ............................................................ None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fee .......................................................... 0.50%
12b-1 fee* .............................................................. 0.40%
Other expenses** ........................................................ 0.56%
Total Fund operating expenses ........................................... 1.46%
</TABLE>
+ Redemption by wire fee (currently $4.00) not included.
* The amount of the 12b-1 fee used to cover service expenses will be up
to 0.25% of the Fund's average net assets, and the remaining portion
will be used to cover distribution expenses.
** Other Expenses include transfer agent, legal, audit, custody and other
expenses.
In addition to the above expenses, the Selling Broker with whom a shareholder
maintains a sweep account may charge an annual administration fee for making the
account available.
-3-
<PAGE> 24
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses
for the indicated period of years on
a hypothetical $1,000 investment,
assuming 5% annual return................. $15 $46 $80 $175
</TABLE>
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown).
The Fund's payment of a distribution fee may result in a long-term
shareholder indirectly paying more than the economic equivalent of the
maximum front-end sales charge permitted under the National Association of
Securities Dealers, Inc.'s Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully
explained in this Prospectus under the caption "The Fund's Expenses" and
in the Statement of Additional Information under the captions "Investment
Advisory and Other Services" and "Distribution Contract."
THE FUND'S FINANCIAL HIGHLIGHTS
The information in the following table of financial highlights has
been audited by Ernst & Young LLP, the Fund's independent auditors, whose
unqualified report is included in the Statement of Additional Information.
Class S shares are a new class of shares; no financial highlights exist
for Class S shares. Further information about the performance of the Fund
is contained in the Fund's Annual Report to shareholders, which may be
obtained free of charge by writing or telephoning John Hancock Investor
Services Corporation ("Investor Services") at the address or telephone
number listed on the front page of this Prospectus.
-4-
<PAGE> 25
Selected data for a Class B share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1995 ----------------------
(UNAUDITED)(1) 1994 1993 1992 1991
---------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.......................... $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income............... $0.02 0.018 0.009 0.017 0.045
LESS DISTRIBUTIONS
Dividends from net investment
income............................. (0.02) (0.018) (0.009) (0.017) (0.045)
-------- ------- -------- ------- -------
Net asset value, end
of period.......................... $1.00 $1.00 $1.00 $1.00 $1.00
======== ======= ======== ======= =======
Total Return(3)..................... 1.88% 1.87% 0.85% 1.73% 4.61%
======== ======= ======== ======= =======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average
net assets......................... 2.07%* 2.06% 2.44% 2.47% 2.23%
Ratio of expense reduction
to average net assets.............. -- -- -- -- (0.12)%
-------- ------- -------- ------- -------
Ratio of net expenses to
average net assets................. 2.07%* 2.06% 2.44% 2.47% 2.11%
======== ======= ======== ======= =======
Ratio of net investment
income to average net
assets............................. 3.76%* 1.97% 0.85% 1.69% 4.45%
Net Assets, end of period
(in thousands)..................... $56,522 $58,366 $31,546 $31,480 $20,763
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------- PERIOD ENDED
1990 1989 1988 OCTOBER 31, 1987(2)
---- ---- ---- -------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period.......................... $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income............... 0.061 0.072 0.059 0.0007
LESS DISTRIBUTIONS
Dividends from net investment
income............................. (0.061) (0.072) (0.059) (0.0007)
------- ------- ------ -------
Net asset value, end
of period.......................... $1.00 $1.00 $1.00 $1.00
======= ======= ====== =======
Total Return(3)..................... 6.30% 7.40% 6.06% 0.06%
======= ======= ====== =======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average
net assets......................... 2.31% 2.59% 2.41% 0.03%
Ratio of expense reduction
to average net assets.............. (0.15)% (0.47)% (0.90)% (0.02)%
------- ------- ------ -------
Ratio of net expenses to
average net assets................. 2.16% 2.12% 1.51% 0.01%
======= ======= ====== =======
Ratio of net investment
income to average net
assets............................. 6.11% 7.16% 6.01% 0.07%
Net Assets, end of period
(in thousands)..................... $21,099 $13,610 $7,692 $2,535
</TABLE>
-------------
(1) On December 22, 1994, John Hancock Advisers, Inc. became the
investment adviser to the Fund.
-5-
<PAGE> 26
(2) Financial highlights, including total return, are for the period from
October 26, 1987 (date of the Fund's initial offering of shares to the
public) to October 31, 1987 and have not been annualized.
(3) Total return does not include the effect of the contingent deferred sales
charge.
* Annualized basis.
-6-
<PAGE> 27
YIELD INFORMATION
Current information on the Fund's annualized yield during a recent
seven-day period may be obtained by calling the Easi-Line at 1-800-338-8080 or a
customer service representative, 1-800-225-5291. For information on how the Fund
calculates its annualized yield see the Statement of Additional Information.
INVESTMENT OBJECTIVE AND POLICIES
THE FUND SEEKS TO PROVIDE MAXIMUM CURRENT INCOME CONSISTENT WITH CAPITAL
PRESERVATION AND LIQUIDITY.
The Fund seeks to provide maximum current income consistent with capital
preservation and liquidity. The Fund's investments will be subject to the market
fluctuations and risks inherent in all securities, and there is no assurance
that the investment objective will always be achieved.
The Fund seeks to achieve its objective by investing in money market
instruments including, but not limited to, U.S. Government, municipal and
foreign governmental securities; obligations of supranational organizations
(e.g., the World Bank and the International Monetary Fund); obligations of U.S.
and foreign banks and other lending institutions; corporate obligations;
repurchase agreements and reverse repurchase agreements. As a fundamental
policy, the Fund may not invest more than 25% of its total assets in obligations
issued by (i) foreign banks and (ii) foreign branches of U.S. banks where John
Hancock Advisers, Inc. (the "Adviser"), the Fund's investment adviser, has
determined that the U.S. bank is not unconditionally responsible for the payment
obligations of the foreign branch. All of the Fund's investments will be
denominated in U.S. dollars.
THE FUND INVESTS ONLY IN HIGH QUALITY SECURITIES BELIEVED TO PRESENT
MINIMAL CREDIT RISKS, UNDER PROCEDURES ADOPTED BY THE BOARD OF DIRECTORS.
At the time the Fund acquires its investments, they will be rated (or
issued by an issuer that is rated with respect to a comparable class of
short-term debt obligations) in one of the two highest rating categories for
short-term debt obligations assigned by at least two nationally recognized
rating organizations (or one rating organization if the obligation was rated by
only one such organization). These high quality securities are divided into
"first tier" and "second tier" securities. First tier securities have received
the highest rating from at least two rating organizations (or one, if only one
has rated the security). Second tier securities have received ratings within the
two highest categories from at least two rating agencies (or one, if
-6-
<PAGE> 28
only one has rated the security), but do not qualify as first tier securities.
The Fund may also purchase obligations that are not rated, but are determined by
the Adviser, based on procedures adopted by the Fund's Board of Directors, to be
of comparable quality to rated first or second tier securities. The Fund may not
purchase any second tier security if, as a result of its purchase (a) more than
5% of its total assets would be invested in second tier securities or (b) more
than 1% of its total assets or $1 million (whichever is greater) would be
invested in the second tier securities of a single issuer. For a description of
the ratings assigned by the rating organizations, see the Statement of
Additional Information.
BY LIMITING THE MATURITY OF ITS INVESTMENTS, THE FUND SEEKS TO LESSEN THE
CHANGES IN THE VALUE OF ITS ASSETS CAUSED BY MARKET FACTORS.
All of the Fund's investments will mature in 397 days or less. The Fund
will maintain an average dollar-weighted portfolio maturity of 90 days or less.
CLASS S SHARES OF THE FUND MAY BE APPROPRIATE FOR A VARIETY OF INVESTMENT
PROGRAMS, WHICH CAN BE LONG-TERM OR SHORT-TERM IN NATURE.
While the Fund is not a substitute for building an investment portfolio
tailored to your investment needs and risk tolerance, the "sweep" feature of the
Class S shares enables you to use the Fund as a high quality, conveniently
liquid money market investment for cash balances in your brokerage account. See
"How to Buy Class S Shares" and "How to Redeem Class S Shares."
Because the Fund is designed to provide liquidity and stability of
capital, as well as automatic investment of free credit balances, it may be
especially suitable if you have short-term investment objectives or are awaiting
an opportune time to invest in the equity and/or bond markets. However, the Fund
may also be appropriate if you are a long-term investor seeking low-risk
investment alternatives which are designed to provide current income.
THE FUND FOLLOWS CERTAIN POLICIES THAT MAY HELP TO REDUCE INVESTMENT RISK.
The Fund has adopted certain investment restrictions that are enumerated
in detail in the Statement of Additional Information, where they are classified
as fundamental or nonfundamental. Those restrictions designated as fundamental
may not be changed without shareholder approval. The Fund's investment objective
and, except as otherwise expressly stated, its investment policies are
-7-
<PAGE> 29
nonfundamental and may be changed by a vote of the Board of Directors without
shareholder approval. Notwithstanding the Fund's fundamental investment
restriction prohibiting investments in other investment companies, the Fund may,
pursuant to an order granted by the SEC, invest in other investment companies in
connection with a deferred compensation plan for the non-interested directors of
the John Hancock funds.
BROKERS ARE CHOSEN ON BEST PRICE AND EXECUTION.
The primary consideration in choosing brokerage firms to carry out the
Fund's transactions is execution at the most favorable prices, taking into
account the broker's professional ability and quality of service. Pursuant to
procedures determined by the Board of Directors, the Adviser may place
securities transactions with brokers affiliated with the Adviser. The brokers
include Tucker Anthony Incorporated, Sutro and Company, Inc. and John Hancock
Distributors, Inc., which are indirectly owned by the John Hancock Mutual Life
Insurance Company (the "Life Company"), which in turn indirectly owns the
Adviser.
See "Investments, Techniques and Risk Factors" for more information about
the Fund's investments.
ORGANIZATION AND MANAGEMENT OF THE FUND
THE BOARD OF DIRECTORS ELECTS OFFICERS AND RETAINS THE INVESTMENT ADVISER
WHO IS RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE FUND, SUBJECT TO THE
BOARD OF DIRECTORS' POLICIES AND SUPERVISION.
The Fund is a diversified series of the Company, which is an open-end
management investment company organized as a Maryland corporation in 1987. The
Company reserves the right to create and issue a number of series of shares, or
funds or classes thereof, which are separately managed and have different
investment objectives. The Directors have authorized the issuance of three
classes of shares of the Fund, designated as Class A, Class B and Class S. The
shares of each class represent an interest in the same portfolio of investments
of the Fund. Each class has equal rights as to voting, redemption, dividends and
liquidation. However, each class is subject to different fees and expenses
(which affect performance), has different minimum investment requirements and is
entitled to different services. Also Class A, Class B and Class S shareholders
have exclusive voting rights with respect to their distribution plans. Like
Class S shares, Class A shares are not subject to a sales charge on purchases,
redemptions or reinvested dividends, nor are they subject to deferred sales
charges or an exchange fee. While not subject to a sales charge on purchases or
reinvested dividends, Class B shares are subject
-8-
<PAGE> 30
to a contingent deferred sales charge if redeemed within six years of purchase.
Class A and Class B expenses are identical to those of Class S shares except
that the 12b-1 fees are 0.15% and 1.00% of average daily net assets on Class A
and Class B shares, respectively. Information regarding Class A and Class B
shares of the Fund may be obtained from your Selling Broker or from the Fund by
calling a John Hancock customer service representative at the number on the
front cover of this Prospectus. The Company is not required to and does not
intend to hold annual meetings of shareholders, although special meetings may be
held for such purposes as electing or removing Directors, changing fundamental
policies or approving a management contract. The Fund, under certain
circumstances, will assist in shareholder communications with other
shareholders.
JOHN HANCOCK ADVISERS, INC. ADVISES INVESTMENT COMPANIES HAVING A TOTAL
ASSET VALUE OF MORE THAN $13 BILLION.
The Adviser was organized in 1968 and is a wholly-owned indirect
subsidiary of the Life Company, a financial services company. The Adviser
provides the Fund, and other investment companies in the John Hancock group of
funds, with investment research and portfolio management services. John Hancock
Funds, Inc. ("John Hancock Funds") distributes shares for all of the John
Hancock mutual funds through brokers who have arrangements with John Hancock
Funds. Certain Fund officers are also officers of the Adviser and John Hancock
Funds.
In order to avoid any conflict with portfolio trades for the Fund, the
Adviser and the Fund have adopted extensive restrictions on personal securities
trading by personnel of the Adviser and its affiliates. Some of these
restrictions are: preclearance for all personal trades and a ban on the purchase
of initial public offerings, as well as contributions to specified charities of
profits on securities held for less than 91 days. These restrictions are a
continuation of the basic principle that the interests of the Fund and its
shareholders come first.
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a monthly
fee to the Adviser based on a stated percentage of the Fund's average daily net
assets. During the fiscal year ended October 31, 1994, the Fund paid advisory
fees in an amount equal to 0.50% of the Fund's average daily net assets to the
Fund's former investment adviser.
-9-
<PAGE> 31
THE FUND PAYS DISTRIBUTION AND SERVICE FEES FOR MARKETING AND
SALES-RELATED SHAREHOLDER SERVICING.
The Class S shareholders have adopted a distribution plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940
Act"). Under this Plan, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.40% of the Class S shares' average daily net
assets. Under the Plan, up to 0.25% is for service expenses and the remaining
amount is for distribution expenses. The distribution fees will be used to
reimburse John Hancock Funds for its distribution expenses, including but not
limited to: (i) initial and ongoing sales compensation to other brokers or
financial service firms who have arrangements with John Hancock Funds and others
(including affiliates of John Hancock Funds) engaged in the sale of Fund shares;
(ii) marketing, promotional and overhead expenses incurred in connection with
the distribution of Fund shares; and (iii) distribution expenses incurred by
other investment companies which sell all or substantially all of their assets
to, merge with or otherwise engage in a reorganization transaction with the
Fund. The service fees will be used to compensate brokers who have arrangements
with John Hancock Funds for providing personal and account maintenance services
to shareholders.
In the event John Hancock Funds is not fully reimbursed for payments it
makes or expenses it incurs under the Plan, these expenses will be carried
forward together with interest on the balance of these unreimbursed expenses.
Information on the Fund's total expenses is in the Financial Highlights
section of this Prospectus.
DIVIDENDS AND TAXES
THE FUND GENERALLY DECLARES DIVIDENDS DAILY AND DISTRIBUTES DIVIDENDS
MONTHLY.
DIVIDENDS. The Fund generally declares dividends daily and distributes dividends
monthly, representing all or substantially all of its net investment income.
Purchase orders which are received from a Selling Broker together with
Federal Funds by wire before 12:00 noon New York time will receive the dividend
declared that day and other purchase orders, including any order with payment
other than by Federal Funds, will begin receiving dividends the following
business day. Redemption orders effected by a Selling Broker prior to 12:00 noon
New York time will not receive that day's dividend. Refer to your brokerage
account agreement to determine the time and method of payment (for purchases)
that your Selling
-10-
<PAGE> 32
Broker will use in executing purchases and redemptions on your behalf.
TAXATION. Dividends from the Fund's net investment income and net short-term
capital gains are taxable to you as ordinary income. Dividends from the Fund's
net long-term capital gains, if any, are taxable as long-term capital gain. The
Fund does not anticipate that it will generally realize any long- term capital
gains. Dividends are taxable, whether received in cash or reinvested in
additional shares. Certain dividends may be paid by the Fund in January of a
given year but may be treated as if you received them the previous December.
Your Selling Broker will prepare and send you a statement by January 31 showing
the federal tax status of the dividends you received for the prior year.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, the Fund will not be
subject to Federal income tax on any net investment income or net realized
capital gains distributed to its shareholders within the time period prescribed
by the Code.
On the account application, you must certify that the social security or
other taxpayer identification number you provide is your correct number and that
you are not subject to backup withholding of Federal income tax. If you do not
provide this information or are otherwise subject to this withholding, the Fund
may be required to withhold 31% of your dividends.
In addition to Federal taxes, you may be subject to state and local or
foreign taxes with respect to your investment in and distributions from the
Fund. A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the Fund's distributions are
derived from interest on (or, in the case of intangibles taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in some
states that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Non-U.S. shareholders and tax-exempt shareholders
are subject to different tax rules not described herein. You should consult your
tax adviser for specific advice.
HOW TO BUY CLASS S SHARES
Class S shares of the Fund are offered exclusively to investors who
maintain a brokerage account with certain brokers who offer the Fund's shares as
part of a sweep program (the "Selling Broker"). When you open a brokerage
account, free credit cash balances (including deposits, proceeds of sales of
securities,
-11-
<PAGE> 33
and miscellaneous cash dividends and interest, but not amounts held by the
Selling Broker as collateral for margin obligations to the Selling Broker) in
your brokerage account will be automatically invested or "swept" into the Fund,
subject to the terms and conditions of your brokerage account agreement. When
the free credit cash balances in your brokerage account exceed the amount
specified in your brokerage account agreement at the time specified in your
brokerage account agreement, the free credit cash balance will be automatically
invested in Class S shares of the Fund in accordance with the terms of your
brokerage account agreement. Refer to your brokerage account agreement to
determine the time and method of payment that your Selling Broker will use in
executing purchases on your behalf. Your Selling Broker may benefit from the use
of free credit cash balances in your account prior to their transfer to the
Fund. See "Dividends and Taxation" for a discussion of when you will receive
dividends.
YOU WILL RECEIVE ACCOUNT STATEMENTS THAT YOU SHOULD KEEP TO HELP WITH YOUR
PERSONAL RECORDKEEPING.
Your Selling Broker will prepare and send to you a statement of your
account after any transaction that affects your share balance or registration
(statements related to reinvestment of dividends will be sent to you quarterly).
A tax information statement will be mailed to you by your Selling Broker by
January 31 of each year.
SHARE PRICE
THE PRICE OF YOUR SHARES IS THEIR NET ASSET VALUE PER SHARE, WHICH WILL
NORMALLY BE CONSTANT AT $1.00.
The net asset value per share ("NAV") is the value of one share. The
NAV is calculated by dividing the net assets allocable to the Class S shares by
the number of outstanding Class S shares. Securities in the Fund's portfolio are
valued at amortized cost, which the Board of Directors has determined
approximates market value. Under the amortized cost pricing method, a portfolio
investment is valued at its cost and thereafter any discount or premium is
amortized to maturity, regardless of the impact of fluctuating interest rates on
the market value of the investment. Amortized cost pricing facilitates the
maintenance of a $1.00 constant net asset value per share, but, of course, this
cannot be guaranteed.
The NAV is calculated twice daily, at 12:00 noon Eastern time and as of
the close of regular trading on the New York Stock Exchange (the "Exchange")
(generally at 4:00 P.M., New York time) on each day that the Exchange is open.
-12-
<PAGE> 34
The price you pay for shares of the Fund equals the NAV computed after
your investment is accepted in good order by John Hancock Funds, which will
normally be constant at $1.00 per share. There is no sales charge on Class S
shares of the Fund.
HOW TO REDEEM CLASS S SHARES
REDEMPTIONS WILL BE AUTOMATICALLY EFFECTED BY YOUR SELLING BROKER TO
SATISFY DEBIT BALANCES IN YOUR BROKERAGE ACCOUNT.
Redemptions will be automatically effected by your Selling Broker to
satisfy debit balances in your brokerage account or to provide the necessary
cash collateral for your margin obligations to your Selling Broker. Redemptions
will also be automatically effected to settle securities transactions with your
Selling Broker if your free credit balance on the day before settlement is
insufficient to settle the transactions. Your Selling Broker will, at the time
specified in your brokerage account agreement, automatically scan each sweep
account for debits and pending securities settlements, and, after application of
any free credit balances in the sweep account to such debits, your Selling
Broker will redeem on your behalf a sufficient number (or your entire balance of
Class S shares in the event that your debits exceed the amount of Class S shares
in your account) of Class S shares of the Fund in accordance with the terms of
your brokerage account agreement to satisfy any remaining debits in the account.
Refer to your brokerage account agreement to determine the time and procedures
that your Selling Broker will use in executing redemptions on your behalf. You
may also redeem Class S shares of the Fund by placing a redemption request
through your Selling Broker. Your redemption proceeds will be deposited as cash
balances in your sweep account with the Selling Broker.
You may elect the checkwriting privilege which allows you to write
checks in amounts from a minimum of $100. Checks may not be written against
shares in your account which have been purchased within the last 10 days, except
for shares purchased by wire transfer (which are immediately available).
INVESTMENTS, TECHNIQUES AND RISK FACTORS
SECURITIES OF FOREIGN ISSUERS. Foreign issuers may not be subject to accounting
standards and government supervision comparable to U.S. companies, and there is
often less publicly available information about their operations. Foreign
markets generally provide less liquidity than U.S. markets (and thus potentially
greater price volatility), and typically provide fewer regulatory protections
for investors. Foreign securities can also be affected by political or financial
instability abroad. Foreign branches of United States banks may be subject to
less stringent
-13-
<PAGE> 35
reserve requirements than domestic branches. United States branches and agencies
of foreign banks and foreign branches of United States banks may provide less
public information than, and may not be subject to, the same accounting,
auditing and financial record-keeping standards as domestic banks.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its net
assets in illiquid investments, which include repurchase agreements maturing in
more than seven days, restricted securities and securities not readily
marketable. The Fund may also invest in restricted securities eligible for
resale to certain institutional investors pursuant to Rule 144A under the
Securities Act of 1933. These purchases are subject to the Fund's investment
restriction limiting all illiquid securities held by the Fund to not more than
10% of the Fund's net assets.
LENDING OF SECURITIES. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities. When the Fund
lends portfolio securities, there is a risk that the borrower may fail to return
the loaned securities. As a result, the Fund may incur a loss, or, in the event
of the borrower's bankruptcy, the Fund may be delayed in or prevented from
liquidating the collateral. It is a fundamental policy of the Fund not to lend
portfolio securities having a total value in excess of 30% of its total assets.
REPURCHASE AGREEMENTS, FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. The Fund
may enter into repurchase agreements and may purchase securities on a forward
commitment or when-issued basis. In a repurchase agreement, the Fund buys a
security subject to the right and obligation to sell it back to the seller at a
higher price. These transactions must be fully collateralized at all times, but
involve some credit risk to the Fund if the other party defaults on its
obligation and the Fund is delayed in or prevented from liquidating the
collateral. The Fund will segregate in a separate account cash or liquid, high
grade debt securities equal in value to its forward commitments and when-issued
securities. Purchasing debt securities for future delivery or on a when-issued
basis may increase the Fund's overall investment exposure and involves a risk of
loss if the value of the securities declines before the settlement date.
-14-
<PAGE> 36
JOHN HANCOCK MONEY MARKET FUND JOHN HANCOCK MONEY MARKET FUND
INVESTMENT ADVISER CLASS S SHARES
John Hancock Advisers, Inc. PROSPECTUS
101 Huntington Avenue SEPTEMBER 12, 1995
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR A MONEY MARKET FUND THAT SEEKS TO
John Hancock Funds, Inc. PROVIDE MAXIMUM CURRENT INCOME
101 Huntington Avenue CONSISTENT WITH CAPITAL PRESER-
Boston, Massachusetts 02199-7603 VATION AND LIQUIDITY.
CUSTODIAN
State Street Bank and Trust Company 101 HUNTINGTON AVENUE
225 Franklin Street BOSTON, MASSACHUSETTS 02199-7603
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
<PAGE> 37
JOHN HANCOCK MONEY MARKET FUND
CLASS S SHARES
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 12, 1995
This Statement of Additional Information ("SAI") provides information
about John Hancock Money Market Fund (the "Fund"), a diversified series of John
Hancock Series, Inc. (the "Corporation"), in addition to the information that is
contained in the Fund's Class S Prospectus, dated September 12, 1995 (the
"Prospectus").
This SAI is not a prospectus. It should be read in conjunction with the
Prospectus, a copy of which can be obtained free of charge by writing or
telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-5291
1-800-225-5291
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Organization of the Corporation.................................... 2
Investment Objective and Policies.................................. 2
Certain Investment Practices....................................... 2
Investment Restrictions............................................ 8
Those Responsible for Management................................... 12
Investment Advisory and Other Services............................. 20
Distribution Contract.............................................. 23
Amortized Cost Method of Portfolio
Valuation................................................. 25
Special Redemptions................................................ 26
Description of the Corporation's Shares............................ 27
Tax Status......................................................... 29
Calculation of Performance......................................... 30
Brokerage Allocation............................................... 32
Transfer Agent Services............................................ 34
Custody of Portfolio............................................... 35
Independent Auditors............................................... 35
Appendix .......................................................... A-1
Financial Statements............................................... F-1
</TABLE>
<PAGE> 38
ORGANIZATION OF THE CORPORATION
The Corporation is an open-end management investment company organized
as a Maryland corporation on June 22, 1987. The Corporation currently has six
series: John Hancock Emerging Growth Fund, John Hancock Global Resources Fund,
John Hancock Government Income Fund, John Hancock High Yield Bond Fund, John
Hancock High Yield Tax-Free Fund and John Hancock Money Market Fund (the
"Fund"). Prior to September 12, 1995, the Fund was called John Hancock Money
Market Fund B. Prior to December 22, 1994, the Fund was called Transamerica
Money Market Fund B.
The Fund is managed by John Hancock Advisers, Inc. (the "Adviser"), a
wholly-owned indirect subsidiary of John Hancock Mutual Life Insurance Company
(the "Life Company"), chartered in 1862 with national headquarters at John
Hancock Place, Boston, Massachusetts. John Hancock Funds, Inc. ("John Hancock
Funds") acts as principal distributor of the shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to provide maximum current income consistent with the
preservation of capital and liquidity. Securities in which the Fund invests may
not earn as high a level of current income as longer term or lower quality
securities, which generally have less liquidity, greater market risk, and more
fluctuation in market value. There can be no assurance that the Fund's
investment objective will be realized.
CERTAIN INVESTMENT PRACTICES
GOVERNMENT SECURITIES. The Fund may invest in U.S. Government
securities, which are obligations issued or guaranteed by the U.S. Government
and its agencies, authorities or instrumentalities. Certain U.S. Government
securities, including U.S. Treasury bills, notes and bonds, and Government
National Mortgage Association certificates ("Ginnie Maes"), are supported by the
full faith and credit of the United States. Certain other U.S. Government
securities, issued or guaranteed by Federal agencies or government sponsored
enterprises, are not supported by the full faith and credit of the United
States, but may be supported by the right of the issuer to borrow from the U.S.
Treasury. These securities include obligations of the Federal Home Loan Mortgage
Corporation ("Freddie Macs"), and obligations supported by the credit of the
instrumentality, such as Federal National Mortgage Association Bonds ("Fannie
Maes"). No assurance can be given that the U.S. Government will provide
financial
-2-
<PAGE> 39
support to such Federal agencies, authorities, instrumentalities and government
sponsored enterprises in the future.
CUSTODIAL RECEIPTS. The Fund may acquire custodial receipts in respect
of U.S. Government securities. Such custodial receipts evidence ownership of
future interest payments, principal payments or both on certain notes or bonds.
These custodial receipts are known by various names, including Treasury
Receipts, Treasury Investors Growth Receipts ("TIGRs"), and Certificates of
Accrual on Treasury Securities ("CATS"). For certain securities law purposes,
custodial receipts are not considered U.S. government securities.
BANK AND CORPORATE OBLIGATIONS. The Fund may invest in commercial
paper. Commercial paper represents short-term unsecured promissory notes issued
in bearer form by banks or bank holding companies, corporations and finance
companies. The commercial paper purchased by the Fund consists of direct U.S.
dollar denominated obligations of domestic or foreign issuers. Bank obligations
in which the Fund may invest include certificates of deposit, bankers'
acceptances and fixed time deposits. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity. Fixed time deposits
are bank obligations payable at a stated maturity date and bearing interest at a
fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but
may be subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Bank notes and bankers' acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured obligations
of the bank. Bank notes are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Deposit notes are insured by the Federal
Deposit Insurance Corporation only to the extent of $100,000 per depositor per
bank.
MUNICIPAL OBLIGATIONS. The Fund may invest in a variety of municipal obligations
which consist of municipal bonds, municipal notes and municipal commercial
paper.
-3-
<PAGE> 40
Municipal Bonds. Municipal bonds are issued to obtain funds for various
public purposes including the construction of a wide range of public facilities
such as airports, highways, bridges, schools, hospitals, housing, mass
transportation, streets and water and sewer works. Other public purposes for
which municipal bonds may be issued include refunding outstanding obligations,
obtaining funds for general operating expenses and obtaining funds to lend to
other public institutions and facilities. In addition, certain types of
industrial development bonds are issued by or on behalf of public authorities to
obtain funds for many types of local, privately operated facilities. These debt
instruments are considered municipal obligations if the interest paid on them is
exempt from federal income tax. The payment of principal and interest by issuers
of certain obligations purchased by the Fund may be guaranteed by a letter of
credit, note repurchase agreement, insurance or other credit facility agreement
offered by a bank or other financial institution. Such guarantees and the
creditworthiness of guarantors will be considered by the Adviser in determining
whether a municipal obligation meets the Fund's investment quality requirements.
No assurance can be given that a municipality or guarantor will be able to
satisfy the payment of principal or interest on a municipal obligation.
Municipal Notes. Municipal notes are short-term obligations of
municipalities, generally with a maturity ranging from six months to three
years. The principal types of such notes include tax, bond and revenue
anticipation notes and project notes.
Municipal Commercial Paper. Municipal commercial paper is a short-term
obligation of a municipality, generally issued at a discount with a maturity of
less than one year. Such paper is likely to be issued to meet seasonal working
capital needs of a municipality or interim construction financing. Municipal
commercial paper is backed in many cases by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks and other institutions.
Federal tax legislation enacted in the 1980's placed substantial new
restrictions on the issuance of the bonds described above and in some cases
eliminated the ability of state or local governments to issue municipal
obligations for some of the above purposes. Such restrictions do not affect the
Federal income tax treatment of municipal obligations in which the Fund may
invest which were issued prior to the effective dates of the provisions imposing
such restrictions. The effect of these restrictions may be to reduce the volume
of newly issued municipal obligations.
Issuers of municipal obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the
-4-
<PAGE> 41
rights and remedies of creditors, such as the Federal Bankruptcy Act, and laws,
if any, which may be enacted by Congress or state legislatures extending the
time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations. There is also the possibility
that as a result of litigation or other conditions the power or ability of any
one or more issuers to pay when due the principal of and interest on their
municipal obligations may be affected.
The yields of municipal bonds depend upon, among other things, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, the maturity of the obligation and rating of the
issue. The ratings of Standard & Poor's Ratings Group ("S&P"), Moody's Investors
Service, Inc. ("Moody's") and Fitch Investors Service ("Fitch") represent their
respective opinions on the quality of the municipal bonds they undertake to
rate. It should be emphasized, however, that ratings are general and not
absolute standards of quality. Consequently, municipal bonds with the same
maturity, coupon and rating may have different yields and municipal bonds of the
same maturity and coupon with different ratings may have the same yield. See the
Appendix for a description of ratings. Many issuers of securities choose not to
have their obligations rated. Although unrated securities eligible for purchase
by the Fund must be determined to be comparable in quality to securities having
certain specified ratings, the market for unrated securities may not be as broad
as for rated securities since many investors rely on rating organizations for
credit appraisal.
FOREIGN SECURITIES. The Fund may invest in foreign securities and in
certificates of deposit, bankers' acceptances and fixed time deposits and other
obligations issued by foreign banks and their U.S. and foreign branches and
foreign branches of U.S. banks. The Fund may also invest in municipal
instruments backed by letters of credit issued by certain of such banks. Under
current Securities and Exchange Commission ("SEC") rules relating to the use of
the amortized cost method of portfolio securities valuation, the Fund is
restricted to purchasing U.S. dollar denominated securities.
Investing in obligations of non-U.S. issuers and banks, may entail
greater risks than investing in similar securities of U.S. issuers. These risks
include (i) social, political and economic instability; (ii) the small current
size of the markets for many such securities and the currently low or
nonexistent volume of trading, which may result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; and
(v)
-5-
<PAGE> 42
the absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. A
repurchase agreement is a contract under which the Fund would acquire a security
for a relatively short period (generally not more than seven days) subject to
the obligation of the seller to repurchase and the Fund to resell such security
at a fixed time and price (representing the Fund's cost plus interest). The Fund
will enter into repurchase agreements only with member banks of the Federal
Reserve System and with securities dealers. The Adviser will continuously
monitor the creditworthiness of the parties with whom the Fund enters into
repurchase agreements. The Fund has established a procedure providing that the
securities serving as collateral for each repurchase agreement must be delivered
to the Fund's custodian either physically or in book-entry form and that the
collateral must be marked to market daily to ensure that each repurchase
agreement is fully collateralized at all times. In the event of bankruptcy or
other default by a seller of a repurchase agreement, the Fund could experience
delays in liquidating the underlying securities and could experience losses,
including the possible decline in the value of the underlying securities during
the period which the Fund seeks to enforce its rights thereto, possible
subnormal levels of income and lack of access to income during this period, and
the expense of enforcing its rights. The Fund will not invest in a repurchase
agreement maturing in more than seven days, if such investment, together with
other illiquid securities held by the Fund (including restricted securities)
would exceed 10% of the Fund's total assets.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse
repurchase agreements which involve the sale of government securities held in
its portfolio to a bank or securities firm with an agreement that the Fund will
buy back the securities at a fixed future date at a fixed price plus an agreed
amount of "interest" which may be reflected in the repurchase price. Reverse
repurchase agreements are considered to be borrowings by the Fund. The Fund will
use proceeds obtained from the sale of securities pursuant to reverse repurchase
agreements to purchase other investments. The use of borrowed funds to make
investments is a practice known as "leverage," which is considered speculative.
Use of reverse repurchase agreements is an investment technique that is intended
to increase income. Thus, the Fund will enter into a reverse repurchase
agreement only when the Adviser determines that the interest income to be earned
from the investment of the proceeds is greater than the interest expense of the
transaction. However, there is a risk that interest expense will nevertheless
exceed the income earned. Reverse repurchase
-6-
<PAGE> 43
agreements involve the risk that the market value of securities purchased by the
Fund with proceeds of the transaction may decline below the repurchase price of
the securities sold by the Fund which it is obligated to repurchase. The Fund
will also continue to be subject to the risk of a decline in the market value of
the securities sold under the agreements because it will reacquire those
securities upon effecting their repurchase. To minimize various risks associated
with reverse repurchase agreements, the Fund will establish and maintain with
the Fund's custodian a separate account consisting of highly liquid, marketable
securities in an amount at least equal to the repurchase prices of the
securities (plus any accrued interest thereon) under such agreements. In
addition, the Fund will not enter into reverse repurchase agreements and other
borrowings exceeding in the aggregate more than 33 1/3% of the market value of
its total net assets. The Fund will enter into reverse repurchase agreements
only with selected registered broker/dealers or with federally insured banks or
savings and loan associations which are approved in advance as being
creditworthy by the Board of Directors. Under procedures established by the
Board of Directors, the Adviser will monitor the creditworthiness of the firms
involved.
FORWARD COMMITMENT AND WHEN-ISSUED SECURITIES. The Fund may purchase
securities on a when-issued or forward commitment basis. "When-issued" refers to
securities whose terms are available and for which a market exists, but which
have not been issued. The Fund will engage in when-issued transactions with
respect to securities purchased for its portfolio in order to obtain what is
considered to be an advantageous price and yield at the time of the transaction.
For when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued
transactions, it relies on the seller to consummate the transaction. The failure
of the issuer or seller to consummate the transaction may result in the Fund
losing the opportunity to obtain a price and yield considered to be
advantageous. The purchase of securities on a when-issued and forward commitment
basis also involves a risk of loss if the value of the security to be purchased
declines prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on
a when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, high grade debt securities equal in value to the Fund's
commitment. These assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent
-7-
<PAGE> 44
that the total value of the assets in the account declines below the amount of
the when-issued commitments. Alternatively, the Fund may enter into offsetting
contracts for the forward sale of other securities that it owns.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions upon
its investments as set forth below which may not be changed without the approval
of the holders of a majority of the outstanding shares of the Fund. A majority
for this purpose means: (a) more than 50% of the outstanding shares of the Fund
or (b) 67% or more of the shares represented at a meeting where more than 50% of
the outstanding shares of the Fund are represented, whichever is less. If a
percentage restriction or rating restriction on investment or utilization of
assets is adhered to at the time an investment is made or assets are so
utilized, a later change in percentage resulting from changes in the value of
the Fund's portfolio securities or a later change in the rating of a portfolio
security would not be considered a violation of policy.
The Fund may not:
(1) Borrow money in an amount in excess of 33-1/3% of its total assets,
and then only as a temporary measure for extraordinary or emergency purposes
(except that it may enter into a reverse repurchase agreement within the limits
described in this SAI), or pledge, mortgage or hypothecate an amount of its
assets (taken at market value) in excess of 15% of its total assets, in each
case taken at the lower of cost or market value. For the purpose of this
restriction, collateral arrangements with respect to options, futures contracts,
options on futures contracts and collateral arrangements with respect to initial
and variation margins are not considered a pledge of assets.
(2) Underwrite securities issued by other persons except insofar as the
Fund may technically be deemed an underwriter under the Securities Act of 1933
in selling a portfolio security.
(3) Purchase or retain real estate (including limited partnership
interests but excluding securities of companies, such as real estate investment
trusts, which deal in real estate or interests therein and securities secured by
real estate), or mineral leases, commodities or commodity contracts (except
contracts for the future delivery of fixed income securities, stock index and
currency futures and options on such futures) in the ordinary course of its
business. The Fund reserves the
-8-
<PAGE> 45
freedom of action to hold and to sell real estate or mineral leases, commodities
or commodity contracts acquired as a result of the ownership of securities.
(4) Invest in direct participation interests in oil, gas or other
mineral exploration or development programs.
(5) Make loans to other persons except by the purchase of obligations
in which the Fund is authorized to invest and by entering into repurchase
agreements; provided that the Fund may lend its portfolio securities not in
excess of 30% of its total assets (taken at market value). Not more than 10% of
the Fund's total assets (taken at market value) will be subject to repurchase
agreements maturing in more than seven days. For these purposes the purchase of
all or a portion of an issue of debt securities shall not be considered the
making of a loan.
(6) Purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of its total assets (taken at market value) to
be invested in the securities of such issuer, other than securities issued or
guaranteed by the United States or any state or political subdivision thereof,
or any political subdivision of any such state, or any agency or instrumentality
of the United States, any state or political subdivision thereof, or any
political subdivision of any such state.
(7) Invest in companies for the purpose of exercising control or
management.
(8) Purchase or retain in its portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security holders is an
officer or Director of the Fund, or is a member, partner, officer or Director of
the Adviser, if after the purchase of the securities of such issuer by the Fund
one or more of such persons owns beneficially more than 1/2 of 1% of the shares
or securities, or both, all taken at market value, of such issuer, and such
persons owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or both, all taken at
market value.
(9) Purchase any securities or evidences of interest therein on margin,
except that the Fund may obtain such short-term credit as may be necessary for
the clearance of purchases and sales of securities.
(10) Sell any security which the Fund does not own unless by virtue of
its ownership of other securities it has at the time of sale a right to obtain
securities without payment of further consideration equivalent in kind and
amount to the securities sold
-9-
<PAGE> 46
and provided that if such right is conditional the sale is made upon equivalent
conditions.
(11) Purchase securities issued by any other investment company or
investment trust except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though not made in
the open market, is part of a plan of merger or consolidation; provided,
however, that the Fund will not purchase such securities if such purchase at the
time thereof would cause more than 10% of its total assets (taken at market
value) to be invested in the securities of such issuers; and, provided, further,
that the Fund will not purchase securities issued by an open-end investment
company.
(12) Knowingly invest in securities which are subject to legal or
contractual restrictions on resale or for which there is no readily available
market (e.g., trading in the security is suspended or market makers do not exist
or will not entertain bids or offers), except for repurchase agreements, if, as
a result thereof more than 10% of the Fund's total assets (taken at market
value) would be so invested. (The Staff of the Securities and Exchange
Commission ("SEC") has taken the position that a money market fund may not
invest more than 10% of its net assets in illiquid securities. The Fund has
undertaken with the Staff to require, that as a matter of operating policy, it
will not invest in illiquid securities in an amount exceeding 10% of its net
assets.)
(13) Issue any senior security (as that term is defined in the
Investment Company Act of 1940 ("1940 Act")) 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.
In addition, the Fund may not invest more than 25% of its total assets
in obligations issued by (i) foreign banks or (ii) foreign branches of U.S.
banks where the Adviser, has determined that the U.S. bank is not
unconditionally responsible for the payment obligations of the foreign branch.
Also, the Fund may not purchase securities of any issuer (other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities) if such purchase, at the time thereof, would cause the Fund
to hold more than 10% of any class of securities of such issuer. For this
purpose, all indebtedness of an issuer maturing in less than one year) shall be
deemed a single class and all preferred stock of an issuer shall be deemed a
single class.
-10-
<PAGE> 47
OTHER OPERATING POLICIES
The Fund will not invest more than 5% of its total assets in companies
which, including their respective predecessors, have a record of less than three
years' continuous operation.
In order to comply with certain state regulatory policies, the Fund
will not, as a matter of operating policy, pledge, mortgage or hypothecate its
portfolio securities if the percentage of securities so pledged, mortgaged or
hypothecated would exceed 15%.
These operating policies are not fundamental and may be changed without
shareholder approval. In order to comply with certain state regulatory
practices, certain policies, if changed, would require advance written notice to
shareholders.
The Corporation's Board of Directors has approved the following
nonfundamental investment policy pursuant to an order of the SEC:
Notwithstanding any investment restriction to the contrary, the Fund may, in
connection with the John Hancock Group of Funds Deferred Compensation Plan for
Independent Trustees/Directors, purchase securities of other investment
companies within the John Hancock Group of Funds provided that, as a result, (i)
no more than 10% of the Fund's assets would be invested in securities of all
other investment companies, (ii) such purchase would not result in more than 3%
of the total outstanding voting securities of any one such investment company
being held by the Fund and (iii) no more than 5% of the Fund's assets would be
invested in any one such investment company.
-11-
<PAGE> 48
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Corporation is managed by its Directors who elect
officers who are responsible for the day-to-day operations of the Corporation
and the Fund and who execute policies formulated by the Directors. Several of
the officers and Directors of the Corporation are also officers and directors of
the Adviser or officers and directors of John Hancock Funds.
Set forth below is the principal occupation or employment of the
Directors and principal officers of the Corporation during the past five years:
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Corporation During the Past Years
---------------- -------------------- -----------------------
<S> <C> <C>
EDWARD J. BOUDREAU, JR.* Director, Chairman and Chief Chairman and Chief Executive
101 Huntington Ave. Executive Officer (1)(2) Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("The
Berkeley Group"); Chairman,
NM Capital Management, Inc.
("NM Capital"); John Hancock
Advisers International
Limited ("Advisers
International"); John Hancock
Funds, Inc.; John Hancock
Investor Services Corporation
("Investor Services"); and
Sovereign Asset Management
Corporation ("SAMCorp");
(hereinafter the Adviser, the
Berkeley Group, NM Capital,
Advisers International, John
Hancock Funds, Inc., Investor
Services and SAMCorp are
collectively referred to as the
"Affiliated Companies");
Chairman, First Signature Bank
& Trust; Director, John Hancock
</TABLE>
--------------------------
* An "interested person" of the Corporation as such term is defined in
the 1940 Act.
(1) Member of the Executive Committee.
(2) Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) Member of the Audit, Administration and Compensation Committees.
-12-
<PAGE> 49
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Corporation During the Past Years
---------------- -------------------- ---------------------
<S> <C> <C>
Freedom Securities Corporation,
John Hancock Capital Corporation,
New England/Canada Business
Council; Member, Investment
Company Institute Board of
Governors; Trustee, Museum of
Science; President, the Adviser
(until July 1992); Trustee or
Director of other investment
companies managed by the Adviser;
and Chairman, John Hancock
Distributors, Inc. (until April,
1994).
JAMES F. CARLIN Director Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc. (insurance);
Natick, MA 01760 Director, Arbella Mutual
Insurance Company (insurance),
Consolidated Group Trust
(group health plan), Carlin
Insurance Agency, Inc. and West
Insurance Agency, Inc.; Receiver,
the City of Chelsea (until August
1992); and Trustee or Director of
other investment companies managed
by the Adviser.
WILLIAM H. CUNNINGHAM Director Chancellor, University of Texas
601 Colorado Street System and former President of
O'Henry Hall the University of Texas, Austin,
Austin, TX 78701 Texas; Regents Chair in Higher
Education Leadership; James L.
Bayless Chair for Free Enterprise;
Professor of Marketing and Dean
College of Business
Administration/Graduate School of
Business (1983-1985);
</TABLE>
--------------------------
* An "interested person" of the Corporation as such term is defined in
the 1940 Act.
(1) Member of the Executive Committee.
(2) Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) Member of the Audit, Administration and Compensation Committees.
-13-
<PAGE> 50
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Corporation During the Past Years
---------------- -------------------- ---------------------
<S> <C> <C>
Centennial Chair in Business
Education Leadership, 1983-1985;
Director, LaQuinta Motor Inns,
Inc. (hotel management company);
Director, Jefferson-Pilot
Corporation (diversified life
insurance company); Director,
Freeport-McMoran Inc. (oil and
gas company); Director, Barton
Creek Properties, Inc. (1988-1990)
(real estate development) and LBJ
Foundation Board (education
foundation); Advisory Director,
Texas Commerce Bank - Austin;
and Trustee or Director of other
investment companies managed
by the Adviser.
CHARLES F. FRETZ Director (3) Consultant, self employed; Vice
RD #5, Box 300B President and Director, Towers,
Clothier Springs Road Perrin, Forster & Crosby, Inc.
Malvern, PA 19355 (international management
consultants)(until 1985).
HAROLD R. HISER, JR. Director Executive Vice President,
Schering-Plough Schering-Plough Corporation
Corporation (pharmaceuticals); Director,
One Giralda Farms ReCapital Corporation (reinsurance).
Madison, NJ 07940-1000
CHARLES L. LADNER Director (3) Director, Energy North, Inc.
UGI Corporation (public utility holding company);
460 North Gulph Road Senior Vice President, Finance
King of Prussia, PA UGI Corp (public utility holding
19406 company) (until 1992); and Trustee
or Director of other investment
companies managed by the Adviser.
</TABLE>
--------------------------
* An "interested person" of the Corporation as such term is defined in
the 1940 Act.
(1) Member of the Executive Committee.
(2) Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) Member of the Audit, Administration and Compensation Committees.
-14-
<PAGE> 51
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Corporation During the Past Years
---------------- -------------------- ---------------------
<S> <C> <C>
LEO E. LINBECK, JR. Director Chairman, President, Chief
3810 W. Alabama Executive Officer and Director,
Houston, TX 77027 Linbeck Corporation (a holding
company engaged in various phases
of the construction industry and
warehousing interests); Director
and Chairman, Federal Reserve Bank
of Dallas; Chairman of the Board
and Chief Executive Officer,
Linbeck Construction Corporation;
Director, Panhandle Eastern
Corporation (a diversified
energy company); Director, Daniel
Industries, Inc. (manufacturer of
gas measuring products and energy
related equipment); Director,
GeoQuest International, Inc.
(a geophysical consulting firm);
Director, Greater Houston
Partnership; and Trustee or
Director of other investment
companies managed by the Adviser.
PATRICIA P. MCCARTER Director (3) Director and Secretary, the
Swedesford Road McCarter Corp. (machine
RD #2, Box 121 manufacturer); and Trustee or
Malvern, PA 19355 Director of other investment
companies managed by the Adviser.
STEVEN R. PRUCHANSKY Director (1,3) Director and Treasurer, Mast
360 Horse Creek Dr. Holdings, Inc.; Director, First
#208 Signature Bank & Trust Company
Naples, FL 33942 (until August 1991); General
Partner, Mast Realty Trust;
President, Maxwell Building Corp.
(until 1991); and Trustee or
</TABLE>
--------------------------
* An "interested person" of the Corporation as such term is defined in
the 1940 Act.
(1) Member of the Executive Committee.
(2) Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) Member of the Audit, Administration and Compensation Committees.
-15-
<PAGE> 52
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Corporation During the Past Years
---------------- -------------------- ---------------------
<S> <C> <C>
Director of other
investment companies managed by the Adviser.
NORMAN H. SMITH Director (3) Lieutenant General, USMC, Deputy
Rt. 1, Box 249E Chief of Staff for Manpower and
Linden, VA 22642 Reserve Affairs, Headquarters
Marine Corps; Commanding General
III Marine Expeditionary Force/3rd
Marine Division (retired 1991); and
Trustee or Director of other
investment companies managed by the
Adviser.
JOHN P. TOOLAN Director (3) Director, The Smith Barney Muni
13 Chadwell Place Bond Funds, The Smith Barney
Morristown, NJ 07960 Tax-Free Money Fund, Inc., Vantage
Money Market Funds (mutual funds),
The Inefficient-Market Fund, Inc.
(closed-end investment company) and
Smith Barney Trust Company of
Florida; Chairman, Smith Barney
Trust Company (retired December,
1991); Director, Smith Barney,
Inc., Mutual Management Company and
Smith, Barney Advisers, Inc.
(investment advisers) (retired
1991); and Senior Executive Vice
President, Director and member of
the Executive Committee, Smith
Barney, Harris Upham & Co.,
Incorporated (investment bankers)
(until 1991); and Trustee or
Director of other investment
companies managed by the Adviser.
</TABLE>
--------------------------
* An "interested person" of the Corporation as such term is defined in
the 1940 Act.
(1) Member of the Executive Committee.
(2) Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) Member of the Audit, Administration and Compensation Committees.
-16-
<PAGE> 53
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Corporation During the Past Years
---------------- -------------------- ---------------------
<S> <C> <C>
ROBERT G. FREEDMAN* Vice Chairman and Chief Chief Investment Officer, the
101 Huntington Ave. Investment Officer (2) Adviser.
Boston, MA 02199
ANNE C. HODSDON* President (2) President, the Adviser.
101 Huntington Ave.
Boston, MA 02199
JAMES B. LITTLE* Senior Vice President and Senior Vice President, the Adviser
101 Huntington Ave. Chief Financial Officer
Boston, MA 02199
THOMAS H. DROHAN* Senior Vice President and Senior Vice President and Secretary, the
101 Huntington Ave. Secretary Adviser.
Boston, MA 02199
MICHAEL P. DICARLO* Senior Vice President (2) Senior Vice President, the Adviser
101 Huntington Ave.
Boston, MA 02199
EDGAR LARSEN* Senior Vice President Senior Vice President, the Adviser
B.J. WILLINGHAM* Senior Vice President Senior Vice President, the Adviser.
Formerly, Director and Chief
Investment Officer of Transamerica
Fund Management Company.
JAMES J. STOKOWSKI* Vice President and Vice President, the Adviser.
101 Huntington Ave. Treasurer.
Boston, MA 02199
SUSAN S. NEWTON* Vice President and Vice President and Assistant
101 Huntington Ave. Compliance Officer Secretary, the Adviser.
Boston, MA 02199
</TABLE>
--------------------------
* An "interested person" of the Corporation as such term is defined in
the 1940 Act.
(1) Member of the Executive Committee.
(2) Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) Member of the Audit, Administration and Compensation Committees.
-17-
<PAGE> 54
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Corporation During the Past Years
---------------- -------------------- ---------------------
<S> <C> <C>
JOHN A. MORIN* Vice President Vice President, the Adviser.
101 Huntington Ave.
Boston, MA 02199
</TABLE>
--------------------------
* An "interested person" of the Corporation as such term is defined in
the 1940 Act.
(1) Member of the Executive Committee.
(2) Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) Member of the Audit, Administration and Compensation Committees.
-18-
<PAGE> 55
All of the officers listed are officers or employees of the Adviser or
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.
As of June 30, there were 131,823,202 and 44,530,250 shares outstanding
of the Corporation and the Fund, respectively, and the officers and Directors as
a group beneficially owned less than 1% of the outstanding shares of the
Corporation and the Fund. At such date, no person owned of record or was known
by the Corporation to beneficially own as much as 5% of the outstanding shares
of the Fund.
As of December 22, 1994, the Directors have established an Advisory
Board which acts to facilitate a smooth transition of management over a two-year
period (between Transamerica Fund Management Company ("TFMC"), the prior
investment adviser, and the Adviser). The members of the Advisory Board are
distinct from the Board of Directors, do not serve the Fund in any other
capacity and are persons who have no power to determine what securities are
purchased or sold and behalf of the Fund. Each member of the Advisory Board may
be contacted at 101 Huntington Avenue, Boston, Massachusetts 02199.
Members of the Advisory Board and their respective principal
occupations during the past five years are as follows:
R. Trent Campbell, President, FMS, Inc. (financial and management services);
former Chairman of the Board, Mosher Steel Company.
Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman from Texas;
co-founder, Houston Parents' League; former board member of various
civic and cultural organizations in Houston, including the Houston
Symphony, Museum of Fine Arts and YWCA. Mrs. Bentsen is presently
active in various civic and cultural activities in the Washington, D.C.
area, including membership on the Area Board for The March of Dimes and
is a National Trustee for the Botanic Gardens of Washington, D.C.
Thomas R. Powers, Formerly Chairman of the Board, President and
Chief Executive Officer, TFMC; Director, West Central Advisory Board,
Texas Commerce Bank; Trustee, Memorial Hospital System; Chairman of the
Board of Regents of Baylor University; Member, Board of Governors,
National Association of Securities Dealers, Inc.; Formerly, Chairman,
Investment
<PAGE> 56
Company Institute; formerly, President, Houston Chapter of
Financial Executive Institute.
Thomas B. McDade, Chairman and Director, TransTexas Gas Company;
Director, Houston Industries and Houston Lighting and Power Company;
Director, TransAmerican Companies (natural gas producer and
transportation); Member, Board of Managers, Harris County Hospital
District; Advisory Director, Commercial State Bank, El Campo; Advisory
Director, First National Bank of Bryan; Advisory Director, Sterling
Bancshares; Former Director and Vice Chairman, Texas Commerce
Bancshares; and Vice Chairman, Texas Commerce Bank.
COMPENSATION OF THE BOARD OF DIRECTORS AND ADVISORY BOARD. The
following table provides information regarding the compensation paid by the Fund
and the other investment companies in the John Hancock Fund Complex to the
Independent Directors and the Advisory Board members for their services. Mr.
Boudreau, a non-Independent Director, and each of the officers of the Fund who
are interested persons of the Adviser, are compensated by the Adviser and
received no compensation from the Fund for their services.
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Directors from the Fund Fund's Expenses
--------- ------------- ----------------
Directors 1994.**
--------------------
<S> <C> <C> <C>
James F. Carlin $ 0 $0 $60,450
William H. Cunningham 2,400* 0 0
Charles L. Ladner 0 0 60,450
Leo E. Linbeck, Jr. 3,600* 0 0
Patricia P. McCarter 0 0 60,200
Steven R. Pruchansky 0 0 62,450
Norman H. Smith 0 0 62,450
John P. Toolan 0 0 60,450
</TABLE>
* Compensation made pursuant to different compensation arrangements then in
effect for the fiscal year ended October 31, 1994.
** The total compensation paid by the John Hancock Fund Complex to the
Independent Directors is $366,450 as of the calendar year ended December
31, 1994. (The Fund was not part of the John Hancock Fund Complex until
December 22, 1994 and Messrs. Cunningham and Linbeck were not
Trustees/Directors of any funds in The John Hancock Fund Complex prior to
December 22, 1994.)
-19-
<PAGE> 57
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Advisory Board*** from the Fund Fund's Expenses Advisory Board***
----------------- ------------- ---------------- ------------------
<S> <C> <C> <C>
R. Trent Campbell $ 948 $0 $ 54,000
Mrs. Lloyd Bentsen 948 0 54,000
Thomas R. Powers 948 0 54,000
Thomas B. McDade 948 0 54,000
TOTAL $3,792 $0 $216,000
</TABLE>
*** Estimated for the Fund's current fiscal year ending October 31, 1995.
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Prospectus, the Fund receives its investment advice
from the Adviser. Investors should refer to the Prospectus for a description of
certain information concerning the investment management contract. Each of the
Directors and principal officers affiliated with the Fund who is also an
affiliated person of the Adviser is named above, together with the capacity in
which such person is affiliated with the Fund, the Adviser or TFMC (the Fund's
prior investment adviser).
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and currently has more than $13 billion in
assets under management in its capacity as investment adviser to the Fund and
the other mutual funds and publicly traded investment companies in the John
Hancock group of funds having a combined total of over 1,060,000 shareholders.
The Adviser is a wholly-owned subsidiary of The Berkeley Financial Group, which
is in turn a wholly-owned subsidiary of John Hancock Subsidiaries, Inc., which
is in turn a wholly-owned subsidiary of the Life Company, one of the most
recognized and respected financial institutions in the nation. With total assets
under management of $80 billion, the Life Company is one of the ten largest life
insurance companies in the United States and carries Standard & Poor's and A.M.
Best's highest ratings. Founded in 1862, the Life Company has been serving
clients for over 130 years.
As described in the Prospectus under the caption "Organization and
Management of the Fund," the Fund has entered into an investment management
contract with the Adviser. Under the investment management contract, the Adviser
provides the Fund with (i) a continuous investment program, consistent with the
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<PAGE> 58
Fund's stated investment objective and policies, (ii) supervision of all aspects
of the Fund's operations except those that are delegated to a custodian,
transfer agent or other agent and (iii) such executive, administrative and
clerical personnel, officers and equipment as are necessary for the conduct of
its business. The Adviser is responsible for the day-to-day management of the
Fund's portfolio assets.
No person other than the Adviser and its directors and employees
regularly furnishes advice to the Fund with respect to the desirability of the
Fund investing in, purchasing or selling securities. The Adviser may from time
to time receive statistical or other similar factual information, and
information regarding general economic factors and trends, from the Life Company
and its affiliates.
Under the terms of the investment management contract with the Fund,
the Adviser provides the Fund with office space, equipment and supplies and
other facilities and personnel required for the business of the Fund. The
Adviser pays the compensation of all officers and employees of the Fund and pays
the expenses of clerical services relating to the administration of the Fund.
All expenses which are not specifically paid by the Adviser and which are
incurred in the operation of the Fund including, but not limited to, (i) the
fees of the Directors of the Fund who are not "interested persons," as such term
is defined in the 1940 Act (the "Independent Directors"), (ii) the fees of the
members of the Fund's Advisory Board (described above) and (iii) the continuous
public offering of the shares of the Fund are borne by the Fund.
As provided by the investment management contract, the Fund pays the
Adviser an investment management fee, which is accrued daily and paid monthly in
arrears, equal on an annual basis to a percentage of the Fund's average daily
net asset value as follows:
<TABLE>
<CAPTION>
Fee
Average Daily Net Assets of the Fund (annual rate)
------------------------------------ -------------
<S> <C>
First $500 million....................................... 0.500%
Next $250 million........................................ 0.425%
Next $250 million........................................ 0.375%
Next $500 million........................................ 0.350%
Next $500 million........................................ 0.325%
Next $500 million........................................ 0.300%
Amount Over $2.5 billion................................. 0.275%
</TABLE>
The Adviser may temporarily reduce its advisory fee or make other
arrangements to reduce the Fund's expenses to a specified percentage of average
daily net assets. The Adviser retains the right to re-impose the advisory fee
and recover any other payments
-21-
<PAGE> 59
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
In the event normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of any state limit where
the Fund is registered to sell shares of beneficial interest, the fee payable to
the Adviser will be reduced to the extent of such excess and the Adviser will
make any additional arrangements necessary to eliminate any remaining excess
expenses. Currently, the most restrictive limit applicable to the Fund is 2.5%
of the first $30,000,000 of the Fund's average daily net asset value, 2% of the
next $70,000,000 and 1.5% of the remaining average daily net asset value.
Pursuant to the investment management contract, the Adviser is not
liable to the Fund or its shareholders for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the matters to which
the contract relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Adviser in the performance of its
duties or from its reckless disregard of the obligations and duties under the
applicable contract.
The investment management contract initially expires on December 22,
1996 and will continue in effect from year to year thereafter if approved
annually by a vote of a majority of the Independent Directors of the Fund, cast
in person at a meeting called for the purpose of voting on such approval, and by
either a majority of the Directors or the holders of a majority of the Fund's
outstanding voting securities. The management contract may, on 60 days' written
notice, be terminated at any time without the payment of any penalty to the Fund
by vote of a majority of the outstanding voting securities of the Fund, by the
Directors or by the Adviser. The management contract terminates automatically in
the event of its assignment.
Securities held by the Fund may also be held by other funds or
investment advisory clients for which the 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
-22-
<PAGE> 60
for securities being purchased or the supply of securities being sold, there may
be an adverse effect on price.
Under the investment management contract, the Fund may use the name
"John Hancock" or any name derived from or similar to it only for so long as the
investment management contract or any extension, renewal or amendment thereof
remains in effect. If the Fund's investment management contract is no longer in
effect, the Fund (to the extent that it lawfully can) will cease to use such
name or any other name indicating that it is advised by or otherwise connected
with the 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.
For the fiscal years ended October 31, 1992, 1993 and 1994 advisory
fees payable by the Fund to TFMC, the Fund's former investment adviser, amounted
to $133,127, $142,298 and $214,088, respectively.
DISTRIBUTION CONTRACT
DISTRIBUTION CONTRACT. As discussed in the Prospectus, the Fund's
shares are sold on a continuous basis at the public offering price. John Hancock
Funds, a wholly-owned subsidiary of the Adviser, has the exclusive right,
pursuant to the Distribution Contract dated December 22, 1994 (the "Distribution
Contract"), to purchase shares from the Fund at net asset value for resale to
the public or to broker-dealers at the public offering price.
The Distribution Contract was initially adopted by the affirmative vote
of the Fund's Board of Directors including the vote of a majority of Independent
Directors, cast in person at a meeting called for such purpose. The Distribution
Contract shall continue in effect until December 22, 1996 and from year to year
thereafter if approved by either the vote of the Fund's shareholders or the
Board of Directors including the vote of a majority of Independent Directors,
cast in person at a meeting called for such purpose. The Distribution Contract
may be terminated at any time, without penalty, by either party upon sixty (60)
days' written notice or by a vote of a majority of the outstanding voting
securities of the Fund and terminates automatically in the case of an assignment
by John Hancock Funds.
DISTRIBUTION PLAN. The Board of Directors, including the Independent
Directors of the Fund, approved a new distribution
-23-
<PAGE> 61
plan pursuant to Rule 12b-1 under the 1940 Act for Class S shares of the Fund
(the "Plan"). The Plan was approved by the sole shareholder of Class S shares of
the Fund on September 12, 1995 and became effective on September 12, 1995.
Under the Plan, the distribution or service fee will not exceed an
annual rate of 0.40% of the average daily net asset value of the Fund
attributable to Class S shares (determined in accordance with the Fund's
Prospectus as from time to time in effect). In accordance with generally
accepted accounting principles, the Fund does not treat unreimbursed
distribution expenses attributable to Class S shares as a liability of the Fund
and does not reduce the current net assets of Class B by such amount although
the amount may be payable under the Plan in the future. The Plan was not in
existence during the fiscal year ended October 31, 1994.
Under the Plan, expenditures shall be calculated and accrued daily and
paid monthly or at such other intervals as the Directors shall determine. The
fee may be spent by John Hancock Funds on Distribution Expenses or Service
Expenses. "Distribution Expenses" include any activities or expenses primarily
intended to result in the sale of Class S shares of the Fund, including, but not
limited to: (i) initial and ongoing sales compensation payable out of such fee
as such compensation is received by John Hancock Funds, other brokers or
financial service firms who have arrangements with John Hancock Funds engaged in
the sale of Class S shares, (ii) direct out-of-pocket expenses incurred in
connection with the distribution of Class S shares, including expenses related
to printing of prospectuses and reports; (iii) preparation, printing and
distribution of sales literature and advertising material; (iv) an allocation of
overhead and other branch office expenses of John Hancock Funds related to the
distribution of Class S shares; and (v) in the event that any other investment
company (the "Acquired Fund") sells all or substantially all of its assets to,
merges with or otherwise engages in a combination with the Fund, distribution
expenses originally incurred in connection with the distribution of the Acquired
Fund's shares. Service Expenses under the Plan include payments made to, or on
account of, account executives of selected broker-dealers (including affiliates
of John Hancock Funds) and others who furnish personal and shareholder account
maintenance services to Class S shareholders of the Fund.
The Plan provides that it will continue in effect only as long as its
continuance is approved at least annually by a majority of both the Directors
and the Independent Directors. The Plan provides that it may be terminated (a)
at any time by vote of a majority of the Directors, a majority of the
Independent Directors, or a majority of the outstanding voting securities of
-24-
<PAGE> 62
the Class S shares of the Fund or (b) by John Hancock Funds on 60 days' notice
in writing to the Fund. The Plan further provides that it may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding Class S shares of the
Fund. The Plan provides that no material amendment to the Plan will, in any
event, be effective unless it is approved by a majority vote of the Directors
and the Independent Directors of the Fund. In adopting the Plans, the Board of
Directors has determined that, in their judgment, there is a reasonable
likelihood that the Plan will benefit the holders of the Class S shares of the
Fund.
Information regarding the services rendered under the Plan and the
Distribution Contract and the amounts paid therefor by the Fund is provided to,
and reviewed by, the Board of Directors on a quarterly basis. In its quarterly
review, the Board of Directors considers the continued appropriateness of the
Plan and the Distribution Contract and the level of compensation provided
therein.
When the Fund seeks an Independent Director to fill a vacancy or as a
nominee for election by shareholders, the selection or nomination of the
Independent Director is, under resolutions adopted by the Directors
contemporaneously with their adoption of the Plan, committed to the discretion
of the Committee on Administration of the Directors. The members of the
Committee on Administration are all Independent Directors and identified in this
Statement of Additional Information under the heading "Those Responsible for
Management."
AMORTIZED COST METHOD OF PORTFOLIO VALUATION
The Fund utilizes the amortized cost valuation method of valuing
portfolio instruments in the absence of extraordinary or unusual circumstances.
Under the amortized cost method, assets are valued by constantly amortizing over
the remaining life of an instrument the difference between the principal amount
due at maturity and the cost of the instrument to the Fund. The Directors will
from time to time review the extent of any deviation of the net asset value, as
determined on the basis of the amortized cost method, from net asset value as it
would be determined on the basis of available market quotations. If any
deviation occurs which may result in unfairness either to new investors or
existing shareholders, the Directors will take such actions as they deem
appropriate to eliminate or reduce such unfairness to the extent reasonably
practicable. These actions may include selling portfolio instruments prior to
maturity to realize gains or losses or to shorten the Fund's average portfolio
maturity, withholding dividends, splitting, combining or otherwise
-25-
<PAGE> 63
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 represents the amount of excess. By investing in the
Fund, shareholders are deemed to have agreed to make such a contribution. This
procedure is intended to permit 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.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Directors. When the shareholder sells portfolio
securities received in this fashion, he would incur a brokerage charge. Any such
securities would be valued for the purposes of making such payment at the same
value as used in determining net asset value. The Fund has elected to be
governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund during any 90 day period for any one account.
DESCRIPTION OF THE CORPORATION'S SHARES
-26-
<PAGE> 64
The Fund operates as one series of the Corporation. All shares of stock
of the Corporation ($.01 par value per share) have equal voting rights among
shares of the same series (except that each class of shares within a series has
sole voting rights with respect to matters solely affecting that class). On
September 12, 1995, the Corporation's Articles of Incorporation were amended to
increase the authorized common stock of the Corporation from 375,000,000 to
2,500,000,000 shares of Class A Common Stock, from 625,000,000 to 3,000,000,000
shares of Class B Common Stock; and from 0 to 1,000,000,000 shares of Class S
Common Stock. No shares of any series or class have pre-emptive or conversion
rights. Each series of shares represents interests in a separate portfolio of
investments. Each is entitled to all income and gains (or losses) and bears all
of the expenses associated with the operations of that portfolio except that
each class of a series bears its own transfer agency fees. Common expenses of
the Corporation are allocated among the series, based upon the respective net
assets or ratably or a combination of both whichever is more appropriate, of
each series.
The Board of Directors is authorized to create additional series of
shares and classes within any series at any time without approval by
shareholders. Six series of shares representing interests in the Corporation are
presently authorized.
Each share of each series or class of the Corporation represents an
equal proportionate interest with each other share in that series or class, none
having priority or preference over other shares of the same series or class. The
interest of investors in the various series or classes of the Corporation is
separate and distinct. All consideration received for the sales of shares of a
particular series or class of the Corporation, all assets in which such
consideration is invested and all income, earnings and profits derived from such
investments will be allocated to and belong to that series or class. As such,
each share is entitled to dividends and distributions out of the net income
belonging to that series or class as declared by the Board of Directors. The
assets of each series are segregated on the Corporation's books and are charged
with the liabilities of that series and with a share of the Corporation's
general liabilities.
The Board of Directors determines those assets and liabilities deemed
to be general assets or liabilities of the Corporation, and these items are
allocated among each series in proportion to the relative total net assets of
each series. In the unlikely event that the liabilities allocable to a series
exceed the assets of that series, the amount to be deemed available for
distribution to each affected series shall be determined by the Board of
Directors in order to effect an equitable allocation among each series of the
Corporation.
-27-
<PAGE> 65
The Corporation has authorized the issuance of three classes of common
stock for the Fund, designated as Class A, Class B and Class S shares. Class A,
Class B and Class S shares each represent an interest in the same assets of the
Fund and are identical in all respects except that each class bears certain
expenses related to the distribution of such shares and certain expenses related
to transfer agency services. Like Class S shares, Class A shares are not subject
to a sales charge on purchases, redemptions or reinvested dividends, nor are
they subject to deferred sales charges or an exchange fee. While Class B shares
are not subject to a sales charge on purchases or reinvested dividends, nor
subject to an exchange fee, Class B shares are subject to a contingent deferred
sales charge if redeemed within six years of purchase. The holders of Class A,
Class B and Class S shares have certain exclusive voting rights on matters
relating to their respective distribution plans. The different classes of the
Fund may bear different expenses relating to the cost of holding shareholder
meetings necessitated by the exclusive voting rights of any class of shares. The
Directors of the Corporation may classify and reclassify the shares of the Fund
into additional classes of common stock at a future date.
VOTING RIGHTS. Each shareholder of the Corporation is entitled to a
full vote for each full share held (and fractional votes for fractional shares).
Shareholders of each series or class vote separately from other shareholders of
the Corporation with respect to all matters which affect solely the interests of
that series or class. After Directors have been elected by shareholders, they
will continue to serve indefinitely and they may appoint their own successors,
provided that always at least a majority of the Directors have been elected by
the Corporation's shareholders. The voting rights of stockholders are not
cumulative, so that the holders of more than 50 percent of the shares voting
can, if they choose, elect all Directors being selected, while the holders of
the remaining shares would be unable to elect any Directors. It is the intention
of the Corporation not to hold annual meetings of shareholders. The Directors
may call annual or special meetings of shareholders of the Corporation or any
class of a series for action by shareholder vote as may be required by the 1940
Act. Pursuant to an undertaking to the Securities and Exchange Commission, the
Corporation will call a meeting of shareholders for any purpose, including
voting to remove one or more Directors, on the written request of the holders of
at least 10% of the outstanding shares of the Corporation. The Fund will assist
shareholders with any communications including shareholder proposals.
DIRECTOR AND OFFICER LIABILITY. Under the Corporation's Articles of
Incorporation and the Maryland General Company Law,
-28-
<PAGE> 66
the directors, officers, employees and agents of the Corporation are entitled to
indemnification under certain circumstances against liabilities, claims and
expenses arising from any threatened, pending or completed action, suit or
proceeding to which they are made parties by reason of the fact that they are or
were such directors, officers, employees or agents of the Corporation except as
such liability may arise from their own bad faith, willful misfeasance, gross
negligence or reckless disregard of duties.
The Corporation is not required to issue stock certificates. The
Corporation shall continue without limitation of time subject to the provisions
in the Articles of Incorporation concerning termination by action of the
shareholders.
TAX STATUS
The Fund has qualified and has elected to be treated as a "regulated
investment company" under Subchapter M of the Code, and intends to continue to
so qualify in the future. As such and by complying with the applicable
provisions of the Code regarding the sources 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% non-deductible 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 taken the
distribution in cash, divided by the number of shares received.
-29-
<PAGE> 67
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 net 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 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 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 distributions 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 nonresident alien withholding tax at the rate of 31%
(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.
-30-
<PAGE> 68
Provided that the Fund qualifies as a regulated investment company
under the Code, the Fund will also not be required to pay any Massachusetts
income tax.
CALCULATION OF PERFORMANCE
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.
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
-31-
<PAGE> 69
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 approximately 1,000 fixed income mutual funds
in the United States or "IBC/Donahue's Money Fund Report," a similar
publication. Comparisons may also be made to bank Certificates of Deposit, which
differ from mutual funds, like the Fund, in several ways. The interest rate
established by the sponsoring bank is fixed for the term of a CD, there are
penalties for early withdrawal from CD's and the principal on a CD is insured.
Unlike CD's, which are insured as to principal, an investment in the Fund is not
insured or guaranteed.
Performance rankings and ratings, reported periodically in national
financial publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK, THE WALL
STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRONS, will also be
utilized. The Fund's promotional and sales literature may make reference to the
Fund's "beta." Beta is a reflection of the market-related risk of the Fund by
showing how responsive the Fund is to the market.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities are
made by the Adviser pursuant to recommendations made by its investment
committee, 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 Adviser will offer the best price and market for the
execution of each such transaction. Purchases from underwriters of portfolio
securities may include a commission or commissions paid by the issuer and
transactions with dealers serving as market makers reflect a "spread."
Investments in debt securities are generally traded on a net basis through
dealers acting for their own account as principals and not as brokers; no
brokerage commissions are payable on such transactions.
-32-
<PAGE> 70
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.
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 Fund's officers will be
primarily responsible for the allocation of the Fund's brokerage business, their
policies and practices in this regard must be consistent with the foregoing and
will at all times be subject to review by the Directors. For the fiscal years
ended October 31, 1994, 1993 and 1992, no negotiated brokerage commissions were
paid on portfolio transactions.
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
the Fund may pay to a broker which provides brokerage and research services to
the Fund an amount of disclosed commission in excess of the commission which
another broker would have charged for effecting that transaction. This practice
is subject to a good faith determination by the Directors that the price is
reasonable in light of the services provided and to policies that the Directors
may adopt from time to time. During the fiscal year ended October 31, 1994, the
Fund did not pay commissions as compensation to any brokers for research
services such as industry, economic and company reviews and evaluations of
securities.
-33-
<PAGE> 71
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its subsidiaries,
three of which, Tucker Anthony Incorporated ("Tucker Anthony"), John Hancock
Distributors, Inc. ("John Hancock Distributors") and Sutro & Company, Inc.
("Sutro"), are broker-dealers ("Affiliated Brokers"). Pursuant to procedures
determined by the Directors and consistent with the above policy of obtaining
best net results, the Fund may execute portfolio transactions with or through
Tucker Anthony, Sutro or John Hancock Distributors. During the year ended
October 31, 1994, the Fund did not execute any portfolio transactions with then
affiliated brokers.
Any of the Affiliated Brokers may act as broker for the Fund on
exchange transactions, subject, however, to the general policy of the Fund set
forth above and the procedures adopted by the Directors pursuant to the 1940
Act. Commissions paid to an Affiliated Broker must be at least as favorable as
those which the Directors believe to be contemporaneously charged by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold. A transaction would not be placed with an Affiliated
Broker if the Fund would have to pay a commission rate less favorable than the
Affiliated Broker's contemporaneous charges for comparable transactions for its
other most favored, but unaffiliated, customers, except for accounts for which
the Affiliated Broker acts as a clearing broker for another brokerage firm, and
any customers of the Affiliated Broker not comparable to the Fund as determined
by a majority of the Directors who are not interested persons (as defined in the
1940 Act) of the Fund, the Adviser or the Affiliated Brokers. Because the
Adviser, which is affiliated with the Affiliated Brokers, has, as an investment
adviser to the Fund, the obligation to provide investment management services,
which includes elements of research and related investment skills, such research
and related skills will not be used by the Affiliated Brokers as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria. The Fund will not effect principal transactions with
Affiliated Brokers. The Fund may, however, purchase securities from other
members of underwriting syndicates of which Tucker Anthony, Sutro and John
Hancock Distributors are members, but only in accordance with the policy set
forth above and procedures adopted and reviewed periodically by the Directors.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the
-34-
<PAGE> 72
Fund. The Fund pays Investor Services a monthly transfer agent fee equal to $18
per account for Class S shares plus out-of-pocket expenses.
CUSTODY OF PORTFOLIO
Effective September 30, 1995, portfolio securities of the Fund are held
pursuant to a custodian agreement between the Fund and State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110. Prior to such
date, portfolio securities of the Fund are held pursuant to a custodian
agreement between the Fund and Investors Bank and Trust Company, 24 Federal
Street, Boston, Massachusetts. Under the custodian agreement, the custodian
performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116,
has been selected as the independent auditors of the Fund. The financial
statements of the Fund included in the Prospectus and this Statement of
Additional Information have been audited by Ernst & Young LLP for the periods
indicated in their report thereon appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
-35-
<PAGE> 73
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 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 conditional
ratings denote 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 a 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 RATINGS GROUP ("S&P")
AAA, AA, A AND BBB - Bonds rated AAA bear the highest rating assigned
to debt obligations, which 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 of 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
A-1
<PAGE> 74
rating addresses credit quality subsequent to 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.
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 or 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, though 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 and 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
A-2
<PAGE> 75
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 ratings may have different yields and
municipal securities of the same maturity and coupon with different ratings may
have the same yield.
A-3
<PAGE> 76
FINANCIAL STATEMENTS
F-1
<PAGE> 77
MONEY MARKET FUND B
<TABLE>
STATEMENT OF NET ASSETS
<CAPTION>
October 31, 1994
FACE
ISSUER AMOUNT VALUE
-------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER - 69.04%
---------------------------
BUSINESS CREDIT
INSTITUTIONS - 8.56%
Chevron Oil Finance Co.
5.050% due 11/08/94 .............. $3,000,000 $ 2,997,054
Coca-Cola Financial Corp.
4.850% due 11/14/94 .............. 2,000,000 1,996,497
-----------
4,993,551
CONSUMER CYCLICALS - 8.55%
Toys "R" Us, Inc.
4.880% due 11/29/94 .............. 2,500,000 2,490,511
Wal-Mart Stores, Inc.
4.750% due 11/02/94 .............. 2,500,000 2,499,670
-----------
4,990,181
CONSUMER GOODS &
SERVICES - 11.72%
Cargill Inc.
4.950% to 4.960% due
11/07/94 ........................ 3,000,000 2,997,523
Coca Cola Co.
4.770% to 5.050% due
11/04/94 to 11/18/94 ............ 993,000 991,703
Hershey Foods Corp.
4.800% due 11/01/94 .............. 2,000,000 2,000,000
Procter & Gamble Co.
5.000% due 11/01/94 .............. 850,000 850,000
-----------
6,839,226
FINANCIAL SERVICES - 5.13%
General Electric Capital Corp.
4.880% to 4.970% due
11/04/94 to 12/05/94 ............ 3,000,000 2,994,563
HEALTH CARE - 10.08%
Abbott Laboratories
4.800% to 4.950% due
11/22/94 to 12/06/94 ............ 2,500,000 2,489,981
Schering Corp.
4.750% to 4.800% due
11/02/94 to 12/15/94............. 2,400,000 2,397,389
Warner-Lambert Co.
4.870% due 11/28/94............... 1,000,000 996,348
-----------
5,883,718
INDUSTRIAL - 3.43%
Donnelley (R.R.) & Sons Co.
4.980% due 11/03/94 .............. 1,000,000 999,723
E.I. duPont deNemours & Co.
4.920% due 11/03/94 .............. 1,000,000 999,727
-----------
1,999,450
TECHNOLOGY-RELATED - 15.18%
American Telephone &
Telegraph Co.
4.800% to 5.280% due
11/18/94 to 01/03/95.............. 1,995,000 1,982,734
Bellsouth
Telecommunications Inc.
4.850% to 4.950% due
11/16/94 to 11/23/94 ............. 2,395,000 2,388,258
Motorola, Inc.
4.880% due 11/14/94 ............... 2,500,000 2,495,594
Raytheon Co.
4.850% due 11/21/94 ............... 2,000,000 1,994,611
-----------
8,861,197
UTILITIES - 6.39%
Laclede Gas Co.
4.920% due 11/09/94 ............... 2,000,000 1,997,813
Madison Gas & Electric Co.
4.850% to 4.950% due
11/15/94 to 11/21/94 ............. 1,739,000 1,734,793
-----------
3,732,606
-----------
TOTAL COMMERCIAL PAPER
(Cost $40,294,492) .................. 40,294,492
</TABLE>
3
<PAGE> 78
<TABLE>
STATEMENT OF NET ASSETS
<CAPTION>
Continued
FACE
ISSUER AMOUNT VALUE
-------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY
----------------------
OBLIGATIONS - 31.21%
----------------------
FEDERAL FARM CREDIT
BANK - 4.16%
3.500% to 5.410% due
11/15/94 to 04/13/95 ............. 2,445,000 2,428,712
FEDERAL HOME LOAN
BANK - 5.94%
4.900% to 5.630% due
11/04/94 to 03/30/95 ............. 3,495,000 3,463,629
FEDERAL HOME LOAN
MORTGAGE
CORPORATION - 6.15%
3.960% to 5.570% due
11/03/94 to 05/22/95 ............. 3,615,000 3,590,533
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - 14.96%
4.650% to 5.220% due
11/10/94 to 03/20/95 ............. 8,780,000 8,733,278
-----------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(Cost $18,216,152) .................. 18,216,152
-----------
TOTAL INVESTMENTS - 100.25%
(Cost $58,510,644) .................. 58,510,644
CASH AND OTHER ASSETS,
LESS LIABILITIES - (0.25)% ........ (145,055)
-----------
NET ASSETS, at value,
equivalent to $1.00 per
share for 58,365,589
shares ($.01 par value)
of capital stock
outstanding - 100.00% ............ $58,365,589
===========
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 79
STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
STATEMENT OF OPERATIONS
Year Ended October 31, 1994
<S> <C> <C>
INVESTMENT INCOME
Interest ......................... $1,725,382
EXPENSES
Distribution expenses ............ $428,177
Management fees .................. 214,088
Transfer agent fees .............. 93,330
Administrative service fees ...... 46,621
Registration fees ................ 35,616
Shareholder reports .............. 19,295
Directors' fees and expenses ..... 16,553
Custodian fees ................... 15,692
Audit and legal fees ............. 9,221
Miscellaneous .................... 4,582 883,175
-------- ----------
NET INVESTMENT INCOME ............ $ 842,207
==========
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
OPERATIONS
Net investment income ...... $ 842,207 $ 242,168
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income ...... (842,207) (242,168)
CAPITAL SHARE
TRANSACTIONS
Increase in capital shares
outstanding .............. 26,819,423 65,794
----------- -----------
Increase in net assets ..... 26,819,423 65,794
NET ASSETS
Beginning of year .......... 31,546,166 31,480,372
----------- -----------
End of year ................ $58,365,589 $31,546,166
=========== ===========
</TABLE>
5
See Notes to Financial Statements.
<PAGE> 80
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per share income and capital changes for a share outstanding
during each year:
Net asset value, beginning of year .......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income ....................................... 0.018 0.009 0.017 0.045 0.061
LESS DISTRIBUTIONS
Dividends from net investment income ........................ (0.018) (0.009) (0.017) (0.045) (0.061)
------- ------- ------- ------- -------
Net asset value, end of year ................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return(1) ............................................. 1.87% 0.85% 1.73% 4.61% 6.30%
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net assets ..................... 2.06% 2.44% 2.47% 2.23% 2.31%
Ratio of expense reimbursement to average net assets ........ - - - (0.12)% (0.15)%
------- ------- ------- ------- -------
Ratio of net expenses to average net assets ................. 2.06% 2.44% 2.47% 2.11% 2.16%
======= ======= ======= ======= =======
Ratio of net investment income to average net assets ........ 1.97% 0.85% 1.69% 4.45% 6.11%
Net Assets, end of year (in thousands) ...................... $58,366 $31,546 $31,480 $20,763 $21,099
<FN>
(1) Total return does not include the effect of the contingent deferred sales charge.
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 81
NOTES TO FINANCIAL STATEMENTS
October 31, 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special Series,
Inc., is a diversified, open-end management investment company registered under
the Investment Company Act of 1940, as amended. The Issuer operates as a series
fund, currently issuing six series of shares. On May 20, 1994, the shareholders
of the Issuer approved changes to the name of the Issuer and to the names of
each of the series of the Issuer. These changes became effective on June 15,
1994.
Transamerica Money Market Fund B (the "Fund"), formerly Transamerica
Special Money Market Fund, is one of the series of the Issuer. The Fund made its
initial offering of shares to the public on October 26, 1987. The following is a
summary of significant accounting policies consistently followed by the Fund.
(1) The Fund values its investment securities at amortized cost
(original cost plus amortized discount or accrued interest).
(2) With respect to U.S. government and U.S. government agency
securities in which the Fund may invest, only U.S. Treasury and Government
National Mortgage Association (GNMA) issues are backed by the full faith and
credit of the U.S. government. All other government issues are backed by the
issuing agencies and their general ability to borrow from the U.S. government.
(3) Security transactions are accounted for on the trade date. Interest
income is accrued daily. The identified cost of securities at October 31, 1994
is the same for both financial reporting and federal income tax purposes.
(4) Distributions of the Fund are computed daily and reinvested in Fund
shares or paid to shareholders monthly. Income distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Distributions payable to shareholders at October 31, 1994
were $9,668.
(5) No provision for federal income taxes has been made since it is the
Fund's intention to distribute all of its taxable income and profits to its
shareholders and to comply with the requirements applicable to regulated
investment companies and the minimum distribution requirements of the Internal
Revenue Code.
(6) The Fund reports custodian fees net of credits and charges resulting
from cash positions in the custodial accounts greater than or less than the
amounts required to settle portfolio transactions. For the year ended October
31, 1994, these amounts were $1,375 and $1,558, respectively.
<TABLE>
NOTE B - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund's management fee is payable monthly to Transamerica Fund Management
Company (the "Investment Adviser") and is calculated based on the following
schedule:
<CAPTION>
AVERAGE DAILY
NET ASSETS
(in millions) ANNUAL RATE
------------- -----------
<S> <C>
First $500 0.500%
Next $250 0.425%
Next $250 0.375%
Next $500 0.350%
Next $500 0.325%
Next $500 0.300%
Over $2,500 0.275%
</TABLE>
At October 31, 1994, the management fee payable to the Investment
Adviser was $25,029.
The Investment Adviser provides administrative services to the Fund
pursuant to an administrative service agreement. During the year ended October
31, 1994, the Fund paid or accrued $36,221 to the Investment Adviser for these
services, of which $3,326 was payable at October 31, 1994.
The Fund paid no compensation directly to any officer. Certain officers
and a director of the Issuer are affiliated with the Investment Adviser.
During the year ended October 31, 1994, the Fund paid legal fees of $799
to Baker & Botts. A partner with Baker & Botts is an officer of the Issuer.
NOTE C - PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is
authorized to finance activities related to the distribution of its shares. The
distribution plan, together with the contingent deferred sales charge, complies
with the regulations covering maximum sales charges assessed by mutual funds
distributed through securities dealers that are NASD members.
The plan permits payments to Transamerica Fund Distributors, Inc. (the
"Distributor"), an affiliate of the Investment Adviser and principal underwriter
of the Fund, of up to 0.25% annually of average daily net assets for certain
distribution costs such as service fees paid to dealers, production and
distribution of prospectuses to prospective investors, services provided to new
and existing shareholders and other distribution related activities. During the
year ended
7
<PAGE> 82
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE C (Continued)
October 31, 1994, payments made to the Distributor of $107,432 or 0.25% were
related to the above activities.
The plan also permits reimbursement to the Distributor up to 0.75%
annually of average daily net assets for costs related to compensation paid to
securities dealers, in place of an initial sales charge to investors. These
costs are based upon a commission payment charge of 5% of the value of shares
sold (excluding shares acquired through reinvestment), reduced by the amount of
contingent deferred sales charges (CDSC) that have been received by the
Distributor on redemptions of shares. These costs also include a charge of
interest (carrying charge) at an annual rate of 1% over the prevailing prime
rate to the extent cumulative commission payment charges, plus any previous
carrying charges, less CDSC received by the Distributor, have not been paid in
full by the Fund. For the year ended October 31, 1994, the Fund reimbursed the
Distributor $320,745 or 0.75% for such costs. For the year ended October 31,
1994, the Distributor received $343,829 in CDSC. At October 31, 1994, the
balance of unrecovered costs was $1,233,281.
At October 31, 1994, the Fund had $53,504 payable to the Distributor
pursuant to the above distribution plan.
-----------------------------------
<TABLE>
NOTE D - CAPITAL AND RELATED TRANSACTIONS
A summary of the capital stock transactions follows:
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1994 1993
---------------------------- ----------------------------
SHARES DOLLARS SHARES DOLLARS
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 237,416,247 $ 237,416,247 162,110,025 $ 162,110,025
Shares issued in reinvestment of distributions ...... 683,416 683,416 208,860 208,860
Shares redeemed ..................................... (211,280,240) (211,280,240) (162,253,091) (162,253,091)
------------ ------------- ------------ -------------
Net increase in capital shares outstanding .......... 26,819,423 $ 26,819,423 65,794 $ 65,794
============ ============= ============ =============
</TABLE>
At October 31, 1994, net assets were comprised of $58,365,589 in capital
paid-in, representing 58,365,589 shares of Common Stock outstanding (150,000,000
shares authorized).
8
<PAGE> 83
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
John Hancock Money Market Fund B,
a series of John Hancock Series, Inc.
We have audited the accompanying statement of net assets of John Hancock Money
Market Fund B, formerly Transamerica Money Market Fund B, a series of John
Hancock Series, Inc., formerly Transamerica Series, Inc., as of October 31,
1994, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of John Hancock Money Market Fund B, a series of John Hancock Series,
Inc., at October 31, 1994, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the indicated periods, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Houston, Texas
December 2, 1994
9
<PAGE> 84
Financial Statements
John Hancock Funds - Money Market Fund B
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
ASSETS:
Investments, in money market instruments,
at value - Note C:
Commercial paper (cost - $36,423,414) $36,423,414
Negotiable bank certificates of deposit
(cost - $4,000,089).............................. 4,000,089
Bankers' acceptances (cost - $1,982,274) 1,982,274
Corporate interest-bearing obligations
(cost - $992,740)................................ 992,740
U.S. government obligations (cost - $5,736,722).. 5,736,722
Joint repurchase agreement (cost - $10,750,000) 10,750,000
-----------
59,885,239
Cash............................................... 68
Interest receivable................................ 209,416
Miscellaneous assets............................... 13,767
-----------
Total Assets.................. 60,108,490
----------------------------------------------------
Liabilities:
Payable for investments purchased.................. 3,500,000
Payable to John Hancock Advisers, Inc. and
affiliates - Note B................................ 27,875
Accounts payable and accrued expenses.............. 58,488
-----------
Total Liabilities............. 3,586,363
----------------------------------------------------
Net Assets:
Capital paid-in.................................... 56,522,127
-----------
Net Assets.................... $56,522,127
====================================================
Net Asset Value, Offering Price and
Redemption Price Per Share:
(based on 56,522,127 shares of beneficial
interest outstanding - 150,000,000 shares
authorized with $0.01 per share par value)........... $ 1.00
===========================================================================
</TABLE>
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON APRIL 30, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE
AS OF THAT DATE.
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED
AND EXPENSES INCURRED IN OPERATING THE FUND.
<TABLE>
STATEMENT OF OPERATIONS
Six months ended April 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
INVESTMENT INCOME:
Interest........................................... $ 1,603,318
-----------
Expenses:
Distribution/service fee - Note B................ 275,387
Investment management fee - Note B............... 137,693
Transfer agent fee - Note B...................... 52,718
Registration and filing fees..................... 34,813
Custodian fee.................................... 30,526
Auditing fee..................................... 14,530
Printing......................................... 6,789
Trustees' fees................................... 6,308
Shareholder service fee.......................... 4,374
Advisory board fee............................... 2,207
Legal fees....................................... 1,976
Miscellaneous.................................... 1,754
-----------
Total Expenses............... 569,075
---------------------------------------------------
Net Investment Income........ 1,034,243
===================================================
Net Increase in Net Assets
Resulting from Operations.... $ 1,034,243
===================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> 85
Financial Statements
John Hancock Funds - Money Market Fund B
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1995 OCTOBER 31,
(UNAUDITED) 1994
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment Income......................................................... $ 1,034,243 $ 842,207
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ($0.0187 and $0.0180 per share, respectively) ( 1,034,243) ( 842,207)
--------------- ---------------
FROM FUND SHARE TRANSACTIONS - Net*................................................. ( 1,843,462) 26,819,423
--------------- ---------------
NET ASSETS:
Beginning of period........................................................... 58,365,589 31,546,166
--------------- ---------------
End of period................................................................. $ 56,522,127 $ 58,365,589
=============== ===============
* ANALYSIS OF FUND SHARE TRANSACTIONS:
Shares sold................................................................... $ 117,586,279 $ 237,416,247
Shares issued to shareholders in reinvestment of distributions................ 828,944 683,416
--------------- ---------------
118,415,223 238,099,663
Less shares repurchased....................................................... ( 120,258,685) ( 211,280,240)
--------------- ---------------
Net increase (decrease)....................................................... $( 1,843,462) $ 26,819,423
=============== ===============
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE
REFLECTS EARNINGS LESS EXPENSES, DISTRIBUTIONS PAID TO SHAREHOLDERS AND ANY
INCREASE OR DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE FUND. THE FOOTNOTE
ILLUSTRATES THE NUMBER OF FUND SHARES SOLD, REINVESTED AND REDEEMED DURING
THE LAST TWO PERIODS.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 86
Financial Statements
John Hancock Funds - Money Market Fund B
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the period indicated, investment returns, key ratios and
supplemental data are as follows:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1995(b) ------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
---------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Net Investment Income.............................. 0.02 0.02 0.01 0.02 0.05 0.06
Less Distributions:
Dividends from Net Investment Income............... (0.02) (0.02) (0.01) (0.02) (0.05) (0.06)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value......... 1.88% 1.87% 0.85% 1.73% 4.61% 6.30%
Total Adjusted Investment Return at
Net Asset Value (a).............................. ..... ..... ..... ..... 4.49%(c) 6.15%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).......... $56,522 $58,366 $31,546 $31,480 $20,763 $21,099
Ratio of Expenses to Average Net Assets ........... 2.07%* 2.06% 2.44% 2.47% 2.11% 2.16%
Ratio of Adjusted Expenses to Average Net Assets... ..... ..... ..... ..... 2.23% 2.31%
Ratio of Net Investment Income to Average
Net Assets (a)................................... 3.76%* 1.97% 0.85% 1.69% 4.57% 6.26%
Ratio of Adjusted Net Investment Income to
Average Net Assets (a)........................... ..... ..... ..... ..... 4.45% 6.11%
<FN>
* On an annualized basis.
(a) On an unreimbursed basis without expense reduction.
(b) On December 22, 1994 John Hancock Advisers, Inc. became the Investment Adviser of the Fund.
(c) Unaudited.
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF NET INVESTMENT INCOME AND
DIVIDENDS ON A SINGLE SHARE FOR THE PERIOD INDICATED. ADDITIONALLY, IMPORTANT
RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE FINANCIAL STATEMENTS ARE
EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 87
Financial Statements
John Hancock Funds - Money Market Fund B
<TABLE>
SCHEDULE OF INVESTMENTS
April 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY MONEY MARKET
FUND B ON APRIL 30, 1995. IT'S DIVIDED INTO SIX TYPES OF SHORT-TERM INVESTMENTS. MOST
CATEGORIES OF SHORT-TERM INVESTMENTS ARE FURTHER BROKEN DOWN BY INDUSTRY GROUP.
<CAPTION>
PAR VALUE
INTEREST QUALITY (000'S
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
------------------- -------- -------- --------- -----
<S> <C> <C> <C> <C>
COMMERCIAL PAPER
AUTOMOTIVE (5.08%)
Ford Motor Credit Co., 05-22-95.................................................. 6.020% Tier 1 $ 2,900 $ 2,870,903
-----------
BANKING (5.08%)
Norwest Corp.,
06-16-95................................................................... 6.000 Tier 1 2,900 2,871,000
-----------
BANKING - FOREIGN (0.37%)
Deutsche Bank Financial, Inc.,
05-01-95................................................................... 6.050 Tier 1 211 209,121
-----------
BROKER SERVICES (15.04%)
Bear Stearns Cos., Inc.,
06-20-95................................................................... 6.000 Tier 1 3,000 2,970,000
Goldman Sachs Group, L.P.,
06-01-95................................................................... 6.100 Tier 1 2,400 2,365,027
Merrill Lynch & Co., Inc.,
05-22-95................................................................... 6.030 Tier 1 300 296,985
Merrill Lynch & Co., Inc.,
06-12-95................................................................... 6.020 Tier 1 1,000 990,970
Merrill Lynch & Co., Inc.,
06-19-95................................................................... 6.010 Tier 1 1,900 1,880,968
-----------
8,503,950
-----------
FINANCE (3.51%)
American Honda Finance Corp.,
06-01-95................................................................... 6.050 Tier 1 2,000 1,981,178
-----------
INSURANCE (5.08%)
American General Finance Corp.,
06-12-95................................................................... 6.000 Tier 1 2,900 2,871,000
-----------
MORTGAGE BANKING (5.10%)
Countrywide Funding Corp.,
05-12-95................................................................... 6.040 Tier 1 2,900 2,885,403
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 88
Financial Statements
John Hancock Funds - Money Market Fund B
<TABLE>
<CAPTION>
PAR VALUE
INTEREST QUALITY (000'S
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
------------------- -------- -------- --------- -----
<S> <C> <C> <C> <C>
RETAIL STORES (10.18%)
Dayton Hudson Corp.,
06-16-95..................................................................... 6.020% Tier 1 $ 2,900 $ 2,870,903
Sears Roebuck Acceptance Corp.,
05-12-95..................................................................... 6.000 Tier 1 2,900 2,885,500
-----------
5,756,403
-----------
TOBACCO (5.29%)
Philip Morris Cos., Inc.,
05-05-95..................................................................... 6.000 Tier 13,000 2,987,500
-----------
UTILITIES (9.71%)
Pennsylvania Power & Light Co.,
05-09-95..................................................................... 5.970 Tier 1 2,000 1,995,356
Public Service Electric & Gas Co.,
05-09-95..................................................................... 6.000 Tier 1 2,900 2,894,200
U.S. West Communications, Inc.,
05-02-95..................................................................... 6.000 Tier 1 600 597,400
-----------
5,486,956
-----------
TOTAL COMMERCIAL PAPER
(Cost $36,423,414) ( 64.44%) 36,423,414
------- -----------
NEGOTIABLE BANK CERTIFICATES OF DEPOSIT
U.S. BRANCHES OF FOREIGN BANKS (7.08%)
Industrial Bank of Japan Ltd.,
06-21-95..................................................................... 6.250 Tier 1 2,000 2,000,076
Sanwa Bank Ltd.,
05-25-95..................................................................... 6.040 Tier 1 2,000 2,000,013
-----------
4,000,089
TOTAL NEGOTIABLE BANK
CERTIFICATES OF DEPOSIT
(Cost $4,000,089) ( 7.08%) 4,000,089
------- -----------
BANKERS' ACCEPTANCES
U.S. BRANCHES OF FOREIGN BANKS (3.51%)
Bank of Tokyo Ltd.,
06-05-95..................................................................... 6.020 Tier 1 2,000 1,982,274
-----------
TOTAL BANKERS' ACCEPTANCES
(Cost $1,982,274) ( 3.51%) 1,982,274
------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 89
Financial Statements
John Hancock Funds - Money Market Fund B
<TABLE>
<CAPTION>
PAR VALUE
INTEREST QUALITY (000'S
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
------------------- -------- -------- --------- -----
<S> <C> <C> <C> <C>
CORPORATE INTEREST-BEARING OBLIGATIONS
Finance (1.75%)
General Electric Capital Corp.,
11-15-95................................................................... 5.250% Tier 1 $ 1,000 $ 992,740
-----------
TOTAL CORPORATE INTEREST
BEARING OBLIGATIONS
(Cost $992,740) ( 1.75%) 992,740
------- -----------
U. S. GOVERNMENT OBLIGATIONS
Governmental - U. S. Agencies (10.15%)
Federal Farm Credit Bank,
08-01-95................................................................... 6.650 Tier 1 1,000 1,000,083
Federal Farm Credit Bank,
11-01-95................................................................... 6.100 Tier 1 3,500 3,500,000
Federal Home Loan Mortgage Corp.,
05-22-95................................................................... 7.438 Tier 1 250 241,684
Federal National Mortgage Association,
05-22-95................................................................... 6.340 Tier 1 485 473,128
Federal National Mortgage Association,
06-15-95................................................................... 6.549 Tier 1 540 521,827
-----------
5,736,722
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $5,736,722) ( 10.15%) 5,736,722
------- -----------
JOINT REPURCHASE AGREEMENT
Investment in a joint repurchase agreement
transaction with BT Securities Corp. -
Dated 04-28-95, Due 05-01-95
(secured by U.S. Treasury Bond,
10.75% Due 08-15-05 and U.S.
Treasury Note, 6.875% Due 10-31-96)............................. 5.960 10,750 10,750,000
------- -----------
TOTAL JOINT REPURCHASE AGREEMENT ( 19.02%) 10,750,000
------- -----------
TOTAL INVESTMENTS (105.95%) $59,885,239
======= ===========
<FN>
*Quality ratings indicate the categories of eligible securities, as defined by Rule 2a-7 of the U.S. Securities and Exchange
Commission, owned by the Fund. The percentage shown for each investment category is the total value of that category expressed
as a percentage of total net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 90
Notes to Financial Statements
John Hancock Funds - Money Market Fund B
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Trust") is a diversified, open-end management
investment company, registered under the Investment Company Act of 1940, as
amended. The Trust consists of six series portfolios: John Hancock Money
Market Fund B (the "Fund"), John Hancock Emerging Growth Fund, John Hancock
Global Resources Fund, John Hancock High Yield Tax Free Fund, John Hancock
High Yield Bond Fund and John Hancock Government Income Fund. The Trustees
may authorize the creation of additional Funds from time to time to satisfy
various investment objectives. Effective December 22, 1994 (see Note B), the
Trust and Funds changed names by replacing the word Transamerica with John
Hancock.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS The Trustees have determined appropriate methods for
valuing portfolio securities. Accordingly, portfolio securities are valued at
amortized cost, in accordance with Rule 2a-7 of the Investment Company Act of
1940, which approximates market value. The amortized cost method involves
valuing a security at its cost on the date of purchase and thereafter
assuming a constant amortization to maturity of the difference between the
principal amount due at maturity and the cost of the security to the Fund.
Interest income on certain portfolio securities such as negotiable bank
certificates of deposit and interest bearing notes is accrued daily and
included in interest receivable.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring
that the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date
of purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis for both financial
reporting and federal income tax purposes.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of
the Internal Revenue Code that are applicable to regulated investment
companies. It will not be subject to Federal income tax on taxable earnings
which are distributed to shareholders.
DIVIDENDS The Fund's net investment income is declared daily as dividends to
shareholders of record as of the close of business on the preceding day and
distributed monthly.
NOTE B -
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES AND TRANSACTIONS WITH AFFILIATES
AND OTHERS
On December 22, 1994, the Adviser became the investment adviser for the Fund
with approval of the Trustees and shareholders of the Fund. The Fund's former
investment manager was Transamerica Fund Management Company ("TFMC").
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment program
equivalent, on an annual basis, to the sum of (a) 0.50% of the first
$500,000,000 of the Fund's average daily net asset value, (b) 0.425% of the
next $250,000,000, (c) 0.375% of the next $250,000,000, (d) 0.350% of the next
$500,000,000, (e) 0.325% of the next $500,000,000, (f) 0.300% of the next
$500,000,000 and (g) 0.275% of the Fund's average daily net asset value in
excess of $2,500,000,000. This fee structure is consistent with the former
agreement with TFMC. For the period ended April 30, 1995, the advisory fee
earned by the Adviser and TFMC amounted to $87,082 and $50,611, respectively,
resulting in a total fee of $137,693.
11
<PAGE> 91
Notes to Financial Statements
John Hancock Funds - Money Market Fund B
The Adviser and TFMC, for their respective periods, provided
administrative services to the Fund pursuant to an administrative service
agreement through January 16, 1995 on which day the agreement was terminated.
In the event normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of the most
restrictive state limit where the Fund is registered to sell shares of
beneficial interest, the fee payable to the Adviser will be reduced to the
extent of such excess and the Adviser will make additional arrangements
necessary to eliminate any remaining excess expenses. The current limits are
2.5% of the first $30,000,000 of the Fund's average daily net asset value,
2.0% of the next $70,000,000 and 1.5% of the remaining average daily net
asset value.
On December 22, 1994 John Hancock Funds, Inc. ("JH Funds"), a
wholly-owned subsidiary of the Adviser, became the principal underwriter of
the Fund. Prior to this date, Transamerica Fund Distributors, Inc. ("TFD")
served as the principal underwriter and distributor of the Fund.
Class B shares which are redeemed within six years of purchase will
be subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSC are paid to JH Funds, formerly TFD, and are used in
whole or in part to defray its expenses related to providing distribution
related services to the Fund in connection with the sale of Class B shares.
For the period ended April 30, 1995, contingent deferred sales charges
amounted to $302,060.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Accordingly,
the Fund will make payments for distribution and service expenses which in
total will not exceed on an annual basis 1.00% of the Fund's average daily
net assets to reimburse for its distribution/service costs. Up to a maximum
of 0.25% of such payments may be service fees as defined by the amended Rules
of Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. This fee structure and plan
is similar to the former arrangement with TFD.
The Board of Trustees approved a shareholder servicing agreement
between the Fund and John Hancock Investor Services Corporation ("Investor
Services"), a wholly owned subsidiary of The Berkeley Financial Group, for
the period between December 22, 1994 and May 12, 1995, inclusive under which
Investor Services processed telephone transactions on behalf of the Fund. As of
May 15, 1995, the Fund entered into a full service transfer agent agreement
with Investor Services. Prior to this date The Shareholder Services Group was
the transfer agent. The Fund will pay Investor Services a fee based on
transaction volume and number of shareholder accounts.
A partner with Baker & Botts was an officer of the Trust until
December 22, 1994. During the period ended April 30, 1995, legal fees paid to
Baker & Botts amounted to $688.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser
and its affiliates as well as Trustee of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Trustees may elect to defer their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation
Plan. The Fund will make investments into other John Hancock Funds, as
applicable, to cover its liability with regard to the deferred compensation.
Investments to cover the Fund's deferred compensation liability will be
recorded on the Fund's books as other assets. The deferred compensation
liability will be marked to market on a periodic basis and income earned by
the investment will be recorded on the Fund's books.
The Fund has an independent advisory board composed of certain
members of the former Transamerica Board of Trustees who provide advice to
the current Trustees in order to facilitate a smooth management transition
for which the Fund pays the advisory board and its counsel a fee.
12
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Notes to Financial Statements
John Hancock Funds - Money Market Fund B
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities, including discount earned
on investment securities, during the period ended April 30, 1995 aggregated
$1,348,016,627 and $1,332,603,541, respectively. The cost of investments
owned at April 30, 1995 for Federal income tax purposes was $59,885,239.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 93
JOHN HANCOCK SERIES, INC.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
consisting of six series,
JOHN HANCOCK MONEY MARKET FUND
JOHN HANCOCK GLOBAL RESOURCES FUND
JOHN HANCOCK GOVERNMENT INCOME FUND
JOHN HANCOCK HIGH YIELD BOND FUND
JOHN HANCOCK HIGH YIELD TAX-FREE FUND
JOHN HANCOCK EMERGING GROWTH FUND
(each, a "Fund" and collectively, the "Funds")
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 12, 1995
This Statement of Additional Information ("SAI") provides information
about John Hancock Series, Inc. (the "Corporation") and the Funds, in addition
to the information that is contained in the John Hancock Money Market Fund Class
A and Class B Share Prospectus (the "Money Market Fund Prospectus") dated
September 12, 1995 and in the Prospectuses of each of the other Funds dated May
15, 1995 (collectively with the Money Market Fund Prospectus, the
"Prospectuses").
This SAI is not a prospectus. It should be read in conjunction with the
Funds' Prospectuses, copies of which can be obtained free of charge by writing
or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
<PAGE> 94
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Organization of the Corporation...................................... 3
Investment Objectives and Policies................................... 3
Certain Investment Practices......................................... 4
Investment Restrictions.............................................. 23
Those Responsible for Management..................................... 28
Investment Advisory and Other Services............................... 38
Distribution Contract................................................ 42
Net Asset Value...................................................... 46
Initial Sales Charge on Class A Shares............................... 47
Deferred Sales Charge on Class B Shares.............................. 49
Special Redemptions.................................................. 49
Additional Services and Programs..................................... 49
Description of the Corporation's Shares.............................. 51
Tax Status........................................................... 52
Calculation of Performance........................................... 57
Brokerage Allocation................................................. 60
Transfer Agent Services.............................................. 62
Custody of Porftolio................................................. 62
Independent Auditors................................................. 63
Appendix............................................................. A-1
Financial Statements................................................. F-1
</TABLE>
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ORGANIZATION OF THE CORPORATION
The Corporation is an open-end management investment company organized
as a Maryland corporation on June 22, 1987. The Corporation currently has six
series: John Hancock Emerging Growth Fund, John Hancock Global Resources Fund,
John Hancock Government Income Fund, John Hancock High Yield Bond Fund, John
Hancock High Yield Tax-Free Fund and John Hancock Money Market Fund. Prior to
September 12, 1995, the John Hancock Money Market Fund was called John Hancock
Money Market Fund B. Prior to December 22, 1994, the Funds were called
Transamerica Emerging Growth Fund, Transamerica Global Resources Fund,
Transamerica Government Income Fund, Transamerica High Yield Bond Fund,
Transamerica High Yield Tax-Free Fund and Transamerica Money Market Fund B.
Each Fund is managed by John Hancock Advisers, Inc. (the "Adviser"), a
wholly-owned indirect subsidiary of John Hancock Mutual Life Insurance Company
(the "Life Company"), chartered in 1862 with national headquarters at John
Hancock Place, Boston, Massachusetts. John Hancock Funds, Inc. ("John Hancock
Funds") acts as principal distributor of the shares of the Funds.
INVESTMENT OBJECTIVES AND POLICIES
JOHN HANCOCK MONEY MARKET FUND ("Money Market Fund") seeks to provide maximum
current income consistent with capital preservation and liquidity. The Fund's
investments will be subject to the market fluctuation and risks inherent in all
securities.
JOHN HANCOCK GLOBAL RESOURCES FUND'S ("Global Resources Fund") investment
objectives are to protect the purchasing power of shareholders' capital and to
achieve growth of capital. The first of these objectives means that the Fund
seeks to protect generally shareholders' invested capital against erosion of the
value of the U.S. dollar through inflation. Current income will not be a primary
consideration in selecting securities. However, it will be an important factor
in making selections among securities believed otherwise comparable by the
Adviser.
Investment Philosophy of Global Resources Fund. The Adviser believes
that, based upon past performance, the securities of specific companies that
hold different types of substantial resource assets or engage in
resource-related or energy-related activities may move relatively independently
of one another during different stages of inflationary or deflationary cycles
because of different degrees of demand for, or market values of, their
respective resource holdings or resource-related or energy-related business
during particular portions of such cycles. For example, during the period 1976
to 1980, the prices of oil company stocks increased relatively more than the
prices of coal company stocks when compared to the performance of relevant stock
market indices. The Adviser will seek to identify companies or asset-based
securities which it believes are attractively priced relative to the intrinsic
value of the underlying resource assets or resource-related or energy-related
business or are especially well positioned to benefit during particular portions
of inflationary or deflationary cycles. It is expected that when management of
the Fund anticipates significant economic, political or financial instability,
such as high inflationary or deflationary pressures or major dislocations in the
foreign currency exchange markets, the Fund may, in seeking to protect the
purchasing power of shareholders' capital, invest a majority of its assets in
companies that explore for, extract, process or deal in gold or in asset-based
securities indexed to the value of gold bullion. Such a switch in investment
strategies could result in substantial liquidation of portfolio securities and
significant transaction costs. The Fund's approach of active investment
management enables it to switch its emphasis among various industry groups,
depending upon the Adviser's outlook with respect to prevailing trends
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and developments. The Fund may seek to hedge its portfolio partially by writing
covered call options or purchasing put options on its portfolio holdings.
JOHN HANCOCK GOVERNMENT INCOME FUND'S ("Government Income Fund") investment
objective is to earn a high level of current income consistent with preservation
of capital by investing primarily in securities that are issued or guaranteed as
to principal and interest by the U.S. Government, its agencies or
instrumentalities. The Fund may seek to enhance its current return and may seek
to hedge against changes in interest rates by engaging in transactions involving
options (subject to certain limits), futures and options on futures. The Fund
expects that under normal market conditions it will invest at least 80% of its
total assets in U.S. Government securities (and related repurchase agreements
and forward commitments).
JOHN HANCOCK HIGH YIELD BOND FUND'S ("High Yield Bond Fund") primary investment
objective is to maximize current income without assuming undue risk by investing
in a diversified portfolio consisting primarily of lower-rated, high yielding,
fixed income securities, such as: domestic and foreign corporate bonds;
debentures and notes; convertible securities; preferred stocks; and domestic and
foreign government obligations. As a secondary objective, the Fund seeks capital
appreciation, but only when it is consistent with the primary objective of
maximizing current income.
JOHN HANCOCK HIGH YIELD TAX-FREE FUND'S ("High Yield Tax-Free Fund") primary
investment objective is to obtain a high level of current income that is largely
exempt from federal income taxes and is consistent with the preservation of
capital. The Fund pursues this objective by normally investing substantially all
of its assets in medium and lower quality obligations, including bonds, notes
and commercial paper, issued by or on behalf of states, territories and
possessions of the United States, The District of Columbia and their political
subdivisions, agencies or instrumentalities, the interest on which is exempt
from federal income tax ("tax-exempt securities"). The Fund seeks as its
secondary objective preservation of capital by purchasing and selling interest
rate futures contracts ("financial futures") and tax-exempt bond index futures
contracts ("index futures"), and by purchasing and writing put and call options
on debt securities, financial futures, tax-exempt bond indices and index futures
to hedge against changes in the general level of interest rates.
JOHN HANCOCK EMERGING GROWTH FUND ("Emerging Growth Fund") seeks long-term
growth of capital through investing primarily (at least 80% of its assets in
normal circumstances) in the common stocks of rapidly growing small-sized
companies (those with a market capitalization of $500 million or less) to
medium-sized companies (those with a market capitalization of up to $1 billion.)
Current income is not a factor of consequence in the selection of stocks for the
Fund.
There can be no assurance that the Funds will achieve their respective
investment objectives.
CERTAIN INVESTMENT PRACTICES
GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities, which are obligations issued or guaranteed by the U.S. Government
and its agencies, authorities or instrumentalities. Certain U.S. Government
securities, including U.S. Treasury bills, notes and bonds, and Government
National Mortgage Association certificates ("Ginnie Maes"), are supported by the
full faith and credit of the United States. Certain other U.S. Government
securities, issued or guaranteed by Federal agencies or government sponsored
enterprises, are not supported by the full faith and credit of the United
States, but may be supported by the right of the issuer to borrow from the U.S.
Treasury. These securities include obligations of the Federal Home Loan Mortgage
Corporation ("Freddie Macs"), and obligations supported by the credit of
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the instrumentality, such as Federal National Mortgage Association Bonds
("Fannie Maes"). No assurance can be given that the U.S. Government will provide
financial support to such Federal agencies, authorities, instrumentalities and
government sponsored enterprises in the future.
CUSTODIAL RECEIPTS. The Funds may each acquire custodial receipts in
respect of U.S. government securities. Such custodial receipts evidence
ownership of future interest payments, principal payments or both on certain
notes or bonds. These custodial receipts are known by various names, including
Treasury Receipts, Treasury Investors Growth Receipts ("TIGRs"), and
Certificates of Accrual on Treasury Securities ("CATS"). For certain securities
law purposes, custodial receipts are not considered U.S. government securities.
BANK AND CORPORATE OBLIGATIONS. Each of the Funds may invest in
commercial paper. Commercial paper represents short-term unsecured promissory
notes issued in bearer form by banks or bank holding companies, corporations and
finance companies. The commercial paper purchased by the Funds consists of
direct U.S. dollar denominated obligations of domestic or foreign issuers. Bank
obligations in which a Fund may invest include certificates of deposit, bankers'
acceptances and fixed time deposits. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity. Fixed time deposits
are bank obligations payable at a stated maturity date and bearing interest at a
fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but
may be subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Bank notes and bankers' acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured obligations
of the bank. Bank notes are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Deposit notes are insured by the Federal
Deposit Insurance Corporation only to the extent of $100,000 per depositor per
bank.
MUNICIPAL OBLIGATIONS. Money Market Fund, High Yield Bond Fund and High
Yield Tax-Free Fund may invest in a variety of municipal obligations which
consist of municipal bonds, municipal notes and municipal commercial paper.
Municipal Bonds. Municipal bonds are issued to obtain funds for various
public purposes including the construction of a wide range of public facilities
such as airports, highways, bridges, schools, hospitals, housing, mass
transportation, streets and water and sewer works. Other public purposes for
which municipal bonds may be issued include refunding outstanding obligations,
obtaining funds for general operating expenses and obtaining funds to lend to
other public institutions and facilities. In addition, certain types of
industrial development bonds are issued by or on behalf of public authorities to
obtain funds for many types of local, privately operated facilities. Such debt
instruments are considered municipal obligations if the interest paid on them is
exempt from federal income tax. The payment of principal and interest by issuers
of certain obligations purchased by a Fund may be guaranteed by a letter of
credit, note repurchase agreement, insurance or other credit facility agreement
offered by a bank or other financial institution. Such guarantees and the
creditworthiness of guarantors will be considered by the Adviser in determining
whether a municipal obligation meets the Fund's investment quality requirements.
No assurance can be given that a municipality or guarantor will be able to
satisfy the payment of principal or interest on a municipal obligation.
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Municipal Notes. Municipal notes are short-term obligations of
municipalities, generally with a maturity ranging from six months to three
years. The principal types of such notes include tax, bond and revenue
anticipation notes and project notes.
Municipal Commercial Paper. Municipal commercial paper is a short-term
obligation of a municipality, generally issued at a discount with a maturity of
less than one year. Such paper is likely to be issued to meet seasonal working
capital needs of a municipality or interim construction financing. Municipal
commercial paper is backed in many cases by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks and other institutions.
Federal tax legislation enacted in the 1980's placed substantial new
restrictions on the issuance of the bonds described above and in some cases
eliminated the ability of state or local governments to issue municipal
obligations for some of the above purposes. Such restrictions do not affect the
Federal income tax treatment of municipal obligations in which a Fund may invest
which were issued prior to the effective dates of the provisions imposing such
restrictions. The effect of these restrictions may be to reduce the volume of
newly issued municipal obligations.
Issuers of municipal obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Act, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that as a result of
litigation or other conditions the power or ability of any one or more issuers
to pay when due the principal of and interest on their municipal obligations may
be affected.
The yields of municipal bonds depend upon, among other things, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, the maturity of the obligation and rating of the
issue. The ratings of Standard & Poor's Ratings Group ("S&P"), Moody's Investors
Service, Inc. ("Moody's") and Fitch Investors Service ("Fitch") represent their
respective opinions on the quality of the municipal bonds they undertake to
rate. It should be emphasized, however, that ratings are general and not
absolute standards of quality. Consequently, municipal bonds with the same
maturity, coupon and rating may have different yields and municipal bonds of the
same maturity and coupon with different ratings may have the same yield. See the
Appendix for a description of ratings. Many issuers of securities choose not to
have their obligations rated. Although unrated securities eligible for purchase
by a Fund must be determined to be comparable in quality to securities having
certain specified ratings, the market for unrated securities may not be as broad
as for rated securities since many investors rely on rating organizations for
credit appraisal.
MORTGAGE-BACKED SECURITIES. Government Income Fund and High Yield Bond
Fund may invest in mortgage pass-through certificates and multiple-class
pass-through securities, such as real estate mortgage investment conduits
("REMIC") pass-through certificates, collateralized mortgage obligations
("CMOs") and stripped mortgage-backed securities ("SMBS"), and other types of
"Mortgage-Backed Securities" that may be available in the future.
Guaranteed Mortgage Pass-Through Securities. Guaranteed mortgage
pass-through securities represent participation interests in pools of
residential mortgage loans and are issued by U.S. Governmental or private
lenders and guaranteed by the U.S. Government or one of its agencies or
instrumentalities, including but not limited to the Government National Mortgage
Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie
Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). Ginnie Mae
certificates are guaranteed by the full faith and credit of the U.S. Government
for timely payment of principal and
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interest on the certificates. Fannie Mae certificates are guaranteed by Fannie
Mae, a federally chartered and privately owned corporation, for full and timely
payment of principal and interest on the certificates. Freddie Mac certificates
are guaranteed by Freddie Mac, a corporate instrumentality of the U.S.
Government, for timely payment of interest and the ultimate collection of all
principal of the related mortgage loans.
Multiple-Class Pass-Through Securities and Collateralized Mortgage
Obligations. CMOs and REMIC pass-through or participation certificates may be
issued by, among others, U.S. Government agencies and instrumentalities as well
as private lenders. CMOs and REMIC certificates are issued in multiple classes
and the principal of and interest on the mortgage assets may be allocated among
the several classes of CMOs or REMIC certificates in various ways. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Generally, interest is paid or accrues on all
classes of CMOs or REMIC certificates on a monthly basis.
Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie
Mac certificates but also may be collateralized by other mortgage assets such as
whole loans or private mortgage pass-through securities. Debt service on CMOs is
provided from payments of principal and interest on collateral of mortgaged
assets and any reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code of 1986, as amended (the "Code") and invests in certain
mortgages primarily secured by interests in real property and other permitted
investments.
Stripped Mortgage-Backed Securities. SMBS are derivative multiple-class
mortgage-backed securities. SMBS are usually structured with two classes that
receive different proportions of interest and principal distributions on a pool
of mortgage assets. A typical SMBS will have one class receiving some of the
interest and most of the principal, while the other class will receive most of
the interest and the remaining principal. In the most extreme case, one class
will receive all of the interest (the "interest only" class) while the other
class will receive all of the principal (the "principal only" class). The yields
and market risk of interest only and principal only SMBS, respectively, may be
more volatile than those of other fixed income securities. The staff of the SEC
considers privately issued SMBS to be illiquid.
Structured or Hybrid Notes. Government Income Fund, High Yield Bond
Fund and High Yield Tax-Free Fund may invest in "structured" or "hybrid" notes.
The distinguishing feature of a structured or hybrid note is that the amount of
interest and/or principal payable on the note is based on the performance of a
benchmark asset or market other than fixed income securities or interest rates.
Examples of these benchmarks include stock prices, currency exchange rates and
physical commodity prices. Investing in a structured note allows a Fund to gain
exposure to the benchmark market while fixing the maximum loss that the Fund may
experience in the event that market does not perform as expected. Depending on
the terms of the note, a Fund may forego all or part of the interest and
principal that would be payable on a comparable conventional note; a Fund's loss
cannot exceed this foregone interest and/or principal. An investment in
structured or hybrid notes involves risks similar to those associated with a
direct investment in the benchmark asset.
RISK FACTORS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES. Investing in
Mortgage-Backed Securities involves certain risks, including the failure of a
counter-party to meet its commitments, adverse interest rate changes and the
effects of prepayments on mortgage cash flows. In addition, investing in the
lowest tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities. Further, the yield
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characteristics of Mortgage-Backed Securities differ from those of traditional
fixed income securities. The major differences typically include more frequent
interest and principal payments (usually monthly), the adjustability of interest
rates, and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates
and a variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, a Fund may fail to recoup fully its
investment in Mortgage-Backed Securities notwithstanding any direct or indirect
governmental, agency or other guarantee. When a Fund reinvests amounts
representing payments and unscheduled prepayments of principal, it may receive a
rate of interest that is lower than the rate on existing adjustable rate
mortgage pass-through securities. Thus, Mortgage-Backed Securities, and
adjustable rate mortgage pass-through securities in particular, may be less
effective than other types of U.S. Government securities as a means of "locking
in" interest rates.
Conversely, in a rising interest rate environment, a declining
prepayment rate will extend the average life of many Mortgage-Backed Securities.
This possibility is often referred to as extension risk. Extending the average
life of a Mortgage-Backed Security increases the risk of depreciation due to
future increases in market interest rates.
RISK ASSOCIATED WITH SPECIFIC TYPES OF DERIVATIVE DEBT SECURITIES.
Different types of derivative debt securities are subject to different
combinations of prepayment, extension and/or interest rate risk. Conventional
mortgage pass-through securities and sequential pay CMOs are subject to all of
these risks, but are typically not leveraged. Thus, the magnitude of exposure
may be less than for more leveraged Mortgage-Backed Securities.
The risk of early prepayments is the primary risk associated with
interest only debt securities ("IOs"), super floaters, other leveraged floating
rate instruments and Mortgage-Backed Securities purchased at a premium to their
par value. In some instances, early prepayments may result in a complete loss of
investment in certain of these securities. The primary risks associated with
certain other derivative debt securities are the potential extension of average
life and/or depreciation due to rising interest rates.
These securities include floating rate securities based on the Cost of
Funds Index ("COFI floaters"), other "lagging rate" floating rate securities,
floating rate securities that are subject to a maximum interest rate ("capped
floaters"), Mortgage-Backed Securities purchased at a discount, leveraged
inverse floating rate securities ("inverse floaters"), principal only debt
securities ("POs"), certain residual or support tranches of CMOs and index
amortizing notes. Index amortizing notes are not Mortgage-Backed Securities, but
are subject to extension risk resulting from the issuer's failure to exercise
its option to call or redeem the notes before their stated maturity date.
Leveraged inverse IOs combine several elements of the Mortgage-Backed Securities
described above and thus present an especially intense combination of
prepayment, extension and interest rate risks.
Planned amortization class ("PAC") and target amortization class
("TAC") CMO bonds involve less exposure to prepayment, extension and interest
rate risk than other Mortgage-Backed Securities, provided that prepayment rates
remain within expected prepayment ranges or "collars." To the extent that
prepayment rates remain within these prepayment ranges, the residual or support
tranches of PAC and TAC CMOs assume the extra prepayment, extension and interest
rate risk associated with the underlying mortgage assets.
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Other types of floating rate derivative debt securities present more
complex types of interest rate risks. For example, range floaters are subject to
the risk that the coupon will be reduced to below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to depreciation in the event of an
unfavorable change in the spread between two designated interest rates. X-reset
floaters have a coupon that remains fixed for more than one accrual period.
Thus, the type of risk involved in these securities depends on the terms of each
individual X-reset floater.
ASSET-BACKED SECURITIES. Government Income Fund and High Yield Bond
Fund may invest a portion of their assets in asset-backed securities which are
rated in one of the two highest rating categories by a nationally recognized
statistical rating organization (e.g., S&P or Moody's) or if not so rated, of
equivalent investment quality in the opinion of the Adviser.
Asset-backed securities are often subject to more rapid repayment than
their stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can be
expected to accelerate. Accordingly, a Fund's ability to maintain positions in
such securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the returns
of principal at comparable yields is subject to generally prevailing interest
rates at that time.
Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than
residential real property. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
ASSET-BASED SECURITIES. Global Resources Fund may invest in debt
securities, preferred stocks or convertible securities, the principal amount,
redemption terms or conversion terms of which are related to the market price of
some resource asset such as gold bullion. For the purposes of the Fund's
investment policies, these securities are referred to as asset-based securities.
If the asset-based security is backed by a bank letter of credit or
other similar facility, the Adviser may take such backing into account in
determining the credit quality of the asset-based security. Although an
asset-based security and the related natural resource asset generally are
expected to move in the same direction, there may not be perfect correlation in
the two price movements. Asset-based securities may not be secured by a security
interest in or claim on the underlying natural resource assets. The Fund's
holdings of such securities may not generate appreciable current income and the
return from such securities primarily will be from any profit on the sale,
maturity or conversion thereof at a time when the price of the related asset is
higher than it was when the Fund purchased such securities.
The asset-based securities in which the Fund may invest may bear
interest or pay preferred dividends at below market (or even relatively nominal)
rates. Certain asset-based securities may be payable at maturity in cash at the
stated principal amount or, at the option of the holder,
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directly in a stated amount of the asset to which it is related. In such
instance, because the Fund presently does not intend to invest directly in
natural resource assets other than gold bullion, the Fund would sell the
asset-based security in the secondary market, to the extent one exists, prior to
maturity if the value of the stated amount of the asset exceeds the stated
principal amount and thereby realize the appreciation in the underlying asset.
The Fund will not acquire asset-based securities for which no
established secondary trading market exists if at the time of acquisition more
than 10% of its total assets are invested in securities which are not readily
marketable. The Fund may invest in asset-based securities without limit when it
has the right to sell such securities to the issuer or a stand-by bank or broker
and receive the principal amount or redemption price thereof less transaction
costs on no more than seven days notice or when the Fund has the right to
convert such securities into a readily marketable security in which it could
otherwise invest upon not more than seven days notice.
SPECIAL CONSIDERATIONS RELATED TO INVESTMENT IN GOLD. Under certain
circumstances, Global Resources Fund may invest a majority of its assets in
gold, gold related securities or securities of gold-related companies. Based on
historic experience, during periods of economic or financial instability the
securities of such companies may be subject to extreme price fluctuations,
reflecting the high volatility of gold prices during such periods. Gold may be
affected by unpredictable international monetary and political policies, social
conditions within a particular country, trade imbalances or trade or currency
restrictions between countries. In addition, the instability of gold prices may
result in volatile earnings of gold-related companies which, in turn, may affect
adversely the financial condition of such companies. Gold mining companies also
are subject to the risks generally associated with mining operations.
The major producers of gold include the Republic of South Africa,
Russia, Canada, the United States, Brazil and Australia. Sales of gold by Russia
are largely unpredictable and often relate to political and economic
considerations rather than to market forces. Economic, social and political
developments within South Africa may affect significantly South African gold
production and the markets for South African gold which may in turn
significantly affect the price of gold.
The Fund is currently authorized to invest up to 10% of its assets in
gold bullion and coins, although it does not currently intend to invest in
coins. The Fund may seek to increase this limit to 25% through negotiation with
a certain state which imposes the 10% limit as a condition for qualifying the
shares of the Fund for sale in that state.
Investments in gold may help to hedge against inflation and major
fluctuations in the Fund's shares because at certain times the price of gold has
fluctuated less widely than the value of the securities which are permitted
investments. When the Fund purchases bullion, the Adviser currently intends that
it will be only in a form that is readily marketable and that it will be
delivered to and stored with a qualified U.S. bank. An investment in bullion
earns no investment income and involves higher custody and transaction costs
than investments in securities. The Fund will also incur the cost of insurance
in connection with holding gold. The market for gold bullion is presently
unregulated which could affect the ability of the Fund to acquire or dispose of
gold bullion. In order to qualify as a regulated investment company for federal
income taxes, the Fund may receive no more than 10% of its yearly gross income
from gains caused by selling gold bullion or coins and from certain other
sources that do not produce "qualifying" income. The Fund may be required,
therefore, either to hold its gold bullion or sell it at a loss, or to sell its
portfolio securities at a gain, when it would not otherwise do so for investment
reasons. The Fund may also purchase precious metal warehouse receipts that may
be convertible into cash or gold bullion as an alternative to a direct
investment in gold. Whereas gold bullion is traded in the form of contracts to
buy or sell bullion which are in the nature of futures or commodities contracts,
warehouse receipts represent ownership of a specified quantity of identified
gold bars held in
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storage. Although ownership of gold in this manner entails storage and insurance
expense, there is an active over-the-counter market in such receipts so that
they are a liquid investment. For purposes of the Fund's investment limitations,
such warehouse receipts would be considered to be equivalent to direct
investments in the precious metals.
FOREIGN SECURITIES AND EMERGING COUNTRIES. Emerging Growth Fund, Global
Resources Fund and High Yield Bond Fund may invest in securities of foreign
issuers. These Funds may also invest in debt and equity securities of corporate
and governmental issuers of countries with emerging economies or securities
markets. Government Income Fund may invest in foreign currency denominated
securities of foreign governments considered stable by the Adviser and may hedge
such investments through various options and futures transactions involving
foreign currencies. Money Market Fund may invest in foreign securities and in
certificates of deposit, bankers' acceptances and fixed time deposits and other
obligations issued by foreign banks and their U.S. and foreign branches and
foreign branches of U.S. banks. Money Market Fund may also invest in municipal
instruments backed by letters of credit issued by certain of such banks. Under
current Securities and Exchange Commission ("SEC") rules relating to the use of
the amortized cost method of portfolio securities valuation, Money Market Fund
is restricted to purchasing U.S. dollar denominated securities.
Investing in obligations of non-U.S. issuers and foreign banks,
particularly securities of issuers located in emerging countries, may entail
greater risks than investing in similar securities of U.S. issuers. These risks
include (i) social, political and economic instability; (ii) the small current
size of the markets for many such securities and the currently low or
nonexistent volume of trading, which may result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict a
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; and
(v) the absence of developed structures governing private or foreign investment
or allowing for judicial redress for injury to private property.
Investing in securities of non-U.S. companies may entail additional
risks due to the potential political and economic instability of certain
countries and the risks of expropriation, nationalization, confiscation or the
imposition of restrictions on foreign investment and on repatriation of capital
invested. In the event of such expropriation, nationalization or other
confiscation by any country, a Fund could lose its entire investment in any such
country.
In addition, even though opportunities for investment may exist in
foreign countries, and in particular emerging markets, any change in the
leadership or policies of the governments of those countries or in the
leadership or policies of any other government which exercises a significant
influence over those countries, may halt the expansion of or reverse the
liberalization of foreign investment policies now occurring and thereby
eliminate any investment opportunities which may currently exist.
Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of Latin American countries previously
expropriated large quantities of real and personal property similar to the
property which may be represented by the securities purchased by the Funds. The
claims of property owners against those governments were never finally settled.
There can be no assurance that any property represented by foreign securities
purchased by a Fund will not also be expropriated, nationalized, or otherwise
confiscated. If such confiscation were to occur, a Fund could lose a substantial
portion of its investments in such countries. A Fund's investments would
similarly be adversely affected by exchange control regulation in any of those
countries.
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Certain countries in which the Funds may invest may have vocal
minorities that advocate radical religious or revolutionary philosophies or
support ethnic independence. Any disturbance on the part of such individuals
could carry the potential for widespread destruction or confiscation of property
owned by individuals and entities foreign to such country and could cause the
loss of a Fund's investment in those countries.
Certain countries prohibit or impose substantial restrictions on
investments in their capital markets, particularly their equity markets, by
foreign entities such as the Funds. As illustrations, certain countries require
governmental approval prior to investments by foreign persons, or limit the
amount of investment by foreign persons in a particular company, or limit the
investment by foreign persons to only a specific class of securities of a
company that may have less advantageous terms than securities of the company
available for purchase by nationals. Moreover, the national policies of certain
countries may restrict investment opportunities in issuers or industries deemed
sensitive to national interests. In addition, some countries require
governmental approval for the repatriation of investment income, capital or the
proceeds of securities sales by foreign investors. A Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation, as well as by the application to it of other restrictions on
investments.
Foreign companies are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. companies. In particular, the assets, liabilities and profits
appearing on the financial statements of such a company may not reflect its
financial position or results of operations in the way they would be reflected
had such financial statements been prepared in accordance with U.S. generally
accepted accounting principles. Most foreign securities held by the Funds will
not be registered with the SEC and such issuers thereof will not be subject to
the SEC's reporting requirements. Thus, there will be less available information
concerning foreign issuers of securities held by the Funds than is available
concerning U.S. issuers. In instances where the financial statements of an
issuer are not deemed to reflect accurately the financial situation of the
issuer, the Adviser or Subadviser will take appropriate steps to evaluate the
proposed investment, which may include on-site inspection of the issuer,
interviews with its management and consultations with accountants, bankers and
other specialists. There is substantially less publicly available information
about foreign companies than there are reports and ratings published about U.S.
companies and the U.S. government. In addition, where public information is
available, it may be less reliable than such information regarding U.S. issuers.
Because the Funds (other than Money Market Fund) may invest, and Global
Resources Fund will (under normal circumstances) invest a substantial portion of
their total assets, in securities which are denominated or quoted in foreign
currencies, the strength or weakness of the U.S. dollar against such currencies
may account for part of the Funds' investment performance. A decline in the
value of any particular currency against the U.S. dollar will cause a decline in
the U.S. dollar value of a Fund's holdings of securities denominated in such
currency and, therefore, will cause an overall decline in the Fund's net asset
value and any net investment income and capital gains to be distributed in U.S.
dollars to shareholders of the Fund.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the movement
of interest rates, the pace of business activity in certain other countries and
the U.S., and other economic and financial conditions affecting the world
economy.
Although the Funds value their respective assets daily in terms of U.S.
dollars, the Funds do not intend to convert their holdings of foreign currencies
into U.S. dollars on a daily basis. However, the Funds may do so from time to
time, and investors should be aware of the costs of
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currency conversion. Although currency dealers do not charge a fee for
conversion, they do realize a profit based on the difference ("spread") between
the prices at which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to a Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to sell that currency
to the dealer.
Securities of foreign issuers, and in particular many emerging country
issuers, may be less liquid and their prices more volatile than securities of
comparable U.S. issuers. In addition, foreign securities exchanges and brokers
are generally subject to less governmental supervision and regulation than in
the U.S., and foreign securities exchange transactions are usually subject to
fixed commissions, which are generally higher than negotiated commissions on
U.S. transactions. In addition, foreign securities exchange transactions may be
subject to difficulties associated with the settlement of such transactions.
Delays in settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to a Fund due
to subsequent declines in value of the portfolio security or, if the Fund has
entered into a contract to sell the security could result in possible liability
to the purchaser.
The Funds' investment income or, in some cases, capital gains from
foreign issuers may be subject to foreign withholding or other taxes, thereby
reducing the Funds' net investment income and/or net realized capital gains.
See "Tax Status."
DEPOSITARY RECEIPTS. As discussed in the Prospectuses, Emerging Growth
Fund, Global Resources Fund and High Yield Bond Fund may invest in the
securities of foreign issuers in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") or other securities convertible
into securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted but rather in the currency of the market in which they are traded.
ADRs are receipts typically issued by an American bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs are receipts issued in Europe by banks or depositories which evidence a
similar ownership arrangement. Generally, ADRs, in registered form, are designed
for use in U.S. securities markets and EDRs, in bearer form, are designed for
use in European securities markets.
OPTIONS ON FOREIGN CURRENCIES. Global Resources Fund may purchase and
write put and call options on foreign currencies for the purpose of protecting
against declines in the dollar value of portfolio securities and against
increases in the dollar cost of securities to be acquired.
As in the case of other types of options, however, the writing of an
option on foreign currency will constitute only a partial hedge, such as the
amount of the premium received and the Fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event of
rate movements adverse to the Fund's position, it may forfeit the entire amount
of the premium plus related transaction costs.
Options on foreign currencies are traded in a manner substantially
similar to options on securities. In particular, an option on foreign currency
provides the holder with the right to purchase, in the case of a call option, or
to sell, in the case of a put option, a stated quantity of a particular currency
for a fixed price up to a stated expiration date. The writer of the option
undertakes the obligation to deliver, in the case of a call option, or to
purchase, in the case of a put
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option, the quantity of the currency called for in the option, upon exercise of
the option by the holder.
As in the case of other types of options, the holder of an option on
foreign currency is required to pay a one-time, non-refundable premium, which
represents the cost of purchasing the option. The holder can lose the entire
amount of this premium, as well as related transaction costs, but not more than
this amount. The writer of the option, in contrast, generally is required to
make initial and variation margin payments similar to margin deposits required
in the trading of futures contracts and the writing of other types of options.
The writer is therefore subject to risk of loss beyond the amount originally
invested and above the value of the option at the time it is entered into.
Certain options on foreign currencies like forward contracts are traded
over-the-counter through financial institutions acting as market-makers in such
options and the underlying currencies. Such transactions therefore involve risks
not generally associated with exchange-traded instruments. Options on foreign
currencies may also be traded on national securities exchanges regulated by the
SEC or commodities exchanges regulated by the Commodity Futures Trading
Commission.
FORWARD FOREIGN CURRENCY CONTRACTS. Emerging Growth Fund, Global
Resources Fund and High Yield Bond Fund may engage in forward foreign currency
transactions. Generally, the foreign currency exchange transactions of the Funds
may be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market. A Fund may also deal
in forward foreign currency exchange contracts involving currencies of the
different countries in which it may invest as a hedge against possible
variations in the foreign exchange rate between these currencies. This is
accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.
The Funds' dealings in forward foreign currency exchange contracts will be
limited to hedging either specified transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward foreign currency
contracts with respect to specific receivables or payables of a Fund accruing in
connection with the purchase and sale of its portfolio securities denominated in
foreign currencies. Portfolio hedging is the use of forward foreign currency
contracts to offset portfolio security positions denominated or quoted in such
foreign currencies. A Fund will not attempt to hedge all of its foreign
portfolio positions and will enter into such transactions only to the extent, if
any, deemed appropriate by the Adviser. The Board of Directors has adopted a
policy of monitoring the Funds' foreign currency contract income to assure that
the Funds qualify as regulated investment companies under the Code. The Fund
will not engage in speculative forward foreign currency exchange transactions.
If a Fund purchases a forward contract, its custodian bank will
segregate cash or high grade liquid debt securities in a separate account of the
Fund in an amount equal to the value of the Fund's total assets committed to the
consummation of such forward contract. Those assets will be valued at market
daily and if the value of the securities in the separate account declines,
additional cash or securities will be placed in the account so that the value of
the account will be equal to the amount of the Fund's commitment with respect to
such contracts.
Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for a Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to a Fund of engaging in foreign currency exchange
transactions varies with such factors as the currency involved, the length of
the contract period and the market conditions then
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prevailing. Since transactions in foreign currency are usually conducted on a
principal basis, no fees or commissions are involved.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements.
A repurchase agreement is a contract under which the Fund would acquire a
security for a relatively short period (generally not more than seven days)
subject to the obligation of the seller to repurchase and the Fund to resell
such security at a fixed time and price (representing the Fund's cost plus
interest). The Fund will enter into repurchase agreements only with member banks
of the Federal Reserve System and with securities dealers. The Adviser will
continuously monitor the creditworthiness of the parties with whom the Fund
enters into repurchase agreements. The Fund has established a procedure
providing that the securities serving as collateral for each repurchase
agreement must be delivered to the Fund's custodian either physically or in
book-entry form and that the collateral must be marked to market daily to ensure
that each repurchase agreement is fully collateralized at all times. In the
event of bankruptcy or other default by a seller of a repurchase agreement, the
Fund could experience delays in liquidating the underlying securities and could
experience losses, including the possible decline in the value of the underlying
securities during the period which the Fund seeks to enforce its rights thereto,
possible subnormal levels of income and lack of access to income during this
period, and the expense of enforcing its rights. The Fund will not invest in a
repurchase agreement maturing in more than seven days, if such investment,
together with other illiquid securities held by the Fund (including restricted
securities) would exceed 10% of the Fund's total assets.
REVERSE REPURCHASE AGREEMENTS. Each Fund may also enter into reverse
repurchase agreements which involve the sale of government securities held in
its portfolio to a bank or securities firm with an agreement that the Fund will
buy back the securities at a fixed future date at a fixed price plus an agreed
amount of "interest" which may be reflected in the repurchase price. Reverse
repurchase agreements are considered to be borrowings by the Fund. The Fund will
use proceeds obtained from the sale of securities pursuant to reverse repurchase
agreements to purchase other investments. The use of borrowed funds to make
investments is a practice known as "leverage," which is considered speculative.
Use of reverse repurchase agreements is an investment technique that is intended
to increase income. Thus, a Fund will enter into a reverse repurchase agreement
only when the Adviser determines that the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. However, there is a risk that interest expense will nevertheless
exceed the income earned. Reverse repurchase agreements involve the risk that
the market value of securities purchased by a Fund with proceeds of the
transaction may decline below the repurchase price of the securities sold by the
Fund which it is obligated to repurchase. A Fund will also continue to be
subject to the risk of a decline in the market value of the securities sold
under the agreements because it will reacquire those securities upon effecting
their repurchase. To minimize various risks associated with reverse repurchase
agreements, a Fund will establish and maintain with the Fund's custodian a
separate account consisting of highly liquid, marketable securities in an amount
at least equal to the repurchase prices of the securities (plus any accrued
interest thereon) under such agreements. In addition, a Fund will not enter into
reverse repurchase agreements and other borrowings exceeding in the aggregate
more than 33 1/3% of the market value of its total net assets. A Fund will enter
into reverse repurchase agreements only with selected registered broker/dealers
or with federally insured banks or savings and loan associations which are
approved in advance as being creditworthy by the Board of Directors. Under
procedures established by the Board of Directors, the Adviser will monitor the
creditworthiness of the firms involved.
FORWARD COMMITMENT AND WHEN-ISSUED SECURITIES. Each Fund may purchase
securities on a when-issued or forward commitment basis. "When-issued" refers to
securities whose terms are available and for which a market exists, but which
have not been issued. A Fund will engage in when-issued transactions with
respect to securities purchased for its portfolio in
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order to obtain what is considered to be an advantageous price and yield at the
time of the transaction. For when-issued transactions, no payment is made until
delivery is due, often a month or more after the purchase. In a forward
commitment transaction, a Fund contracts to purchase securities for a fixed
price at a future date beyond customary settlement time.
When a Fund engages in forward commitment and when-issued transactions,
it relies on the seller to consummate the transaction. The failure of the issuer
or seller to consummate the transaction may result in the Funds losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued and forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date a Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, high grade debt securities equal in value to the Fund's
commitment. These assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent that the total
value of the assets in the account declines below the amount of the when-issued
commitments. Alternatively, a Fund may enter into offsetting contracts for the
forward sale of other securities that it owns.
SHORT SALES. Global Resources Fund may engage in short sales in order
to profit from an anticipated decline in the value of a security. The Fund may
also engage in short sales to attempt to limit its exposure to a possible market
decline in the value of its portfolio securities through short sales of
securities which the Adviser believes possess volatility characteristics similar
to those being hedged. To effect such a transaction, the Fund must borrow the
security sold short to make delivery to the buyer. The Fund then is obligated to
replace the security borrowed by purchasing it at the market price at the time
of replacement. Until the security is replaced, the Fund is required to pay to
the lender any accrued interest and may be required to pay a premium.
The Fund will realize a gain if the security declines in price between
the date of the short sale and the date on which the Fund replaces the borrowed
security. On the other hand, the Fund will incur a loss as a result of the short
sale if the price of the security increases between those dates. The amount of
any gain will be decreased, and the amount of any loss increased, by the amount
of any premium or interest or dividends the Fund may be required to pay in
connection with a short sale. The successful use of short selling as a hedging
device may be adversely affected by imperfect correlation between movements in
the price of the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the SEC, if the Fund
engages in short sales, it must put in a segregated account (not with the
broker) an amount of cash or U.S. Government securities equal to the difference
between (a) the market value of the securities sold short at the time they were
sold short and (b) any cash or U.S. Government securities required to be
deposited as collateral with the broker in connection with the short sale (not
including the proceeds from the short sale). In addition, until the Fund
replaces the borrowed security, it must daily maintain the segregated account at
such a level that (1) the amount deposited in it plus the amount deposited with
the broker as collateral will equal the current market value of the securities
sold short, and (2) the amount deposited in it plus the amount deposited with
the broker as collateral will not be less than the market value of the
securities at the time they were sold short.
Short selling may produce higher than normal portfolio turnover which
may result in increased transaction costs to the Fund and may result in gains
from the sale of securities deemed to have been held for less than three months,
which gains must be less than 30% of the Fund's gross income in order for the
Fund to qualify as a regulated investment company under the Code.
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LOWER RATED HIGH YIELD DEBT OBLIGATIONS. Emerging Growth Fund,
Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund may
invest in high yielding, fixed income securities rated below investment grade
(e.g., rated Baa or lower by Moody's or BBB or lower by S&P.
Ratings are based largely on the historical financial condition of the
issuer. Consequently, the rating assigned to any particular security is not
necessarily a reflection of the issuer's current financial condition, which may
be better or worse than the rating would indicate.
See the Appendix to this SAI which describes the characteristics of
corporate bonds in the various rating categories. The Fund may invest in
comparable quality unrated securities which, in the opinion of the Adviser,
offer comparable yields and risks to those securities which are rated.
Debt obligations rated in the lower ratings categories, or which are
unrated, involve greater volatility of price and risk of loss of principal and
income. In addition, lower ratings reflect a greater possibility of an adverse
change in financial condition affecting the ability of the issuer to make
payments of interest and principal. The high yield fixed income market is
relatively new and its growth occurred during a period of economic expansion.
The market has not yet been fully tested by an economic recession.
The market price and liquidity of lower rated fixed income securities
generally respond to short term corporate and market developments to a greater
extent than do the price and liquidity of higher rated securities because such
developments are perceived to have a more direct relationship to the ability of
an issuer of such lower rated securities to meet its ongoing debt obligations.
Reduced volume and liquidity in the high yield bond market or the
reduced availability of market quotations will make it more difficult to dispose
of the bonds and to value accurately a Fund's assets. The reduced availability
of reliable, objective data may increase a Fund's reliance on management's
judgment in valuing high yield bonds. In addition, a Fund's investments in high
yield securities may be susceptible to adverse publicity and investor
perceptions, whether or not justified by fundamental factors. A Fund's
investments, and consequently its net asset value, will be subject to the market
fluctuations and risks inherent in all securities.
CREDIT AND INTEREST RATE RISKS. In addition to the information
contained in the Prospectuses, investors should note that while ratings by a
rating institution provide a generally useful guide to credit risks, they do
not, nor do they purport to, offer any criteria for evaluating interest rate
risk. Changes in the general level of interest rates cause fluctuations in the
prices of fixed-income securities already outstanding and will therefore result
in fluctuation in net asset value of the shares of Funds to the extent the Funds
invest in these securities. The extent of the fluctuation is determined by a
complex interaction of a number of factors. The Adviser will evaluate those
factors it considers relevant and will make portfolio changes when it deems it
appropriate in seeking to reduce the risk of depreciation in the value of a
Fund's portfolio. However, in seeking to achieve a Fund's primary objectives,
there will be times, such as during periods of rising interest rates, when
depreciation and realization of comparable losses on securities in the portfolio
will be unavoidable. Moreover, medium and lower-rated securities and unrated
securities of comparable quality tend to be subject to wider fluctuations in
yield and market values than higher rated securities. Such fluctuations after a
security is acquired do not affect the cash income received from that security
but are reflected in the net asset value of the Fund's portfolio. Other risks of
lower quality securities include:
(i) subordination to the prior claims of banks and other senior
lenders and
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(ii) the operation of mandatory sinking fund or call/redemption
provisions during periods of declining interest rates whereby
the Funds may reinvest premature redemption proceeds in lower
yielding portfolio securities.
In determining which securities to purchase or hold in a Fund's
portfolio (including, in the case of High Yield Bond Fund, investments in either
unrated or rated securities which are in default) and in seeking to reduce
credit and interest rate risk consistent with a Fund's investment objective and
policies, the Adviser will rely on information from various sources, including:
the rating of the security; research, analysis and appraisals of brokers and
dealers; the views of the Fund's Directors and others regarding economic
developments and interest rate trends; and the Adviser's own analysis of factors
it deems relevant as it pertains to achieving a Fund's investment objective(s).
PURCHASES OF WARRANTS. Emerging Growth Fund's and Global Resources
Fund's investment policies permit the purchase of rights and warrants, which
represent rights to purchase the common stock of companies at designated prices.
No such purchase will be made by a Fund, however, if the Fund's holdings of
warrants (valued at lower of cost or market) would exceed 5% of the value of the
Fund's total net assets as a result of the purchase. In addition, no Fund will
purchase a warrant or right which is not listed on the New York or American
Stock Exchanges if the purchase would result in the Fund's owning unlisted
warrants in an amount exceeding 2% of its net assets.
CONVERTIBLE SECURITIES. Emerging Growth Fund, Global Resources Fund and
High Yield Bond Fund may invest in convertible securities. Convertible
securities are securities that may be converted at either a stated price or
stated rate into underlying shares of common stock of the same issuer.
Convertible securities have general characteristics similar to both fixed income
and equity securities. Although to a lesser extent than with straight debt
securities, the market value of convertible securities tends to decline as
interest rates increase, and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the market value of
convertible securities tends to vary with fluctuations in the market value of
the underlying common stocks and therefore will also react to variations in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and consequently may not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the
prices of the convertible securities tend to rise as a reflection of the value
of the underlying common stock. While no securities investments are without
risk, investments in convertible securities generally entail less risk than
investments in common stock of the same issuer. However, the issuers of
convertible securities may default on their obligations.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS. Government Income Fund and High
Yield Bond Fund may enter into mortgage "dollar roll" transactions with selected
banks and broker-dealers pursuant to which a Fund sells Mortgage-Backed
Securities for delivery in the future (generally within 30 days) and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. These Funds will only enter
into covered rolls. A "covered roll" is a specific type of dollar roll for which
there is an offsetting cash position or a cash equivalent security position
which matures on or before the forward settlement date of the dollar roll
transaction. Covered rolls are not treated as a borrowing or other senior
securities. Dollar rolls in which the Funds may invest will be limited to
covered rolls.
For financial reporting and tax purposes, the Funds propose to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are
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accounted for as a financing. Mortgage dollar rolls involve certain risks
including the following: if the broker-dealer to whom a Fund sells the security
becomes insolvent, the Fund's right to purchase or repurchase the
Mortgage-Backed Securities subject to the mortgage dollar roll may be restricted
and the instrument which the Fund is required to repurchase may be worth less
than an instrument which the Fund originally held. Successful use of mortgage
dollar rolls will depend upon the Adviser's ability to predict correctly
interest rates and mortgage prepayments. For these reasons, there is no
assurance that mortgage dollar rolls can be successfully employed.
FINANCIAL FUTURES CONTRACTS. To the extent set forth in their
Prospectuses, the Funds (other than Money Market Fund) may buy and sell futures
contracts (and related options) on stocks, stock indices, debt securities,
currencies, interest rate indices, and other instruments. Each Fund may hedge
its portfolio by selling or purchasing financial futures contracts as an offset
against the effects of changes in interest rates or in security or foreign
currency values. Although other techniques could be used to reduce exposure to
interest rate fluctuations, a Fund may be able to hedge its exposure more
effectively and perhaps at a lower cost by using financial futures contracts.
The Funds may enter into financial futures contracts for hedging and other
non-speculative purposes to the extent permitted by regulations of the Commodity
Futures Trading Commission ("CFTC").
Financial futures contracts have been designed by boards of trade which
have been designated "contract markets" by the CFTC. Futures contracts are
traded on these markets in a manner that is similar to the way a stock is traded
on a stock exchange. The boards of trade, through their clearing corporations,
guarantee that the contracts will be performed. Currently, financial futures
contracts are based on interest rate instruments such as long-term U.S. Treasury
bonds, U.S. Treasury notes, Government National Mortgage Association ("GNMA")
modified pass-through mortgage-backed securities, three-month U.S. Treasury
bills, 90-day commercial paper, bank certificates of deposit and Eurodollar
certificates of deposit. It is expected that if other financial futures
contracts are developed and traded the Funds may engage in transactions in such
contracts.
Although some financial futures contracts by their terms call for
actual delivery or acceptance of financial instruments, in most cases the
contracts are closed out prior to delivery by offsetting purchases or sales of
matching financial futures contracts (same exchange, underlying security and
delivery month). Other financial futures contracts, such as futures contracts on
securities indices, by their terms call for cash settlements. If the offsetting
purchase price is less than a Fund's original sale price, the Fund realizes a
gain, or if it is more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than a Fund's original purchase price, the Fund realizes a
gain, or if it is less, the Fund realizes a loss. The transaction costs must
also be included in these calculations. Each Fund will pay a commission in
connection with each purchase or sale of financial futures contracts, including
a closing transaction. For a discussion of the Federal income tax considerations
of trading in financial futures contracts, see the information under the caption
"Tax Status" below.
At the time a Fund enters into a financial futures contract, it is
required to deposit with its custodian a specified amount of cash or U.S.
Government securities, known as "initial margin," ranging upward from 1.1% of
the value of the financial futures contract being traded. The margin required
for a financial futures contract is set by the board of trade or exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the financial futures contract which is returned to the Fund
upon termination of the contract, assuming all contractual obligations have been
satisfied. The Funds expect to earn interest income on their initial margin
deposits. Each day, the futures contract is valued at the official settlement
price of the board of trade or exchange on which it is traded. Subsequent
payments, known as "variation margin," to and from the broker
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are made on a daily basis as the market price of the financial futures contract
fluctuates. This process is known as "mark to market." Variation margin does not
represent a borrowing or lending by the Funds but is instead settlement between
the Funds and the broker of the amount one would owe the other if the financial
futures contract expired. In computing net asset value, the Funds will mark to
market their respective open financial futures positions.
Successful hedging depends on a strong correlation between the market
for the underlying securities and the futures contract market for those
securities. There are several factors that will probably prevent this
correlation from being a perfect one, and even a correct forecast of general
interest rate trends may not result in a successful hedging transaction. There
are significant differences between the securities and futures markets which
could create an imperfect correlation between the markets and which could affect
the success of a given hedge. The degree of imperfection of correlation depends
on circumstances such as: variations in speculative market demand for financial
futures and debt securities, including technical influences in futures trading
and differences between the financial instruments being hedged and the
instruments underlying the standard financial futures contracts available for
trading in such respects as interest rate levels, maturities and
creditworthiness of issuers. The degree of imperfection may be increased where
the underlying debt securities are lower-rated and, thus, subject to greater
fluctuation in price than higher-rated securities.
A decision as to whether, when and how to hedge involves the exercise
of skill and judgment, and even a well-conceived hedge may be unsuccessful to
some degree because of market behavior or unexpected interest rate trends. The
Funds will bear the risk that the price of the securities being hedged will not
move in complete correlation with the price of the futures contracts used as a
hedging instrument. Although the Adviser believes that the use of financial
futures contracts will benefit the Funds, an incorrect prediction could result
in a loss on both the hedged securities in the respective Fund's portfolio and
the hedging vehicle so that the Fund's return might have been better had hedging
not been attempted. However, in the absence of the ability to hedge, the Adviser
might have taken portfolio actions in anticipation of the same market movements
with similar investment results but, presumably, at greater transaction costs.
The low margin deposits required for futures transactions permit an extremely
high degree of leverage. A relatively small movement in a futures contract may
result in losses or gains in excess of the amount invested.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount the price of a futures contract may vary either
up or down from the previous day's settlement price, at the end of the current
trading session. Once the daily limit has been reached in a futures contract
subject to the limit, no more trades may be made on that day at a price beyond
that limit. The daily limit governs only price movements during a particular
trading day and, therefore, does not limit potential losses because the limit
may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
Finally, although the Funds engage in financial futures transactions
only on boards of trade or exchanges where there appears to be an adequate
secondary market, there is no assurance that a liquid market will exist for a
particular futures contract at any given time. The liquidity of the market
depends on participants closing out contracts rather than making or taking
delivery. In the event participants decide to make or take delivery, liquidity
in the market could be reduced. In addition, the Funds could be prevented from
executing a buy or sell order at a specified price or closing out a position due
to limits on open positions or daily price fluctuation limits imposed by
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the exchanges or boards of trade. If a Fund cannot close out a position, it will
be required to continue to meet margin requirements until the position is
closed.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. To the extent set forth in
their Prospectuses, the Funds (other than Money Market Fund) may buy and sell
options on financial futures contracts on stocks, stock indices, debt
securities, currencies, interest rate indices, and other instruments. An option
on a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract at a specified exercise price
at any time during the period of the option. Upon exercise, the writer of the
option delivers the futures contract to the holder at the exercise price. The
Funds would be required to deposit with their custodian initial and variation
margin with respect to put and call options on futures contracts written by
them. Options on futures contracts involve risks similar to the risks relating
to transactions in financial futures contracts. Also, an option purchased by a
Fund may expire worthless, in which case a Fund would lose the premium it paid
for the option.
Other Considerations. The Funds will engage in futures and options
transactions for bona fide hedging or other non-speculative purposes to the
extent permitted by CFTC regulations. A Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, the Funds'
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities that the Funds own, or futures contracts will be purchased to
protect the Funds against an increase in the price of securities, or the
currency in which they are denominated, the Fund intends to purchase. As
evidence of this hedging intent, the Funds expect that on 75% or more of the
occasions on which they take a long futures or option position (involving the
purchase of futures contracts), the Funds will have purchased, or will be in the
process of purchasing equivalent amounts of related securities or assets
denominated in the related currency in the cash market at the time when the
futures contract or option position is closed out. However, in particular cases,
when it is economically advantageous for a Fund to do so, a long futures
position may be terminated or an option may expire without the corresponding
purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits the Funds to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish nonhedging positions in futures contracts and options on futures
will not exceed 5% of the net asset value of the respective Fund's portfolio,
after taking into account unrealized profits and losses on any such positions
and excluding the amount by which such options were in-the-money at the time of
purchase. The Funds will engage in transactions in futures contracts only to the
extent such transactions are consistent with the requirements of the Code for
maintaining their qualifications as regulated investment companies for Federal
income tax purposes.
When the Funds purchase financial futures contracts, or write put
options or purchase call options thereon, cash or liquid, high grade debt
securities will be deposited in a segregated account with the Funds' custodian
in an amount that, together with the amount of initial and variation margin held
in the account of its broker, equals the market value of the futures contracts.
OPTIONS TRANSACTIONS. To the extent set forth in their Prospectuses,
the Funds (other than Money Market Fund) may write listed and over-the-counter
covered call options and covered put options on securities in order to earn
additional income from the premiums received. In addition, the Funds may
purchase listed and over-the-counter call and put options. The extent to which
covered options will be used by the Funds will depend upon market conditions and
the availability of alternative strategies.
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A Fund will write listed and over-the-counter call options only if they
are "covered," which means that the Fund owns or has the immediate right to
acquire the securities underlying the options without additional cash
consideration upon conversion or exchange of other securities held in its
portfolio. A call option written by a Fund may also be "covered" if the Fund
holds on a share-for-share basis a covering call on the same securities where
(i) the exercise price of the covering call held is equal to or less than the
exercise price of the call written if the difference is maintained by the Fund
in cash, U.S. Treasury bills or high grade liquid debt obligations in a
segregated account with the Fund's custodian, and (ii) the covering call expires
at the same time as the call written. If a covered call option is not exercised,
a Fund would keep both the option premium and the underlying security. If the
covered call option written by a Fund is exercised and the exercise price, less
the transaction costs, exceeds the cost of the underlying security, the Fund
would realize a gain in addition to the amount of the option premium it
received. If the exercise price, less transaction costs, is less than the cost
of the underlying security, a Fund's loss would be reduced by the amount of the
option premium.
As the writer of a covered put option, each Fund will write a put
option only with respect to securities it intends to acquire for its portfolio
and will maintain in a segregated account with its custodian bank cash, U.S.
Government securities or high-grade liquid debt securities with a value equal to
the price at which the underlying security may be sold to the Fund in the event
the put option is exercised by the purchaser. The Funds may also write a
"covered" put option by purchasing on a share-for-share basis a put on the same
security as the put written by the Fund if the exercise price of the covering
put held is equal to or greater than the exercise price of the put written and
the covering put expires at the same time or later than the put written.
When writing listed and over-the-counter covered put options on
securities, the Funds would earn income from the premiums received. If a covered
put option is not exercised, the Funds would keep the option premium and the
assets maintained to cover the option. If the option is exercised and the
exercise price, including transaction costs, exceeds the market price of the
underlying security, a Fund would realize a loss, but the amount of the loss
would be reduced by the amount of the option premium.
If the writer of an exchange-traded option wishes to terminate its
obligation prior to its exercise, it may effect a "closing purchase
transaction." This is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that a Fund's position
will be offset by the Options Clearing Corporation. The Funds may not effect a
closing purchase transaction after they have been notified of the exercise of an
option. There is no guarantee that a closing purchase transaction can be
effected. Although the Funds will generally write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade will exist for any
particular option or at any particular time, and for some options no secondary
market on an exchange may exist.
In the case of a written call option, effecting a closing transaction
will permit a Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. In the case of a
written put option, it will permit a Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other investments. If a Fund desires to sell a particular
security from its portfolio on which it has written a call option, it will
effect a closing transaction prior to or concurrent with the sale of the
security.
A Fund will realize a gain from a closing transaction if the cost of
the closing transaction is less than the premium received from writing the
option. The Funds will realize a loss from a
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closing transaction if the cost of the closing transaction is more than the
premium received for writing the option. However, because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security owned by the Fund.
Over-the-Counter Options. Funds that may engage in options transactions
may engage in options transactions on exchanges and in the over-the-counter
markets. In general, exchange-traded options are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an exchange or clearing
corporation) with standardized strike prices and expiration dates.
Over-the-counter ("OTC") transactions are two-party contracts with price and
terms negotiated by the buyer and seller. A Fund will acquire only those OTC
options for which management believes the Fund can receive on each business day
at least two separate bids or offers (one of which will be from an entity other
than a party to the option) or those OTC options valued by an independent
pricing service. The Funds will write and purchase OTC options only with member
banks of the Federal Reserve System and primary dealers in U.S. Government
securities or their affiliates which have capital of at least $50 million or
whose obligations are guaranteed by an entity having capital of at least $50
million. The SEC has taken the position that OTC options are illiquid securities
subject to each Fund's restriction that illiquid securities are limited to not
more than 10% of the Fund's net assets. The SEC, however, has a partial
exemption from the above restrictions on transactions in OTC options. The SEC
allows a Fund to exclude from the 10% limitation on illiquid securities a
portion of the value of the OTC options written by the Fund, provided that
certain conditions are met. First, the other party to the OTC options has to be
a primary U.S. Government securities dealer designated as such by the Federal
Reserve Bank. Second, the Fund must have an absolute contractual right to
repurchase the OTC options at a formula price. If the above conditions are met,
a Fund may treat as illiquid only that portion of the OTC option's value (and
the value of its underlying securities) which is equal to the formula price for
repurchasing the OTC option, less the OTC option's intrinsic value.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions upon
its investments as set forth below which cannot be changed as to any Fund
without the approval of the holders of a majority of that Fund's outstanding
shares. A majority for this purpose means: (a) more than 50% of the outstanding
shares of a Fund, or (b) 67% or more of the shares represented at a meeting
where more than 50% of the outstanding shares of a Fund are represented,
whichever is less. If a percentage restriction or rating restriction on
investment or utilization of assets is adhered to at the time an investment is
made or assets are so utilized, a later change in percentage resulting from
changes in the value of a Fund's portfolio securities or a later change in the
rating of a portfolio security will not be considered a violation of policy.
For the purpose of these restrictions, High Yield Bond Fund, Government
Income Fund and Money Market Fund are referred to as the "Fixed Income Funds"
and Emerging Growth Fund and Global Resources Fund are referred to as the
"Equity Funds." The restrictions applicable to High Yield Tax-Free Fund are set
out subsequently.
Each Fixed Income Fund and each Equity Fund may not:
(1) Borrow money in an amount in excess of 33-1/3% of its total
assets, and then only as a temporary measure for extraordinary or emergency
purposes (except that it may enter into a reverse repurchase agreement within
the limits described in the Prospectus or this SAI), or pledge,
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mortgage or hypothecate an amount of its assets (taken at market value) in
excess of 15% of its total assets, in each case taken at the lower of cost or
market value. For the purpose of this restriction, collateral arrangements with
respect to options, futures contracts, options on futures contracts and
collateral arrangements with respect to initial and variation margins are not
considered a pledge of assets.
(2) Underwrite securities issued by other persons except insofar as
such Fund may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security.
(3) Purchase or retain real estate (including limited partnership
interests but excluding securities of companies, such as real estate investment
trusts, which deal in real estate or interests therein and securities secured by
real estate), or mineral leases, commodities or commodity contracts except, in
the case of Resources Fund, precious metals (except contracts for the future
delivery of fixed income securities, stock index and currency futures and
options on such futures) in the ordinary course of its business. Each Fund
reserves the freedom of action to hold and to sell real estate or mineral
leases, commodities or commodity contracts acquired as a result of the ownership
of securities.
(4) Invest in direct participation interests in oil, gas or other
mineral exploration or development programs.
(5) Make loans to other persons except by the purchase of
obligations in which such Fund is authorized to invest and by entering into
repurchase agreements; provided that a Fund may lend its portfolio securities
not in excess of 30% of its total assets (taken at market value). Not more than
10% of a Fund's total assets (taken at market value) will be subject to
repurchase agreements maturing in more than seven days. For these purposes the
purchase of all or a portion of an issue of debt securities shall not be
considered the making of a loan. In addition, the Equity Funds may purchase a
portion of an issue of debt securities of types commonly distributed privately
to financial institutions.
(6) Purchase the securities of any issuer if such purchase, at the
time thereof, would cause more than 5% of its total assets (taken at market
value) to be invested in the securities of such issuer, other than securities
issued or guaranteed by the United States or, in the case of the Fixed Income
Funds, any state or political subdivision thereof, or any political subdivision
of any such state, or any agency or instrumentality of the United States, any
state or political subdivision thereof, or any political subdivision of any such
state. In applying these limitations, a guarantee of a security will not be
considered a security of the guarantor, provided that the value of all
securities issued or guaranteed by that guarantor, and owned by the Fund, does
not exceed 10% of the Fund's total assets. In determining the issuer of a
security, each state and each political subdivision agency, and instrumentality
of each state and each multi-state agency of which such state is a member is a
separate issuer. Where securities are backed only by assets and revenues of a
particular instrumentality, facility or subdivision, such entity is considered
the issuer.
(7) Invest in companies for the purpose of exercising control or
management.
(8) Purchase or retain in its portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security holders is an
officer or Director of such Fund, or is a member, partner, officer or Director
of the Adviser, if after the purchase of the securities of such issuer by such
Fund one or more of such persons owns beneficially more than 1/2 of 1% of the
shares or securities, or both, all taken at market value, of such issuer, and
such persons owning
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more than 1/2 of 1% of such shares or securities together own beneficially more
than 5% of such shares or securities, or both, all taken at market value.
(9) Purchase any securities or evidences of interest therein on
margin, except that each Fund may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of securities and each Fund
(other than the Money Market Fund) may make deposits on margin in connection
with Futures Contracts and related options.
(10) Sell any security which such Fund does not own unless by virtue
of its ownership of other securities it has at the time of sale a right to
obtain securities without payment of further consideration equivalent in kind
and amount to the securities sold and provided that if such right is conditional
the sale is made upon equivalent conditions.
(11) Purchase securities issued by any other investment company or
investment trust except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though not made in
the open market, is part of a plan of merger or consolidation; provided,
however, that a Fund will not purchase such securities if such purchase at the
time thereof would cause more than 10% of its total assets (taken at market
value) to be invested in the securities of such issuers; and, provided, further,
that a Fund will not purchase securities issued by an open-end investment
company.
(12) Knowingly invest in securities which are subject to legal or
contractual restrictions on resale or for which there is no readily available
market (e.g., trading in the security is suspended or market makers do not exist
or will not entertain bids or offers), except for repurchase agreements, if, as
a result thereof more than 10% of such Fund's total assets (taken at market
value) would be so invested. (The Staff of the Securities and Exchange
Commission has taken the position that a money market fund may not invest more
than 10% of its net assets in illiquid securities. The Money Market Fund has
undertaken with the Staff to require, that as a matter of operating policy, it
will not invest in illiquid securities in an amount exceeding 10% of its net
assets.)
(13) Issue any senior security (as that term is defined in the
Investment Company Act of 1940 (the "1940 Act")) 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.
In addition, no Fixed Income Fund (except for Money Market Fund and
High Yield Bond Fund) may invest more than 25% of its total assets (taken at
market value) in the securities of issuers engaged in any one industry. Money
Market Fund may not invest more than 25% of its total assets in obligations
issued by (i) foreign banks or (ii) foreign branches of U.S. banks where the
Adviser has determined that the U.S. bank is not unconditionally responsible for
the payment obligations of the foreign branch. High Yield Bond Fund may not
invest more than 25% of its total assets (taken at market value) in the
securities of issuers engaged in any one industry, except that High Yield Bond
Fund may invest up to 40% of the value of its total assets in the securities of
issuers engaged in the electric utility and telephone industries. Obligations
issued or guaranteed by the U.S. Government or its agencies or instrumentalities
are not subject to the Fixed Income Fund's limitations on industry
concentration. Determinations of industries for purposes of the foregoing
limitations are made in accordance with specific industry codes set forth in the
Standard Industrial Classification Manual and without considering groups of
industries (e.g., all utilities or all finance companies) to be an industry.
Also, a Fixed Income Fund may not purchase securities
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of any issuer (other than securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities) if such purchase, at the time thereof,
would cause a Fund to hold more than 10% of any class of securities of such
issuer. For this purpose, all indebtedness of an issuer (for the Money Market
Fund, all indebtedness of an issuer maturing in less than one year) shall be
deemed a single class and all preferred stock of an issuer shall be deemed a
single class.
In addition, an Equity Fund may not:
(1) Concentrate its investments in any particular industry, but if
it is deemed appropriate for the attainment of its investment objective, such
Fund may invest up to 25% of its assets (taken at market value at the time of
each investment) in securities of issuers in any one industry.
(2) Purchase voting securities of any issuer if such purchase, at
the time thereof, would cause more than 10% of the outstanding voting securities
of such issuer to be held by such Fund; or purchase securities of any issuer if
such purchase at the time thereof would cause more than 10% of any class of
securities of such issuer to be held by such Fund. For this purpose all
indebtedness of an issuer shall be deemed a single class and all preferred stock
of an issuer shall be deemed a single class. In applying these limitations, a
guarantee of a security will not be considered a security of the guarantor,
provided that the value of all securities issued or guaranteed by that
guarantor, and owned by the Fund, does not exceed 10% of the Fund's total
assets. In determining the issuer of a security, each state and each political
subdivision agency, and instrumentality of each state and each multi-state
agency of which such state is a member is a separate issuer. Where securities
are backed only by assets and revenues of a particular instrumentality, facility
or subdivision, such entity is considered the issuer.
High Yield Tax-Free Fund may not:
(1) Borrow money except from banks for temporary or emergency (not
leveraging) purposes, including the meeting of redemption requests that might
otherwise require the untimely disposition of securities, in an amount up to 15%
of the value of the Fund's total assets (including the amount borrowed) valued
at market less liabilities (not including the amount borrowed) at the time the
borrowing was made. While borrowings exceed 5% of the value of the Fund's total
assets, the Fund will not purchase any additional securities. Interest paid on
borrowings will reduce the Fund's net investment income. The borrowing
restriction set forth above does not prohibit the use of reverse repurchase
agreements, in an amount (including any borrowings) not to exceed 33-1/3% of net
assets.
(2) Pledge, hypothecate, mortgage or otherwise encumber its assets,
except in an amount up to 10% of the value of its total assets but only to
secure borrowings for temporary or emergency purposes as may be necessary in
connection with maintaining collateral in connection with writing put or call
options or making initial margin deposits in connection with the purchase or
sale of financial futures or index futures contracts and related options.
(3) Purchase securities (except obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) if the purchase would
cause the Fund at the time to have more than 5% of the value of its total assets
invested in the securities of any one issuer or to own more than 10% of the
outstanding debt securities of any one issuer; provided, however, that up to 25%
of the value of the Fund's asset may be invested without regard to these
restrictions.
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(4) Purchase or retain the securities of any issuer, if to the
knowledge of the Fund, any officer or director of the Fund or its Adviser owns
more than 1/2 of 1% of the outstanding securities of such issuer, and all such
officers and directors own in the aggregate more than 5% of the outstanding
securities of such issuer.
(5) Write, purchase or sell puts, calls or combinations thereof,
except put and call options on debt securities, futures contracts based on debt
securities, indices of debt securities and futures contracts based on indices of
debt securities, sell securities on margin or make short sales of securities or
maintain a short position, unless at all times when a short position is open it
owns an equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for securities of
the same issue as, and equal in amount to, the securities sold short, and unless
not more than 10% of the Fund's net assets (taken at current value) is held as
collateral for such sales at any one time.
(6) Underwrite the securities of other issuers, except insofar as
the Fund may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security.
(7) Purchase the securities of any issuer if as a result more than
10% of the value of the Fund's total assets would be invested in securities that
are subject to legal or contractual restrictions on resale ("restricted
securities") and in securities for which there are no readily available market
quotations; or enter into a repurchase agreement maturing in more than seven
days, if as a result such repurchase agreement together with restricted
securities and securities for which there are no readily available market
quotations would constitute more than 10% of the Fund's total assets.
(8) Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, except commodities and
commodities contracts which are necessary to enable the Fund to engage in
permitted futures and options transactions necessary to implement hedging
strategies, or oil and gas interests, but this shall not prevent the Fund from
investing in municipal obligations secured by real estate or interests in real
estate.
(9) Make loans to others, except insofar as the Fund may enter in
repurchase agreements as set forth in the Prospectus or this SAI. The purchase
of an issue of publicly distributed bonds or other securities, whether or not
the purchase was made upon the original issuance of securities, is not to be
considered the making of a loan.
(10) Invest more than 25% of its assets in the securities of the
"issuers" in any single industry; provided that there shall be no limitation on
the purchase of municipal obligations and obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities. For purposes of
this limitation and that set forth in investment restriction (3) above, when the
assets and revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating the issuing
entity and a security is backed only by the assets and revenues of the entity,
the entity would be deemed to be the sole issuer of the security. Similarly, in
the case of an industrial development or pollution control bond, if that bond is
backed only by the assets and revenues of the nongovernmental user, then such
non governmental user would be deemed to be the sole issuer. If, however, in
either case, the creating government or some other entity guarantees a security,
such a guarantee would be considered a separate security and would be treated as
an issue of such government or other entity.
(11) Invest in securities of other investment companies, except as
they may be acquired as part of a merger, consolidation or acquisition of
assets, and except for the purchase, to the extent permitted by Section 12 of
the 1940 Act, of shares of registered unit investment trusts whose assets
consist substantially of municipal obligations.
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<PAGE> 120
(12) Invest more than 5% of the value of its total assets in the
securities of issuers having a record, including predecessors, of fewer than
three years of continuous operation, except obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities, unless the
securities are rated by a nationally recognized rating service.
(13) Invest for the purpose of exercising control or management of
another company.
(14) Issue any senior security (as that term is defined in the 1940
Act) 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.
OTHER OPERATING POLICIES
Each of the Equity Funds (whose investment restrictions permit holdings
in warrants not to exceed 10% of its assets) may, due to an undertaking with a
state in which the Fund's shares are currently qualified for sale, purchase
warrants not to exceed 5% of such Fund's net assets. Included within that
amount, but not exceeding 2% of a Fund's net assets, may be warrants for which
there is no public market. Any such warrants which are attached to securities at
the time such securities are acquired by a Fund will be deemed to be without
value for the purpose of this restriction.
Each Fund (other than High Yield Tax-Free Fund) will not invest more
than 5% of its total assets in companies which, including their respective
predecessors, have a record of less than three years' continuous operation.
In order to comply with certain state regulatory policies, no Fund
will, as a matter of operating policy, pledge, mortgage or hypothecate its
portfolio securities if the percentage of securities so pledged, mortgaged or
hypothecated would exceed 15%.
In order to comply with certain state regulatory policies, the cost of
investments in options, financial futures, stock index futures and currency
futures, other than those acquired for hedging purposes, may not exceed 10% of a
Fund's total net assets.
These operating policies are not fundamental and may be changed without
shareholder approval. In order to comply with certain state regulatory
practices, certain policies, if changed, would require advance written notice to
shareholders.
The Corporation's Board of Directors has approved the following
nonfundamental investment policy pursuant to an order of the SEC:
Notwithstanding any investment restriction to the contrary, each Fund may, in
connection with the John Hancock Group of Funds Deferred Compensation Plan for
Independent Trustees/Directors, purchase securities of other investment
companies within the John Hancock Group of Funds provided that, as a result, (i)
no more than 10% of the Fund's assets would be invested in securities of all
other investment companies, (ii) such purchase would not result in more than 3%
of the total outstanding voting securities of any one such investment company
being held by the Fund and (iii) no more than 5% of the Fund's assets would be
invested in any one such investment company.
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<PAGE> 121
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Corporation is managed by its Directors who elect
officers who are responsible for the day-to-day operations of the Corporation
and the Funds and who execute policies formulated by the Directors. Several of
the officers and Directors of the Corporation are also officers and directors of
the Adviser or officers and directors of John Hancock Funds.
Set forth below is the principal occupation or employment of the
Directors and principal officers of the Corporation during the past five years:
<TABLE>
<CAPTION>
POSITION HELD WITH PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS THE CORPORATION DURING PAST FIVE YEARS
---------------- ------------------ -----------------------
<S> <C> <C>
Edward J. Boudreau, Jr.* Director, Chairman Chairman and Chief Executive
101 Huntington Avenue and Chief Officer, the Adviser and The
Boston, MA 02199 Executive Berkeley Financial Group ("The
Officer(1)(2) Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited ("Advisers
International"); John Hancock
Funds, Inc.; John Hancock Investor
Services Corporation ("Investor
Services"); and Sovereign Asset
Management Corporation
("SAMCorp"); (hereinafter the
Adviser, the Berkeley Group, NM
Capital, Advisers International,
John Hancock Funds, Inc., Investor
Services and SAMCorp are
collectively referred to as the
"Affiliated Companies"); Chairman,
First Signature Bank & Trust;
Director, John Hancock Freedom
Securities Corporation, John
Hancock Capital Corporation, New
England/Canada Business Council;
Member, Investment Company
Institute Board of Governors;
Trustee, Museum of Science;
President, the Adviser (until July
1992); Trustee or Director of
other investment companies managed
by the Adviser; and Chairman, John
Hancock Distributors, Inc. (until
April, 1994).
</TABLE>
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<PAGE> 122
<TABLE>
<S> <C> <C>
James F. Carlin Director Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc. (insurance);
Natick, MA 01760 Director, Arbella Mutual Insurance
Company (insurance), Consolidated
Group Trust (group health plan),
Carlin Insurance Agency, Inc. and
West Insurance Agency, Inc.;
Receiver, the City of Chelsea
(until August 1992); and Trustee
or Director of other investment
companies managed by the Adviser.
William H. Cunningham Director Chancellor, University of Texas
601 Colorado Street System and former President of the
O'Henry Hall University of Texas, Austin,
Austin, TX 78701 Texas; Regents Chair in Higher
Education Leadership; James L.
Bayless Chair for Free Enterprise;
Professor of Marketing and Dean
College of Business
Administration/Graduate School of
Business (1983-1985); Centennial
Chair in Business Education
Leadership, 1983-1985; Director,
LaQuinta Motor Inns, Inc. (hotel
management company); Director,
Jefferson-Pilot Corporation
(diversified life insurance
company); Director,
Freeport-McMoran Inc. (oil and gas
company); Director, Barton Creek
Properties, Inc. (1988-1990) (real
estate development) and LBJ
Foundation Board (education
foundation); Advisory Director,
Texas Commerce Bank - Austin; and
Trustee or Director of other
investment companies managed by
the Adviser.
</TABLE>
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<PAGE> 123
<TABLE>
<S> <C> <C>
Charles F. Fretz Director(3) Consultant, self employed; Vice
RD #5, Box 300B President and Director, Towers,
Clothier Springs Road Perrin, Forster & Crosby, Inc.
Malvern, PA 19355 (international management
consultants) (until 1985).
Harold R. Hiser, Jr. Director Executive Vice President,
Schering-Plough Corporation Schering-Plough Corporation
One Giralda Farms (pharmaceuticals); Director,
Madison, NJ 07940-1000 ReCapital Corporation
(reinsurance).
Charles L. Ladner Director(3) Director, Energy North, Inc.
UGI Corporation (public utility holding company);
460 North Gulph Road Senior Vice President, Finance UGI
King of Prussia, PA 19406 Corp. (public utility holding
company) (until 1992); and
Trustee or Director of other
investment companies managed by
the Adviser.
Leo E. Linbeck, Jr. Director Chairman, President, Chief
3810 W. Alabama Executive Officer and Director,
Houston, TX 77027 Linbeck Corporation (a holding
company engaged invarious phases
of the construction industry and
warehousing interests); Director
and Chairman, Federal Reserve Bank
of Dallas; Chairman of the Board
and Chief Executive Officer,
Linbeck Construction Corporation;
Director, Panhandle Eastern
Corporation (a diversified energy
company); Director, Daniel
Industries, Inc. (manufacturer of
gas measuring products and energy
related equipment); Director,
GeoQuest International, Inc. (a
geophysical consulting firm);
Director, Greater Houston
Partnership; and Trustee or
Director of other investment
companies managed by the Adviser.
</TABLE>
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<PAGE> 124
<TABLE>
<S> <C> <C>
Patricia P. McCarter Director(3) Director and Secretary, the
Swedesford Road McCarter Corp. (machine
RD #3, Box 121 manufacturer); and Trustee or
Malvern, PA 19355 Director of other investment
companies managed by the Adviser.
Steven R. Pruchansky Director(1)(3) Director and Treasurer, Mast
360 Horse Creek Drive, #208 Holdings, Inc.; Director, First
Naples, FL 33942 Signature Bank & Trust Company
(until August 1991); General
Partner, Mast Realty Trust;
President, Maxwell Building Corp.
(until 1991); and Trustee or
Director of other investment
companies managed by the Adviser.
Norman H. Smith Director(3) Lieutenant General, USMC, Deputy
Rt. 1, Box 249 E Chief of Staff for Manpower and
Linden, VA 22642 Reserve Affairs, Headquarters
Marine Corps; Commanding General
III Marine Expeditionary Force/3rd
Marine Division (retired 1991);
and Trustee or Director of other
investment companies managed by
the Adviser.
John P. Toolan Director(3) Director, The Smith Barney Muni
13 Chadwell Place Bond Funds, The Smith Barney
Morristown, NJ 07960 Tax-Free Money Fund, Inc., Vantage
Money Market Funds (mutual funds),
The Inefficient-Market Fund, Inc.
(closed-end investment company)
and Smith Barney Trust Company of
Florida; Chairman, Smith Barney
Trust Company (retired December,
1991); Director, Smith Barney,
Inc., Mutual Management Company
and Smith, Barney Advisers, Inc.
(investment advisers) (retired
1991); and Senior Executive Vice
President, Director and member of
the Executive Committee, Smith
Barney, Harris Upham & Co.,
Incorporated (investment bankers)
(until 1991); and
</TABLE>
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<PAGE> 125
<TABLE>
<S> <C> <C>
Trustee or
Director of other investment
companies managed by the Adviser.
Robert G. Freedman* Vice Chairman Chief Investment Officer, the
101 Huntington Avenue and Chief Adviser
Boston, MA 02199 Investment
Officer(2)
Anne C. Hodsdon* President(2) President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
James B. Little* Senior Vice Senior Vice President, the
101 Huntington Avenue President and Adviser.
Boston, MA 02199 Chief Financial
Officer
Thomas H. Drohan* Senior Vice Senior Vice President and
101 Huntington Avenue President and Secretary, the Adviser.
Boston, MA 02199 Secretary
Michael P. DiCarlo* Senior Vice Senior Vice President, the
101 Huntington Avenue President(2) Adviser.
Boston, MA 02199
Edgar Larsen* Senior Vice Senior Vice President, the
101 Huntington Avenue President Adviser.
Boston, MA 02199
B.J. Willingham* Senior Vice Senior Vice President, the
101 Huntington Avenue President Adviser. Formerly, Director
Boston, MA 02199 and Chief Investment Officer
of Transamerica Fund Management
Company.
James J. Stokowski* Vice President Vice President, the Adviser.
101 Huntington Avenue and Treasurer
Boston, MA 02199
Susan S. Newton* Vice President Vice President and Assistant
101 Huntington Avenue and Compliance Secretary, the Adviser.
Boston, MA 02199 Officer
</TABLE>
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<PAGE> 126
<TABLE>
<S> <C> <C>
John A. Morin* Vice President Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
</TABLE>
* An "interested person" of the Corporation, as such term is defined in
the 1940 Act.
(1) Member of the Executive Committee.
(2) Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) Member of the Audit, Administration and Compensation Committee.
All of the officers listed are officers or employees of the Adviser or
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.
As of June 30, 1995, there were 131,823,202 shares of the Corporation
outstanding and officers and Directors as a group beneficially owned less than
1% of the outstanding shares of the Corporation and of each of the Funds. On
such date, the following shareholders were the only record holders and
beneficial owners of 5% or more of the shares of the respective Funds:
NUMBER OF SHARES HELD (EXPRESSED AS PERCENTAGE
OF FUND'S OUTSTANDING SHARES)
<TABLE>
<S> <C>
Emerging Growth Fund:
Class A
762,184 Shares National Westminster Bank PLC as Trustee of
16.30 % American Smaller Companies Trust
Juno Court
24 Prescott Street
London, England E18BB
749,017 Shares Merrill Lynch Pierce Fenner & Smith
16.02 % 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
Class B
3,009,616 Shares Merrill Lynch Pierce Fenner & Smith
27.55 % 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
Global Resources Fund:
Class B
151,841 Shares Merrill Lynch Pierce Fenner & Smith
7.06 % 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
</TABLE>
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<PAGE> 127
<TABLE>
<S> <C>
Government Income Fund:
Class A
16,946 Shares JHMLICO Custodian
29.13 % FBO Kathleen L. Russell IRA R/O
4775 River College Drive
Sacramento, California 95841-4247
8,517 Shares Bruno Barelare &
14.64 % Helen D. Barelare JT TEN
1424 Montclair
Birmingham, Alabama 35210-2208
8,040 Shares Max P. Clay, Jr. &
13.82 % Max P. Clay, Sr. JTWROS
P.O. Box 11
Pell City, Alabama 35125-0011
3,960 Shares Russell L. Mitchell, IRA
6.81 % Sutro & Co. CUST
1615 Newhall Avenue
Cambria, California 93428-5505
3,836 Shares Rauscher Pierce REFSNES CUST
6.60 % FBO Clara Yamacka
942 Mira Valley
Monterey Park, California 91754-4825
3,451 Shares Richard W. Russell &
5.93 % Helen F. Russell JT TEN
349 Ash Space 44
Carpinteria, CA 93013-2232
Class B
3,081,649 Shares Merrill Lynch Pierce Fenner & Smith
12.34 % 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
High Yield Bond Fund:
Class B
2,027,483 Shares Merrill Lynch Pierce Fenner & Smith
8.46 % 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
</TABLE>
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<PAGE> 128
<TABLE>
<S> <C>
High Yield Tax-Free Fund:
Class B
2,911,838 Shares Merrill Lynch Pierce Fenner & Smith
17.48 % 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
</TABLE>
At such date, no other person(s), owned of record or was known by the
Corporation to beneficially own as much as 5% of the outstanding shares of the
Corporation or of any of the Funds.
As of December 22, 1994, the Directors have established an Advisory
Board which acts to facilitate a smooth transition of management over a two-year
period (between Transamerica Fund Management Company ("TFMC"), the prior
investment adviser, and the Adviser). The members of the Advisory Board are
distinct from the Board of Directors, do not serve the Funds in any other
capacity and are persons who have no power to determine what securities are
purchased or sold and behalf of the Funds. Each member of the Advisory Board may
be contacted at 101 Huntington Avenue, Boston, Massachusetts 02199.
Members of the Advisory Board and their respective principal
occupations during the past five years are as follows:
R. Trent Campbell, President, FMS, Inc. (financial and management services);
former Chairman of the Board, Mosher Steel Company.
Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman from Texas;
co-founder, Houston Parents' League; former board member of various
civic and cultural organizations in Houston, including the Houston
Symphony, Museum of Fine Arts and YWCA. Mrs. Bentsen is presently
active in various civic and cultural activities in the Washington, D.C.
area, including membership on the Area Board for The March of Dimes and
is a National Trustee for the Botanic Gardens of Washington, D. C.
Thomas R. Powers, Formerly Chairman of the Board, President and Chief Executive
Officer, TFMC; Director, West Central Advisory Board, Texas Commerce
Bank; Trustee, Memorial Hospital System; Chairman of the Board of
Regents of Baylor University; Member, Board of Governors, National
Association of Securities Dealers, Inc.; Formerly, Chairman, Investment
Company Institute; formerly, President, Houston Chapter of Financial
Executive Institute.
Thomas B. McDade, Chairman and Director, TransTexas Gas Company; Director,
Houston Industries and Houston Lighting and Power Company; Director,
TransAmerican Companies (natural gas producer and transportation);
Member, Board of Managers, Harris County Hospital District; Advisory
Director, Commercial State Bank, El Campo; Advisory Director, First
National Bank of Bryan; Advisory Director, Sterling Bancshares; Former
Director and Vice Chairman, Texas Commerce Bancshares; and Vice
Chairman, Texas Commerce Bank.
COMPENSATION OF THE BOARD OF DIRECTORS AND ADVISORY BOARD. The
following tables provide information regarding the compensation paid by the Fund
and the other investment companies in the John Hancock Fund Complex to the
Independent Directors and the Advisory Board members for their services. Mr.
Boudreau, a non-Independent Director, and each of the
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<PAGE> 129
officers of the Funds are interested persons of the Adviser, are compensated by
the Adviser and received no compensation from the Funds for their services.
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Directors from the Funds Funds' Expenses Directors**
--------- -------------- --------------- -----------
<S> <C> <C> <C>
James F. Carlin $ 0 $0 $ 60,450
William H. Cunningham $18,750* $0 $ 0
Charles L. Ladner $ 0 $0 $ 60,450
Leo E. Linbeck, Jr. $26,500* $0 $ 0
Patricia P. McCarter $ 0 $0 $ 60,200
Steven R. Pruchansky $ 0 $0 $ 62,450
Norman H. Smith $ 0 $0 $ 62,450
John P. Toolan $ 0 $0 $ 60,450
Total $ 45,250 $0 $366,450
</TABLE>
* Messrs. Linbeck and Cunningham, the only current Directors who were
Directors for the fiscal year ended October 31, 1994, were each paid
directors' fees by the Funds pursuant to different compensation
arrangements then in effect, in the amount of:
$5,200 and $3,800, respectively, from Government Income Fund; $5,200
and $3,800, respectively, from High Yield Bond Fund;
$5,200 and $3,800, respectively, from High Yield Tax-Free Fund; $5,200
and $3,800, respectively, from Emerging Growth Fund;
$2,100 and $1,150, respectively, from Global Resources Fund; and $3,600
and $2,400, respectively, from Money Market Fund.
** The total compensation paid by the John Hancock Fund Complex to the
Independent Directors is as of the calendar year ended December 31,
1994. (The Funds were not part of the John Hancock Fund Complex until
December 22, 1994 and Messrs. Cunningham and Linbeck were not trustees
or directors of any funds in the John Hancock Fund Complex prior to
December 22, 1994.)
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Advisory Board*** from the Funds Funds' Expenses Directors**
----------------- -------------- --------------- -----------
<S> <C> <C> <C>
R. Trent Campbell $21,049 $0 $ 54,000
Mrs. Lloyd Bentsen $21,049 $0 $ 54,000
Thomas R. Powers $21,049 $0 $ 54,000
Thomas B. McDade $21,049 $0 $ 54,000
TOTAL $84,196 $0 $216,000
</TABLE>
*** Estimated for the Funds' current fiscal year ending October 31, 1995.
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<PAGE> 130
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Funds' Prospectuses, the Funds receive their
investment advice from the Adviser. Investors should refer to the Prospectuses
for a description of certain information concerning the Funds' investment
management contracts. Each of the Directors and principal officers affiliated
with the Corporation who is also an affiliated person of the Adviser is named
above, together with the capacity in which such person is affiliated with the
Corporation and the Adviser.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and has more than $13 billion in total assets
under management in its capacity as investment adviser to the Funds and the
other mutual funds and publicly traded investment companies in the John Hancock
group of funds having a combined total of over 1,060,000 shareholders. The
Adviser is a wholly-owned subsidiary of The Berkeley Financial Group, which is
in turn a wholly-owned subsidiary of John Hancock Subsidiaries, Inc., which is
in turn a wholly-owned subsidiary of John Hancock Mutual Life Insurance Company
(the "Life Company"), one of the most recognized and respected financial
institutions in the nation. With total assets under management of over $80
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries Standard & Poor's and A.M. Best's highest
ratings. Founded in 1862, the Life Company has been serving clients for over 130
years.
As described in the Prospectuses, the Corporation, on behalf of each
Fund, has entered into investment management contracts with the Adviser. Under
each investment management contract, the Adviser provides the Funds with (i) a
continuous investment program, consistent with each Fund's stated investment
objective and policies, (ii) supervision of all aspects of each Fund's
operations except those that are delegated to a custodian, transfer agent or
other agent and (iii) such executive, administrative and clerical personnel,
officers and equipment as are necessary for the conduct of their business. The
Adviser is responsible for the day-to-day management of each Fund's portfolio
assets.
No person other than the Adviser and its directors and employees
regularly furnish advice to the Funds with respect to the desirability of a Fund
investing in, purchasing or selling securities. The Adviser may from time to
time receive statistical or other similar factual information, and information
regarding general economic factors and trends, from the Life Company and its
affiliates.
Under the terms of the investment management contracts with the
Corporation, on behalf of each Fund, the Adviser provides the Corporation with
office space, equipment and supplies and other facilities required for the
business of the Funds. The Adviser pays the compensation of all officers and
employees of the Corporation, and pays the expenses of clerical services
relating to the administration of the Funds. All expenses which are not
specifically paid by the Adviser and which are incurred in the operation of the
Funds including, but not limited to, (i) the fees of the Directors of the
Corporation who are not "interested persons," as such term is defined in the
1940 Act (the "Independent Directors"), (ii) the fees of the members of the
Corporation's Advisory Board (described above) and (iii) the continuous public
offering of the shares of each Fund are borne by the Funds.
As provided by the investment management contracts, each Fund pays the
Adviser an investment management fee, which is accrued daily and paid monthly in
arrears at the following rates of the Funds' average daily net assets:
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<PAGE> 131
<TABLE>
<S> <C>
JOHN HANCOCK EMERGING GROWTH FUND FEE
JOHN HANCOCK GLOBAL RESOURCES FUND (ANNUAL RATE)
Average Daily Net Assets 0.75%
JOHN HANCOCK GOVERNMENT INCOME FUND
FEE
AVERAGE DAILY NET ASSETS (ANNUAL RATE)
The first $200 million 0.65%
The next $300 million 0.625%
Over $500 million 0.60%
JOHN HANCOCK HIGH YIELD TAX-FREE FUND
JOHN HANCOCK HIGH YIELD BOND FUND
FEE
AVERAGE DAILY NET ASSETS (ANNUAL RATE)
The first $75 million 0.625%
The next $75 million 0.5625%
Over $150 million 0.50%
JOHN HANCOCK MONEY MARKET FUND
FEE
AVERAGE DAILY NET ASSETS (ANNUAL RATE)
The first $500 million 0.50%
The next $250 million 0.425%
The next $250 million 0.375%
The next $500 million 0.35%
The next $500 million 0.325%
The next $500 million 0.30%
Over $2.5 billion 0.275%
</TABLE>
The Adviser may temporarily reduce its advisory fee or make other
arrangements to reduce a Fund's expenses to a specified percentage of average
daily net assets. The Adviser retains the right to re-impose the advisory fee
and recover any other payments to the extent that, at the end of any fiscal
year, a Fund's annual expenses fall below this limit.
In the event normal operating expenses of a Fund, exclusive of certain
expenses prescribed by state law, are in excess of any state limit where such
Fund is registered to sell shares of common stock, the fee payable to the
Adviser will be reduced to the extent of such excess and the Adviser will make
any additional arrangements necessary to eliminate any remaining excess
expenses. The most restrictive limit applicable to the Funds is 2.5% of the
first $30,000,000 of a Fund's average daily net asset value, 2% of the next
$70,000,000 of such assets and 1.5% of the remaining average daily net asset
value.
Pursuant to the investment management contracts, the Adviser is not
liable for any error of judgment or mistake of law or for any loss suffered by a
Fund in connection with the matters to which their respective contracts relate,
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 applicable contract.
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<PAGE> 132
The initial term of the investment management contracts expires on
December 22, 1996, and will continue in effect from year to year thereafter if
approved annually by a vote of a majority of the Independent Directors, cast in
person at a meeting called for the purpose of voting on such approval, and by
either a majority of the Directors or the holders of a majority of the affected
Fund's outstanding voting securities. Each management contract may be terminated
without penalty on 60 days' notice at the option of either party or by vote of a
majority of the outstanding voting securities of the Fund. Each management
contract terminates automatically in the event of its assignment.
Securities held by a 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 for the Funds 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 affiliates may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
Under the investment management contracts, the Funds may use the name
"John Hancock" or any name derived from or similar to it only for as long as the
investment management contract or any extension, renewal or amendment thereof
remains in effect. If a Fund's investment management contract is no longer in
effect, the Fund (to the extent that it lawfully can) will cease to use such
name or any other name indicating that it is advised by or otherwise connected
with the 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.
For the fiscal years ended October 31, 1994(a), 1993(b) and 1992(c),
advisory fees payable by the Funds to TFMC, each Fund's former investment
adviser, were as follows:
(1) Emerging Growth Fund - (a) $2,706,438 (b) $1,668,514 and (c)
$809,284
(2) Global Resources Fund - (a) $220,869 (b) $95,411 and (c)
$57,774
(3) Government Income Fund - (a) $1,728,997 (b) $1,698,937 and (c)
$1,197,515
(4) High Yield Bond Fund - (a) $976,834 (b) $777,673 and (c)
$550,109
(5) High Yield Tax-Free Fund - (a) $886,380 (b) $541,737 and (c)
$370,020
(6) Money Market Fund - (a) $214,088 (b) $142,298 and (c) $133,127
During the six-month period ended October 31, 1993 and the fiscal year
ended October 31, 1994, TFMC paid subadvisory fees to Transamerica Investment
Services, Inc., its former subadviser, of $34,536 and $71,992, respectively.
High Yield Tax-Free Fund made no payments of subadvisory fees during these
periods.
ADMINISTRATIVE SERVICES AGREEMENT. The Corporation, on behalf of each
Fund, was a party to an administrative services agreement with TFMC (the
"Services Agreement"), pursuant to
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<PAGE> 133
which TFMC performed bookkeeping and accounting services and functions,
including preparing and maintaining various accounting books, records and other
documents and keeping such general ledgers and portfolio accounts as are
reasonably necessary for the operation of the Funds. Other administrative
services included communications in response to shareholder inquiries and
certain printing expenses of various financial reports. In addition, such staff
and office space, facilities and equipment was provided as necessary to provide
administrative services to the Funds. The Services Agreement was amended in
connection with the appointment of the Adviser as adviser to the Fund to permit
services under the Agreement to be provided to the Funds by the Adviser and its
affiliates. The Services Agreement was terminated during the current fiscal
year.
The following amounts for each of the following Funds for their
respective periods reflect (a) the total of administrative services fees paid
and of such amount, (b) the amount of which was paid to TFMC and (c) the amount
paid for certain data processing and pricing information services:
EMERGING GROWTH FUND
(1) for the fiscal year ended October 31, 1994 - (a) $222,044; (b)
$192,019; and (c) $30,025.
(2) for the fiscal year ended October 31, 1993 - (a) $157,911; (b)
$134,656; and (c) $23,255.
(3) for the fiscal year ended October 31, 1992 - (a) $100,346; (b)
$81,923; and (c) $18,423.
GLOBAL RESOURCES FUND
(1) for the fiscal year ended October 31, 1994 - (a) $54,259; (b)
$43,512; and (c) $10,747.
(2) for the fiscal year ended October 31, 1993 - (a) $44,306; (b)
34,515; and (c) $9,791.
(3) for the fiscal year ended October 31, 1992 - (a) $48,816; (b)
$38,916; and (c) $9,900.
GOVERNMENT INCOME FUND
(1) for the fiscal year ended October 31, 1994 - (a) $132,786; (b)
$107,246; and (c) $25,540.
(2) for the fiscal year ended October 31, 1993 - (a) $116,354; (b)
$90,782; and (c) $25,572.
(3) for the fiscal year ended October 31, 1992 - (a) $86,781; (b)
$62,627; and (c) $24,154.
HIGH YIELD BOND FUND
(1) for the fiscal year ended October 31, 1994 - (a) $100,822; (b)
$80,593; and (c) $20,229.
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(2) for the fiscal year ended October 31, 1993 - (a) $82,030; (b)
$64,844; and (c) $17,186.
(3) for the fiscal year ended October 31, 1992 - (a) $69,403; (b)
$52,920; and (c) $16,483.
HIGH YIELD TAX-FREE FUND
(1) for the fiscal year ended October 31, 1994 - (a) $88,709; (b)
$60,488; and (c) $28,221.
(2) for the fiscal year ended October 31, 1993 - (a) $69,485; (b)
46,591; and (c) $22,894.
(3) for the fiscal year ended October 31, 1992 - (a) $63,272; (b)
$40,793; and (c) $22,479.
MONEY MARKET FUND
(1) for the fiscal year ended October 31, 1994 - (a) $46,621; (b)
$36,221; and (c) $10,400.
(2) for the fiscal year ended October 31, 1993 - (a) $42,511; (b)
$32,451; and (c) $10,060.
(3) for the fiscal year ended October 31, 1992 - (a) $51,109; (b)
$40,808; and (c) $10,301.
DISTRIBUTION CONTRACT
DISTRIBUTION AGREEMENT. As discussed in the Prospectuses, each Fund's
shares are sold on a continuous basis at the public offering price. John Hancock
Funds, a wholly-owned subsidiary of the Adviser, has the exclusive right,
pursuant to the Distribution Agreement dated December 22, 1994 (the
"Distribution Agreement"), to purchase shares from the Funds at net asset value
for resale to the public or to broker-dealers at the public offering price. Upon
notice to all broker-dealers with whom it has sales agreements ("Selling
Brokers"), John Hancock Funds may allow such Selling Brokers up to the full
applicable sales charge during periods specified in such notice. During these
periods, such Selling Brokers may be deemed to be underwriters as that term is
defined in the Securities Act of 1933.
The Distribution Agreement was initially adopted by the affirmative
vote of the Corporation's Board of Directors including the vote of a majority of
Directors who are not parties to the agreement or interested persons of any such
party, cast in person at a meeting called for such purpose. The Distribution
Agreement shall continue in effect with respect to each Fund until December 22,
1996 and from year to year if approved by either the vote of the Fund's
shareholders or the Board of Directors including the vote of a majority of the
Directors who are not parties to the agreement or interested persons of any such
party, cast in person at a meeting called for such purpose. The Distribution
Agreement may be terminated at any time as to one or more of the Funds, without
penalty, by either party upon sixty (60) days' written notice or by a vote of a
majority of the outstanding voting securities of the affected Fund and
terminates automatically in the case of an assignment by John Hancock Funds.
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For the fiscal year ended October 31, 1994, the following amounts for
each of Emerging Growth and High Yield Bond Fund reflect (a) the total
underwriting commissions for sales of the Fund's Class A shares and (b) the
portion of such amount retained by the Fund's former distributor, Transamerica
Fund Distributors, Inc. In each case, the remainder of such underwriting
commissions was reallowed to dealers.
EMERGING GROWTH FUND
(a) $1,042,959 and (b) $65,421.
HIGH YIELD BOND FUND
(a) $324,876 and (b) $23,651.
The other Funds did not have Class A shares outstanding for the year ended
October 31, 1994, and Emerging Growth Fund and High Yield Bond Fund did not have
Class A shares outstanding for the years prior to the year ended October 31,
1994.
DISTRIBUTION PLAN. The Board of Directors approved distribution plans
pursuant to Rule 12b-1 under the 1940 Act for Class A Shares ("Class A Plans")
and Class B Shares ("Class B Plans") of each Fund. Such Plans were approved by a
majority of the outstanding shares of each respective class of each Fund (except
for the Class A Plan for Money Market Fund) on December 16, 1994 and became
effective on December 22, 1994. The Class A Plan for Money Market Fund was
approved by the sole shareholder of the Class A shares of the Fund on September
12, 1995 and became effective on September 12, 1995.
Under each Class A Plan, the distribution or service fee will not
exceed an annual rate of 0.25% of the average daily net asset value of the Class
A shares of a Fund (determined in accordance with the Fund's Prospectus as from
time to time in effect). Money Market Fund has determined that it will pay
distribution and service fees of 0.15% to John Hancock Funds but may in the
future determine to pay up to 0.25% under the Class A Plan. Any expenses under
the Class A Plan not reimbursed within 12 months of being presented to the Fund
for repayment are forfeited and not carried over to future years. Under each
Class B Plan, the distribution or services fee to be paid by the applicable Fund
will not exceed an annual rate of 1.00% of the average daily net assets of the
Class B shares of the Fund (in each case, determined in accordance with such
Fund's prospectus as from time to time in effect); provided that the portion of
such fee used to cover Service Expenses (described below) shall not exceed an
annual rate of 0.25% of the average daily net asset value of the Class B Shares
of the Fund. In accordance with generally accepted accounting principles, the
Fund does not treat unreimbursed distribution expenses attributable to Class B
shares as a liability of the Fund and does not reduce the current net assets of
Class B by such amount although the amount may be payable under the Class B Plan
in the future.
Under the Plans, expenditures shall be calculated and accrued daily and
paid monthly or at such other intervals as the Directors shall determine. The
fee may be spent by John Hancock Funds on Distribution Expenses or Service
Expenses. "Distribution Expenses" include any activities or expenses primarily
intended to result in the sale of shares of the relevant class of the Fund,
including, but not limited to: (i) initial and ongoing sales compensation
payable out of such fee as such compensation is received by John Hancock Funds
or by Selling Brokers, (ii) direct out-of-pocket expenses incurred in connection
with the distribution of shares, including expenses related to printing of
prospectuses and reports; (iii) preparation, printing and distribution of sales
literature and advertising material; (iv) an allocation of overhead and other
branch office expenses of John Hancock Funds related to the distribution of Fund
Shares; (v) distribution expenses that
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were incurred by the Fund's former distributor and not recovered through
payments under the Class A or Class B former plans or through receipt of
contingent deferred sales charges ("CDSCs"); and (vi) in the event that any
other investment company (the "Acquired Fund") sells all or substantially all of
its assets, merges with or otherwise engages in a combination with the Fund,
distribution expenses originally incurred in connection with the distribution of
the Acquired Fund's shares. Service Expenses under the Plans include payments
made to, or on account of, account executives of selected broker-dealers
(including affiliates of John Hancock Funds) and others who furnish personal and
shareholder account maintenance services to shareholders of the relevant class
of the Fund.
For the fiscal year ended October 31, 1994, total payments made by
Emerging Growth Fund under the Fund's former Class A Rule 12b-1 plan to the
former distributor amounted to $277,671 and of such amount (1) $9,627, (2)
$126,857, (3) $8,204, (4) $16,712 and (5) $116,271 represented payments for (1)
advertising, (2) payments to dealers and for dealer meetings, (3) cost of
prospectuses and shareholder reports, (4) various sales literature and (5)
service fees, respectively. For the fiscal year ended October 31, 1994, total
payments made by High Yield Bond Fund under the Fund's former Class A Rule 12b-1
plan to the former distributor amounted to $20,179 and of such amount (1) $68,
(2) $5,975, (3) $383, (4) $1,431 and (5) $12,322 represented payments for (1)
advertising, (2) payments to dealers and for dealer meetings, (3) cost of
prospectuses and shareholder reports, (4) various sales literature and (5)
service fees, respectively. There were no Class A shares of the Money Market
Fund outstanding during this period.
The following amounts for each of the Funds for the fiscal year ending
October 31, 1994 represent each Fund's total payments to the former distributor
made pursuant to its Class B Plan and of such amounts, portions representing:
(1) total of service fees shown as
(a) service fees paid to brokers and dealers; and
(b) service fees paid to the former distributor
(2) total of distribution fees shown as:
(a) dealer commission payments;
(b) underwriting fee; and
(c) carrying charge (separate distribution fee).
EMERGING GROWTH FUND (CLASS B SHARES) - $2,497,907 total;
(1) $639,690; a) $401,762, and b) $237,928 and
(2) $1,858,217; a) $916,075, b) $229,019 and c) $713,123.
GLOBAL RESOURCES FUND (CLASS B SHARES) - $281,482 total;
(1) $70,523; a) $40,920, and b) $29,603 and
(2) $210,959; a) $124,689 b) $31,172 and c) $55,098.
GOVERNMENT INCOME FUND (CLASS B SHARES) - $2,685,298, total;
(1) $671,915; a) $538,084, and b) $133,831 and
(2) $2,013,382; a) $944,718, b) 236,179 and c) $832,485
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HIGH YIELD BOND FUND (CLASS B SHARES) - $1,583,989 total;
(1) $390,708; a) $288,075, and b) $102,633 and
(2) $1,193,281; a) $591,135, b) $147,784 and c) $454,362
HIGH YIELD TAX-FREE FUND (CLASS B SHARES) - $1,408,352 total;
(1) $360,232; a) $192,666, and b) $167,566 and
(2) $1,048,120; a) $511,586, b) $127,896 and c) $408,638.
MONEY MARKET FUND - $428,177 total;
(1) $107,432; a) $92,386, and b) $15,046 and
(2) $320,745; a) $182,732, b) $45,683 and c) $92,330.
The following amounts for each of the Funds for the fiscal years ended
October 31, 1994, 1993 and 1992 represent amounts of CDSCs from redemptions of
the Fund's shares as received by the former distributor: (a) Emerging Growth
Fund (Class B Shares) - $382,553, $288,843 and $130,276; (b) Global Resources
Fund (Class B Shares) - $68,696, $27,393 and $31,801; (c) Government Income Fund
(Class B Shares) - $766,358, $518,924 and $398,691; (d) High Yield Bond Fund
(Class B Shares) - $387,591, $408,082 and $316,349; (e) High Yield Tax-Free Fund
(Class B Shares) - $253,265, $99,725 and $142,804; and (f) Money Market Fund
(Class B shares) - $343,829, $211,332 and $271,728.
Each of the Plans provides that it will continue in effect only so long
as its continuance is approved at least annually by a majority of both the
Directors and the Independent Directors. Each of the Plans provides that it may
be terminated without penalty (a) by vote of a majority of the Independent
Directors, (b) by a majority of the respective Class' outstanding voting
securities upon 60 days' written notice to John Hancock Funds, and (c)
automatically in the event of assignment. Each of the Plans further provides
that it may not be amended to increase the maximum amount of the fees for the
services described therein without the approval of a majority of the outstanding
shares of the class of the Fund which has voting rights with respect to the
Plan. Each of the Plans provides that no material amendment to the Plan will, in
any event, be effective unless it is approved by a majority vote of the
Directors and the Independent Directors of the Corporation. The holders of Class
A Shares and Class B Shares have exclusive voting rights with respect to the
Plan applicable to their respective class of shares. In adopting the Plans, the
Board of Directors has determined that, in their judgment, there is a reasonable
likelihood that each Plan will benefit the holders of the applicable class of
shares of the affected Fund.
Information regarding the services rendered under the Plans and the
Distribution Agreement and the amounts paid therefore by the respective Class of
the Funds are provided to, and reviewed by, the Board of Directors on a
quarterly basis. In its quarterly review, the Board of Directors considers the
continued appropriateness of the Plans and the Distribution Agreement and the
level of compensation provided therein.
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the shares
of the Funds, the following procedures are utilized wherever applicable.
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Debt investment securities are valued on the basis of valuations
furnished by a principal market maker or a pricing service, both of which
generally utilize electronic data processing techniques to determine valuations
for normal institutional size trading units of debt securities without exclusive
reliance upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National
Market Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days
or less are generally valued at amortized cost which approximates market value.
If market quotations are not readily available or if in the opinion of the
Adviser any quotation or price is not representative of true market value, the
fair value of the security may be determined in good faith in accordance with
procedures approved by the Directors.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of any determination of the Fund's NAV.
The Funds will not price their securities on the following national
holidays: New Year's Day; Presidents' Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day. On any day an
international market is closed and the New York Stock Exchange is open, any
foreign securities will be valued at the prior day's close with the current
day's exchange rate. Trading of foreign securities may take place on Saturdays
and U.S. business holidays on which a Fund's NAV is not calculated.
Consequently, a Fund's portfolio securities may trade and the NAV of the Fund's
redeemable securities may be significantly affected on days when a shareholder
has no access to the Fund.
AMORTIZED COST METHOD OF PORTFOLIO VALUATION
Money Market 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 each class of the Money Market
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 in either class from dividends is
reflected as an increase in the number of shares of such class in the
shareholder's account or is distributed as cash if a shareholder has so elected.
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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 and 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
either class of shares of 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 of either class in kind.
Nevertheless, the Fund has filed with the Securities and Exchange Commission a
notification of election committing itself to pay in cash on redemption by a
shareholder of record, limited during any 90-day period to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of such
period.
The Fund will not price its securities on the following national
holidays: New Year's Day; President's Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day and Christmas Day.
INITIAL SALES CHARGE ON CLASS A SHARES
Class A shares of the Funds (except for Money Market Fund) are offered
at a price equal to their net asset value plus a sales charge which, at the
option of the purchaser, may be imposed either at the time of purchase (the
"initial sales charge alternative") or on a contingent deferred basis (the
"deferred sales charge alternative"). Class A shares of Money Market Fund will
be sold at their net asset value without a sales charge. Share certificates will
not be issued unless requested by the shareholder in writing, and then only will
be issued for full shares. The Directors reserve the right to change or waive a
Fund's minimum investment requirements and to reject any order to purchase
shares (including purchase by exchange) when in the judgment of the Adviser such
rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the
Funds are described in each Fund's Prospectus. Methods of obtaining reduced
sales charges referred to generally in the Prospectuses are described in detail
below. In calculating the sales charge applicable to current purchases of Class
A shares, the investor is entitled to cumulate current purchases with the
greater of the current value (at offering price) of the Class A shares of the
Fund, or if Investor Services is notified by the investor's dealer or the
investor at the time of the purchase, the cost of the Class A shares owned.
COMBINED PURCHASES. In calculating the sales charge applicable to
purchases of Class A shares made at one time, the purchases will be combined if
made by (a) an individual, his or her spouse and their children under the age of
21 purchasing securities for his or her own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
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WITHOUT SALES CHARGE. As described in the Prospectuses, Class A shares
of the Funds may be sold without a sales charge to certain persons described in
the Prospectuses.
ACCUMULATION PRIVILEGE. Investors (including investors combining
purchases) who are already Class A shareholders may also obtain the benefit of
the reduced sales charge by taking into account not only the amount then being
invested but also the purchase price or value of the Class A shares already held
by such person.
COMBINATION PRIVILEGE. Reduced sales charges (according to the schedule
set forth in the Prospectuses) also are available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares of a
Fund and shares of all other John Hancock funds which carry a sales charge.
LETTER OF INTENTION. The reduced sales loads are also applicable to
investments made over a specified period pursuant to a Letter of Intention
(LOI), which should be read carefully prior to its execution by an investor.
Each Fund (other than Money Market Fund) offers two options regarding the
specified period for making investments under the LOI. All investors have the
option of making their investments over a period of thirteen (13) months.
Investors who are using the Fund as a funding medium for a qualified retirement
plan, however, may opt to make the necessary investments called for by the LOI
over a forty-eight (48) month period. These qualified retirement plans include
IRA's, SEP, SARSEP, TSA, 401(k) plans, TSA plans and 457 plans. Such an
investment (including accumulations and combinations) must aggregate $100,000 or
more invested during the specified period from the date of the LOI or from a
date within ninety (90) days prior thereto, upon written request to Investor
Services ($50,000 in the case of Emerging Growth Fund and Global Resources
Fund). The sales charge applicable to all amounts invested under the LOI is
computed as if the aggregate amount intended to be invested had been invested
immediately. If such aggregate amount is not actually invested, the difference
in the sales charge actually paid and the sales charge payable had the LOI not
been in effect is due from the investor. However, for the purchases actually
made with the specified period (either 13 or 48 months), the sales charge
applicable will not be higher than that which would have been applied (including
accumulations and combinations) had the LOI been for the amount actually
invested.
The LOI authorizes Investor Services to hold in escrow sufficient Class
A shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrow shares will be released. If the total investment specified in the LOI
is not completed, the Class A shares held in escrow may be redeemed and the
proceeds used as required to pay such sales charges as may be due. By signing
the LOI, the investor authorizes Investor Services to act as his
attorney-in-fact to redeem any escrowed shares and adjust the sales charge, if
necessary. A LOI does not constitute a binding commitment by an investor to
purchase, or by a Fund to sell, any additional shares and may be terminated at
any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per
share without the imposition of a sales charge so that the Fund will receive the
full amount of the purchase payment.
CONTINGENT DEFERRED SALES CHARGE. Class B shares which are redeemed
within six years of purchase will be subject to a CDSC at the rates set forth in
the Funds' respective Prospectuses as a percentage of the dollar amount subject
to the CDSC. The charge will be assessed on an amount equal to the lesser of the
current market value or the original purchase cost of the Class B
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shares being redeemed. Accordingly, no CDSC will be imposed on increases in
account value above the initial purchase prices, including Class B shares
derived from reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. Class B shares of Money Market Fund, not purchased directly, will
be subject upon redemption to the CDSC set forth in the Prospectus of the John
Hancock fund from which the investor initially exchanged his/her shares.
Proceeds from the CDSC are paid to John Hancock Funds and are used in
whole or in part by John Hancock Funds to defray its expenses related to
providing distribution-related services to the Fund in connection with the sale
of the Class B shares, such as the payment of compensation to select Selling
Brokers for selling Class B shares. The combination of the CDSC and the
distribution and service fees facilitates the ability of the Fund to sell the
Class B shares without a sales charge being deducted at the time of the
purchase. See the Prospectuses for additional information regarding the CDSC.
SPECIAL REDEMPTIONS
Although the Funds would not normally do so, each Fund has the right to
pay the redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Directors. When the shareholder sells portfolio
securities received in this fashion, he would incur a brokerage charge. Any such
security would be valued for the purpose of making such payment at the same
value as used in determining the Fund's net asset value. Each Fund has elected
to be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund during any 90-day period for any one account.
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE. As described more fully in the Prospectuses, the
Funds permit exchanges of shares of any class for shares of the same class in
any other John Hancock fund offering that class.
SYSTEMATIC WITHDRAWAL PLAN. As described briefly in the Prospectuses,
the Funds permit the establishment of a Systematic Withdrawal Plan. Payments
under this plan represent proceeds arising from the redemption of Fund shares.
Since the redemption price of Fund shares may be more or less than the
shareholder's cost, depending upon the market value of the securities owned by
the Fund at the time of redemption, the distribution of cash pursuant to this
plan may result in realization of gain or loss for purposes of Federal, state
and local income taxes. The maintenance of a Systematic Withdrawal Plan
concurrently with purchases of additional Class A (except with respect to the
Money Market Fund) or Class B shares of a Fund could be disadvantageous to a
shareholder because of the initial sales charge payable on such purchases of
Class A shares and the CDSC imposed on redemptions of Class B shares and because
redemptions are taxable events. Therefore, a shareholder should not purchase
Fund shares at the same time as a Systematic Withdrawal Plan is in effect. Each
Fund reserves the right to modify or discontinue the Systematic Withdrawal Plan
of any shareholder on 30 days' prior written notice to such
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shareholder, or to discontinue the availability of such plan in the future. The
shareholder may terminate the plan at any time by giving proper notice to
Investor Services.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM ("MAAP"). This program is
explained fully in each Fund's Prospectus and the Account Privileges
Application. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month
indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice if
any investment is not honored by the shareholder's bank. The bank shall be under
no obligation to notify the shareholder as to the non-payment of any check.
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the due date of any investment.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Fund shares may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in shares of the same class of
the Fund or another John Hancock mutual fund, subject to the minimum investment
limit in that fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A Shares of
the Fund or in Class A shares of another John Hancock mutual fund. If a CDSC was
paid upon a redemption, a shareholder may reinvest the proceeds from that
redemption at net asset value in additional shares of the class from which the
redemption was made. The shareholder's account will be credited with the amount
of any CDSC charged upon the prior redemption and the new shares will continue
to be subject to the CDSC. The holding period of the shares acquired through
reinvestment will, for purposes of computing the CDSC payable upon a subsequent
redemption, include the holding period of the redeemed shares. The Fund may
modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for
Federal income tax purposes. Even if the reinvestment privilege is exercised,
and any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated for tax purposes as described under
the caption "Tax Status."
DESCRIPTION OF THE CORPORATION'S SHARES
Each Fund operates as one series of the Corporation. All shares of
stock of the Corporation ($.01 par value per share) have equal voting rights
among shares of the same series (except that each class of shares within a
series has sole voting rights with respect to matters solely affecting that
class). On September 12, 1995, the Corporation's Articles of Incorporation were
amended to increase the authorized common stock of the Corporation from
375,000,000 to 2,500,000,000 shares of Class A Common Stock, from 625,000,000 to
3,000,000,000 shares of Class B Common Stock; and from 0 to 1,000,000,000 shares
of Class S Common Stock. No shares of any series or class have pre-emptive or
conversion rights. Each series of shares represents interests in a separate
portfolio of investments. Each is entitled to all income and gains (or losses)
and bears all of the expenses associated with the operations of that portfolio
except that each class of a series bears its own transfer agency fees. Common
expenses of the Corporation are allocated among the series, based upon the
respective net assets or ratably or a combination of both whichever is more
appropriate, of each series.
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The Board of Directors is authorized to create additional series of
shares and classes within any series at any time without approval by
shareholders. Six series of shares representing interests in the Corporation are
presently authorized.
Each share of each series or class of the Corporation represents an
equal proportionate interest with each other share in that series or class, none
having priority or preference over other shares of the same series or class. The
interest of investors in the various series or classes of the Corporation is
separate and distinct. All consideration received for the sales of shares of a
particular series or class of the Corporation, all assets in which such
consideration is invested and all income, earnings and profits derived from such
investments will be allocated to and belong to that series or class. As such,
each share is entitled to dividends and distributions out of the net income
belonging to that series or class as declared by the Board of Directors. The
assets of each series are segregated on the Corporation's books and are charged
with the liabilities of that series and with a share of the Corporation's
general liabilities.
The Board of Directors determines those assets and liabilities deemed
to be general assets or liabilities of the Corporation, and these items are
allocated among each series in proportion to the relative total net assets of
each series. In the unlikely event that the liabilities allocable to a series
exceed the assets of that series, the amount to be deemed available for
distribution to each affected series shall be determined by the Board of
Directors in order to effect an equitable allocation among each series of the
Corporation.
The directors of the Corporation have authorized the issuance of two
classes of common stock for each Fund, designated as Class A and Class B shares,
and, in the case of the Money Market Fund has authorized the issuance of a third
class of common stock, designated as Class S shares. Class A, Class B shares
and, in the case of Money Market Fund, Class S shares each represent an interest
in the same assets of the respective Funds and are identical in all respects
except that each class bears certain expenses related to the distribution of
such shares and certain expenses related to transfer agency services. Class S
shares of Money Market Fund are available exclusively to investors who maintain
brokerage accounts with certain brokers who offer shares of Money Market Fund as
part of a sweep account arrangement. Class S shares of Money Market Fund are not
subject to a sales charge on purchases, redemptions or reinvested dividends, nor
are they subject to deferred sales charges or an exchange fee. The holders of
Class A and Class B shares and, in the case of Money Market Fund, Class S shares
have certain exclusive voting rights on matters relating to their respective
distribution plans. The different classes of the Funds may bear different
expenses relating to the cost of holding shareholder meetings necessitated by
the exclusive voting rights of any class of shares. The Directors of the
Corporation may classify and reclassify the shares of all Funds into additional
classes of common stock at a future date.
VOTING RIGHTS. Each shareholder of the Corporation is entitled to a
full vote for each full share held (and fractional votes for fractional shares).
Shareholders of each series or class vote separately from other shareholders of
the Corporation with respect to all matters which affect solely the interests of
that series or class. After Directors have been elected by shareholders, they
will continue to serve indefinitely and they may appoint their own successors,
provided that always at least a majority of the Directors have been elected by
the Corporation's shareholders. The voting rights of stockholders are not
cumulative, so that the holders of more than 50 percent of the shares voting
can, if they choose, elect all Directors being selected, while the holders of
the remaining shares would be unable to elect any Directors. It is the intention
of the Corporation not to hold annual meetings of shareholders. The Directors
may call annual or special meetings of shareholders of the Corporation or any
class of a series for action by shareholder vote as may be required by the
Investment Company Act of 1940. Pursuant to an undertaking to the Securities and
Exchange Commission, the Corporation will call a meeting of shareholders for any
purpose, including voting to remove one or more Directors, on the written
request of the holders of at
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least 10% of the outstanding shares of the Corporation. The Funds, under certain
circumstances, will assist shareholders with communications including
shareholder proposals.
DIRECTOR AND OFFICER LIABILITY. Under the Corporation's Articles of
Incorporation and the Maryland General Corporation Law, the directors, officers,
employees and agents of the Corporation are entitled to indemnification under
certain circumstances against liabilities, claims and expenses arising from any
threatened, pending or completed action, suit or proceeding to which they are
made parties by reason of the fact that they are or were such directors,
officers, employees or agents of the Corporation except as such liability may
arise from their own bad faith, willful misfeasance, gross negligence or
reckless disregard of duties.
The Corporation is not required to issue stock certificates. The
Corporation shall continue without limitation of time subject to the provisions
in the Articles of Incorporation concerning termination by action of the
shareholders.
TAX STATUS
Each Fund is treated as a separate entity for accounting and tax
purposes. Each Fund has qualified and elected to be treated as a "regulated
investment company" under Subchapter M of the Code, and intends to continue to
so qualify in the future. As such and by complying with the applicable
provisions of the Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, each Fund will not be
subject to Federal income tax on taxable income (including net realized capital
gains) which is distributed to shareholders at least annually in accordance with
the timing requirements of the Code.
Each Fund will be subject to a 4% non-deductible 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. Each
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
Distributions from a Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in such Fund's Prospectus whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to 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 to receive
the distributions in cash, divided by the number of shares received.
Distributions of tax-exempt interest ("exempt-interest dividends")
timely designated as such by High Yield Tax-Free Fund will be treated as
tax-exempt interest under the Code, provided that such Fund qualifies as a
regulated investment company and at least 50% of the value of its assets at the
end of each quarter of its taxable year is invested in tax-exempt obligations.
Shareholders are required to report their receipt of tax-exempt interest,
including such distributions, on their Federal income tax returns. The portion
of High Yield Tax-Free Fund's distributions designated as exempt-interest
dividends may differ from the actual percentage that its tax-exempt income
comprised of its total income during the period of any particular shareholder's
investment. High Yield Tax-Free Fund will report to shareholders the amount
designated as exempt-interest dividends for each year.
Interest income from certain types of tax-exempt bonds that are private
activity bonds in which High Yield Tax-Free Fund may invest is treated as an
item of tax preference for purposes of
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the Federal alternative minimum tax. To the extent that High Yield Tax-Free Fund
invests in these types of tax-exempt bonds, shareholders will be required to
treat as an item of tax preference for Federal alternative minimum purposes that
part of such Fund's exempt-interest dividends which is derived from interest on
these tax-exempt bonds. Exempt-interest dividends derived from interest income
from all tax-exempt bonds may be included in corporate "adjusted current
earnings" for purposes of computing the alternative minimum tax liability, if
any, of corporate shareholders of High Yield Tax-Free Fund.
If Global Resources Fund or Emerging Growth Fund acquires stock in
certain non-U.S. corporations that receive at least 75% of their annual gross
income from passive sources (such as interest, dividends, rents, royalties or
capital gain) or hold at least 50% of their assets in investments producing such
passive income ("passive foreign investment companies"), that Fund could be
subject to Federal income tax and additional interest charges on "excess
distributions" received from such companies or gain from the sale of stock in
such companies, even if all income or gain actually received by the Fund is
timely distributed to its shareholders. The Fund would not be able to pass
through to its shareholders any credit or deduction for such a tax. Certain
elections may, if available, ameliorate these adverse tax consequences, but any
such election would require the applicable Fund to recognize taxable income or
gain without the concurrent receipt of cash. Any Fund that is permitted to
acquire stock in foreign corporations may limit and/or manage its holdings in
passive foreign investment companies to minimize its tax liability or maximize
its return from these investments.
Foreign exchange gains and losses realized by Emerging Growth Fund,
Global Resources Fund, Government Income Fund or High Yield Bond Fund in
connection with certain transactions involving foreign currency-denominated debt
securities, certain foreign currency futures and options, foreign currency
forward contracts, foreign currencies, or payables or receivables denominated in
a foreign currency are subject to Section 988 of the Code, which generally
causes such gains and losses to be treated as ordinary income and losses and may
affect the amount, timing and character of distributions to shareholders. Any
such transactions that are not directly related to a Fund's investment in stock
or securities, possibly including speculative currency positions or currency
derivatives not used for hedging purposes, may increase the amount of gain it is
deemed to recognize from the sale of certain investments held for less than
three months, which gain is limited under the Code to less than 30% of its
annual gross income, and could under future Treasury regulations produce income
not among the types of "qualifying income" from which the Fund must derive at
least 90% of its annual gross income. Income from investments in commodities,
such as gold and certain related derivative instruments, is also not treated as
qualifying income under this test. If the net foreign exchange loss for a year
treated as ordinary loss under Section 988 were to exceed a Fund's investment
company taxable income computed without regard to such loss but after
considering the post-October loss regulations (i.e., all of the Fund's net
income other than any excess of net long-term capital gain over net short-term
capital loss) the resulting overall ordinary loss for such year would not be
deductible by the Fund or its shareholders in future years.
Global Resources Fund, Emerging Growth Fund, Government Income Fund and
High Yield Bond Fund may be subject to withholding and other taxes imposed by
foreign countries with respect to their investments in foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. Investors may be entitled to claim U.S. foreign tax credits or deductions
with respect to such taxes, subject to certain provisions and limitations
contained in the Code. Specifically, if more than 50% of the value of a Fund's
total assets at the close of any taxable year consists of stock or 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
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received by them, and (ii) treat such respective pro rata portions as foreign
income taxes paid by them. Global Resources Fund or Emerging Growth Fund may,
but the other Funds probably will not satisfy this 50% requirement.
If a Fund makes this election, shareholders 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 income taxes paid by the Fund, although
such shareholders will be required to include their share 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 a 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. A Fund that cannot or does not make
this election may deduct such taxes in computing its taxable income.
The amount of a Fund's net realized capital gains, if any, in any given
year will vary depending upon the Adviser's current investment strategy and
whether the Adviser believes it to be in the best interest of such Fund to
dispose of portfolio securities or enter into options or futures transactions
that will generate capital gains. At the time of an investor's purchase of Fund
shares, a portion of the purchase price is often attributable to realized or
unrealized appreciation in the Fund's portfolio or, in the case of Global
Resources Fund and Emerging Growth Fund, to undistributed taxable income of the
Fund. Consequently, subsequent distributions from such appreciation or income
may be taxable to such investor even if the net asset value of the investor's
shares is, as a result of the distributions, reduced below the investor's cost
for such shares, and the distributions in reality represent a return of a
portion of the purchase price.
Upon a redemption of shares of a Fund (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon his basis in his shares, except that a redemption of shares of Money Market
Fund may not result in a gain or loss if the Fund always successfully maintains
a constant net asset value per share, although a loss may still arise if a CDSC
is paid. Any gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares.
A sales charge paid in purchasing Class A shares of a Fund cannot be taken into
account for purposes of determining gain or loss on the redemption or exchange
of such shares within 90 days after their purchase to the extent shares of the
Fund or another John Hancock fund are subsequently acquired without payment of a
sales charge pursuant to the reinvestment or exchange privilege. Such
disregarded load will result in an increase in the shareholder's tax basis in
the shares subsequently acquired. Also, any loss realized on a redemption or
exchange may be disallowed to the extent the shares disposed of are replaced
with other shares of the same Fund within a period of 61 days beginning 30 days
before and ending 30 days after the shares are disposed of, such as pursuant to
an election to reinvest dividends in additional shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized upon the redemption of shares with a tax holding period of six
months or less will be disallowed (in the case of High Yield Tax-Free Fund) to
the extent of all exempt-interest dividends paid with respect to such shares
and, if not thus disallowed, will (in the case of any Fund) be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain with respect to such shares.
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Although its present intention is to distribute all net capital gains,
if any, each Fund reserves the right to retain and reinvest all or any portion
of the excess, as computed for Federal income tax purposes, of net long-term
capital gain over net short-term capital loss in any year. The Funds will not in
any event distribute net long-term capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Each shareholder would be treated for
Federal income tax purposes as if the Fund had distributed to him on the last
day of its taxable year his pro rata share of such excess, and he had paid his
pro rata share of the taxes paid by the Fund and reinvested the remainder in the
Fund. Accordingly, each shareholder would (a) include his pro rata share of such
excess as long-term capital gain income in his return for his taxable year in
which the last day of such Fund's taxable year falls, (b) be entitled either to
a tax credit on his return for, or to a refund of, his pro rata share of the
taxes paid by such Fund, and (c) be entitled to increase the adjusted tax basis
for his shares in such Fund by the difference between his pro rata share of such
excess and his pro rata share of such taxes.
For Federal income tax purposes, each Fund is generally permitted to
carry forward a net capital loss in any year to offset its own net capital
gains, if any, during the eight years following the year of the loss. To the
extent subsequent net capital gains are offset by such losses, they would not
result in Federal income tax liability to the applicable Fund and, as noted
above, would not be distributed as such to shareholders. As of October 31, 1994,
Emerging Growth Fund had capital loss carryforwards of $17,163,122, of which
$1,477,890 will expire in 1996, $177,369 will expire in 1998, $2,304,137 will
expire in 2000, $4,446,419 will expire in 2001 and $8,817,307 will expire in
2002. As of October 31, 1994, Global Resources Fund had capital loss
carryforwards of $106,861, of which $16,520 will expire in 2000 and $90,341 will
expire in 2002. As of December 31, 1994, Government Income Fund, High Yield Bond
Fund and High Yield Tax-Free Fund had capital loss carryforwards of $15,347,195,
$9,184,252 and $2,785,979, respectively, all of which will expire in 2002.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of High Yield Tax-Free Fund will not be deductible for Federal income tax
purposes to the extent it is deemed related to exempt-interest dividends paid by
such Fund. Pursuant to published guidelines, the Internal Revenue Service may
deem indebtedness to have been incurred for the purpose of purchasing or
carrying shares of this Fund even though the borrowed funds may not be directly
traceable to the purchase of shares.
For purposes of the dividends-received deduction available to
corporations, dividends received by a Fund, if any, from U.S. domestic
corporations in respect of the stock of such corporations held by the Fund, for
U.S. Federal income tax purposes, for at least 46 days (91 days in the case of
certain preferred stock) and distributed and designated by the Fund may be
treated as qualifying dividends. Only Emerging Growth Fund or Global Resources
Fund may sometimes have any significant portion of its distributions treated as
qualifying dividends. Corporate shareholders must meet the minimum holding
period requirement stated above (46 or 91 days) with respect to their shares of
the applicable Fund in order to qualify for the deduction and, if they borrow to
acquire such shares, may be denied a portion of the dividends-received
deduction. The entire qualifying dividend, including the otherwise deductible
amount, will be included in determining the excess (if any) of a corporate
shareholder's adjusted current earnings over its alternative minimum taxable
income, which may increase its alternative minimum tax liability. Additionally,
any corporate shareholder should consult its tax adviser regarding the
possibility that its basis in its shares may be reduced, for Federal income tax
purposes, by reason of "extraordinary dividends" received with respect to the
shares, for the purpose of computing its gain or loss on redemption or other
disposition of the shares.
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Each Fund that invests in certain PIKs, zero coupon securities or
certain increasing rate securities (and, in general, any other securities with
original issue discount or with market discount if the Fund elects to include
market discount in income currently) must accrue income on such investments
prior to the receipt of the corresponding cash payments. However, each Fund must
distribute, at least annually, all or substantially all of its net income,
including such accrued income, to shareholders to qualify as a regulated
investment company under the Code and avoid Federal income and excise taxes.
Therefore, a Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or may have to leverage itself
by borrowing the cash, to satisfy distribution requirements.
Investments in debt obligations that are at risk of or are in default
present special tax issues for any Fund that may hold such obligations, such as
High Yield Bond Fund and High Yield Tax-Free Fund. Tax rules are not entirely
clear about issues such as when the Funds may cease to accrue interest, original
issue discount, or market discount, when and to what extent deductions may be
taken for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and income, and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by any Fund that may hold such obligations in
order to reduce the risk of distributing insufficient income to preserve its
status as a regulated investment company and seek to avoid becoming subject to
Federal income or excise tax.
Limitations imposed by the Code on regulated investment companies like
the Funds may restrict a Fund's ability to enter into futures, options and
currency forward transactions.
Certain options, futures and forward foreign currency transactions
undertaken by a Fund may cause such Fund to recognize gains or losses from
marking to market even though its positions have not been sold or terminated and
affect the character as long-term or short-term (or, in the case of certain
currency forwards, options and futures, as ordinary income or loss) and timing
of some capital gains and losses realized by the Fund. Also, certain of a Fund's
losses on its transactions involving options, futures and forward foreign
currency contracts and/or offsetting portfolio positions may be deferred rather
than being taken into account currently in calculating the Fund's taxable income
or gains. These transactions may therefore affect the amount, timing and
character of a Fund's distributions to shareholders. Certain of the applicable
tax rules may be modified if the Fund is eligible and chooses to make one or
more of certain tax elections that may be available. The Funds will take into
account the special tax rules (including consideration of available elections)
applicable to options, futures or forward contracts in order to minimize any
potential adverse tax consequences.
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 foregoing discussion relates solely to U.S. Federal income tax law
as 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, and ownership
of or gains realized on the redemption (including an exchange) of Fund shares
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 distributions from, a Fund in their particular
circumstances.
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Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in a Fund 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 nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from a Fund and, unless an effective IRS Form W-8 or authorized
substitute is on file, to 31% backup withholding on certain other payments 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 Funds.
Provided that each Fund qualifies as a regulated investment company
under the Code, it will not be required to pay any Massachusetts income,
corporate excise or franchise taxes.
CALCULATION OF PERFORMANCE
YIELD (EXCEPT FOR THE MONEY MARKET FUND). For the 30-day period ended
April 30, 1995, the yields of (a) High Yield Bond Fund's Class A and Class B
shares were 9.92% and 9.66%, respectively, (b) High Yield Tax-Free Fund's Class
A and Class B shares were 5.76% and 5.25%, respectively and (c) Government
Income Fund's Class A and Class B shares were 6.40% and 6.05%, respectively. The
performance of High Yield Bond Fund's Class A and Class B shares quoted (1)
partially reflects an increase due to significant declines in prices of certain
bonds held in the Fund's portfolio due to current adverse market conditions and
(2) may not reflect the actual income stream investors can expect if portfolio
issuers experience financial difficulties. For a thorough explanation, investors
may obtain further information from their broker.
Each Fund's yield (except for Money Market Fund) is computed by
dividing net investment income per share determined for a 30-day period by the
maximum offering price per share (which includes the full sales charge) on the
last day of the period, according to the following standard formula:
Yield = 2 ((a-b + 1 )6 -1)
---
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the
period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period
(NAV where applicable).
High Yield Tax-Free Fund may advertise a tax-equivalent yield, which is
computed by dividing that portion of the yield of that Fund which is tax-exempt
by one minus a stated income tax rate and adding the product to that portion, if
any, of the yield of the Fund that is not tax-exempt. The tax-equivalent yields
for the High Yield Tax-Free Fund's Class A and Class B Shares at the 36% federal
income tax rate for the 30-day period ended April 30, 1995 were 9.00% and 8.20%,
respectively.
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MONEY MARKET FUND YIELD. For the purposes of calculating yield for both
classes of Money Market Fund, 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.
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.
TOTAL RETURN. Each Fund's total return is computed by finding the
average annual compounded rate of return over the 1-year, 5-year, and 10-year
periods that would equate the initial amount invested to the ending redeemable
value according to the following formula:
P(1+T)n = ERV
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
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ERV = ending redeemable value of a hypothetical $1,000 investment made
at the beginning of the 1-year and life-of-fund periods.
In the case of Class A shares or Class B shares, this calculation
assumes the maximum sales charge is included in the initial investment or the
CDSC is applied at the end of the period. This calculation also assumes that all
dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period. The "distribution rate" is determined by
annualizing the result of dividing the declared dividends of a Fund during the
period stated by the maximum offering price or net asset value at the end of the
period.
The total return in the case of Class B shares of each Fund is
calculated by determining the net asset value of all shares held at the end of
the period for each share held from the beginning of the period (assuming
reinvestment of all dividends and distributions at net asset value during the
period and the deduction of any applicable contingent deferred sales charge as
if the shares were redeemed at the end of the period), subtracting the maximum
offering price per share (net asset value per share) at the beginning of such
period and then dividing the result by the maximum offering price per share (net
asset value per share) at the beginning of the same period. Total return for
Class A shares of each of Emerging Growth Fund, Global Resources Fund,
Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund is
calculated in the same manner except the maximum offering price reflects the
deduction of the maximum initial sales charge and the redemption value is at net
asset value.
In addition to average annual total returns, a Fund may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments, and/or a series of redemptions, over any time period.
Total returns may be quoted with or without taking the Fund's maximum sales
charge on Class A shares or the CDSC on Class B shares into account. A Fund's
"distribution rate" is determined by annualizing the result of dividing the
declared dividends of the Fund during the stated period by the maximum offering
price or net asset value at the end of the period. Excluding a Fund's sales
charge on Class A shares and the CDSC on Class B shares from a total return
calculation produces a higher total return figure.
From time to time, in reports and promotional literature, a Fund's
yield and total return will be compared to indices of mutual funds and bank
deposit vehicles such as Lipper Analytical Services, Inc.'s "Lipper--Fixed
Income Fund Performance Analysis," a monthly publication which tracks net
assets, total return, and yield on approximately 1,700 fixed income mutual funds
in the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers
are also used for comparison purposes, as well as the Russell and Wilshire
Indices.
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 BARRON'S, etc. will
also be utilized. A Fund's promotional and sales literature may make reference
to the Fund's "beta." Beta reflects the market-related risk of the Fund by
showing how responsive the Fund is to the market.
The performance of a Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of a
Fund for any period in the future. The performance of a Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease a
Fund's performance.
-59-
<PAGE> 152
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and
the allocation of brokerage commissions are made by the Adviser and officers of
the Corporation pursuant to recommendations made by its investment committee,
which consists of officers and directors of the Adviser and affiliates and
officers and Directors who are interested persons of the Funds. Orders for
purchases and sales of securities are placed in a manner which, in the opinion
of the Adviser, will offer the best price and market for the execution of each
such transaction. Purchases from underwriters of portfolio securities may
include a commission or commissions paid by the issuer and transactions with
dealers serving as market makers reflect a "spread." Investments in debt
securities are generally traded on a net basis through dealers acting for their
own account as principals and not as brokers; no brokerage commissions are
payable on such transactions.
Each 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 Funds
as a factor in the selection of broker-dealers to execute a Fund's portfolio
transactions.
Purchase of securities for Government Income Fund, High Yield Bond Fund
and High Yield Tax-Free Fund are normally principal transactions made directly
from the issuer or from an underwriter or market maker for which no brokerage
commissions are usually paid. Purchases from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
and sales from dealers serving as market makers will usually include a mark up
or mark down. Purchases and sales of options and futures will be effected
through brokers who charge a commission for their services and are reflected in
amounts for Government Income Fund and High Yield Bond Fund below.
To the extent consistent with the foregoing, each 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 Funds. The Funds will make no commitments to allocate
portfolio transactions upon any prescribed basis. While the Corporation's
officers will be primarily responsible for the allocation of each 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.
Brokerage commissions of those Funds which pay such commissions for
their respective reporting periods, as follows, amounted to:
EMERGING GROWTH FUND - (a) $318,023 for the fiscal year ended October
31, 1994; (b) $330,454 for the fiscal year ended October 31, 1993; and
(c) $182,533 for the fiscal year ended October 31, 1992.
-60-
<PAGE> 153
GLOBAL RESOURCES FUND - (a) $148,469 for the fiscal year ended October
31, 1994; (b) $54,463 for the fiscal year ended October 31, 1993; and
(c) $29,204 for the fiscal year ended October 31, 1992.
GOVERNMENT INCOME FUND - (a) $96,931 for the fiscal year ended October
31, 1994; (b) $254,859 for the fiscal year ended October 31, 1993; and
(c) $140,463 for the fiscal year ended October 31, 1992.
HIGH YIELD BOND FUND - (a) $2,320 for the fiscal year ended October 31,
1994; (b) $13,050 for the fiscal year ended October 31, 1993; and (c)
$0 for the fiscal year ended October 31, 1992.
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 October 31, 1994, the
Funds 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 John Hancock Freedom Securities Corporation and its subsidiaries,
three of which, Tucker Anthony Incorporated ("Tucker Anthony") John Hancock
Distributors, Inc. ("John Hancock Distributors") and Sutro & Company, Inc.
("Sutro"), are broker-dealers ("Affiliated Brokers"). Pursuant to procedures
determined by the Trustees and consistent with the above policy of obtaining
best net results, the Fund may execute portfolio transactions with or through
Tucker Anthony, Sutro or John Hancock Distributors. During the year ended
October 31, 1994, the Fund did not execute any portfolio transactions with then
affiliated brokers.
Any of the Affiliated Brokers may act as broker for a Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Directors pursuant to the 1940 Act.
Commissions paid to an Affiliated Broker must be at least as favorable as those
which the Directors believe to be contemporaneously charged by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold. A transaction would not be placed with an Affiliated Broker
if the Fund would have to pay a commission rate less favorable than the
Affiliated Broker's contemporaneous charges for comparable transactions for its
other most favored, but unaffiliated, customers, except for accounts for which
the Affiliated Broker acts as a clearing broker for another brokerage firm, and
any customers of the Affiliated Broker not comparable to a Fund as determined by
a majority of the Directors who are not "interested persons" (as defined in the
1940 Act) of the Funds, the Adviser or the Affiliated Brokers. Because the
Adviser, which is affiliated with the Affiliated Brokers, has, as an investment
adviser to the Fund, the obligation to provide investment management services,
which includes elements of research and related investment skills, such research
and related skills will not be used by the Affiliated Brokers as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria. The Funds will not effect principal transactions with
Affiliated Brokers. The Funds may, however, purchase securities from other
members of underwriting syndicates of which Tucker Anthony and Sutro are
members, but only in accordance with the policy set forth above and procedures
adopted and reviewed periodically by the Directors.
-61-
<PAGE> 154
Brokerage or other transactions costs of a Fund are generally
commensurate with the rate of portfolio activity. The portfolio turnover rates
for each of the following Funds for (a) the fiscal year ended October 31, 1994
and (b) the fiscal year ending October 31, 1993 were:
EMERGING GROWTH FUND - (a) 25% and (b) 29%.
GLOBAL RESOURCES FUND - (a) 96% and (b) 83%.
GOVERNMENT INCOME FUND - (a) 92% and (b) 138%.
HIGH YIELD BOND FUND - (a) 153%* and (b) 204%*.
HIGH YIELD TAX-FREE FUND - (a) 62% and (b) 100%.
* Higher turnover rates were due to volatile market conditions.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Funds. Emerging Growth Fund and
Global Resources Fund pay Investor Services monthly a transfer agent fee equal
to $16 per account for the Class A Shares and $18.50 per account for the Class B
shares on an annual basis, plus out-of-pocket expenses. Government Income Fund
and High Yield Bond Fund pay Investor Services monthly a transfer agent fee
equal to $20 per account for the Class A shares and $22.50 per account for the
Class B shares on an annual basis, plus out-of-pocket expenses. High Yield
Tax-Free Fund pays Investor Services monthly a transfer agent fee of $19 per
account for the Class A shares and $21.50 per account for the Class B shares on
an annual basis, plus out-of-pocket expenses. Money Market Fund pays Investor
Services monthly a transfer agent fee of $25 per account for the Class A shares
and $27 per account for the Class B shares on an annual basis, plus
out-of-pocket expenses.
CUSTODY OF PORTFOLIO
Effective September 30, 1995, portfolio securities of the Funds are
held pursuant to a custodian agreement between the Corporation and State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110. Prior
to such date, portfolio securities of the Funds were held pursuant to a
custodian agreement between the Corporation and Investors Bank & Trust Company,
24 Federal Street, Boston, Massachusetts. Under the custodian agreement, the
custodian performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Funds are Ernst & Young LLP, 200
Clarendon Street, Boston, Massachusetts 02116. The independent auditors audit
and render an opinion on the Funds' annual financial statements and review the
Funds' annual income tax returns. The financial statements of the Funds included
in the Prospectuses and this Statement of Additional Information have been
audited by Ernst & Young LLP for the periods indicated in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
-62-
<PAGE> 155
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 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 conditional
ratings denote 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 a 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 RATINGS GROUP ("S&P")
AAA, AA, A AND BBB - Bonds rated AAA bear the highest rating assigned
to debt obligations, which 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 of 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 to 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.
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
A-1
<PAGE> 156
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 or 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, though 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 and 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 ratings may have different yields and
municipal securities of the same maturity and coupon with different ratings may
have the same yield.
A-2
<PAGE> 157
FINANCIAL STATEMENTS
F-1
<PAGE> 158
MONEY MARKET FUND B
<TABLE>
STATEMENT OF NET ASSETS
<CAPTION>
October 31, 1994
FACE
ISSUER AMOUNT VALUE
-------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER - 69.04%
---------------------------
BUSINESS CREDIT
INSTITUTIONS - 8.56%
Chevron Oil Finance Co.
5.050% due 11/08/94 .............. $3,000,000 $ 2,997,054
Coca-Cola Financial Corp.
4.850% due 11/14/94 .............. 2,000,000 1,996,497
-----------
4,993,551
CONSUMER CYCLICALS - 8.55%
Toys "R" Us, Inc.
4.880% due 11/29/94 .............. 2,500,000 2,490,511
Wal-Mart Stores, Inc.
4.750% due 11/02/94 .............. 2,500,000 2,499,670
-----------
4,990,181
CONSUMER GOODS &
SERVICES - 11.72%
Cargill Inc.
4.950% to 4.960% due
11/07/94 ........................ 3,000,000 2,997,523
Coca Cola Co.
4.770% to 5.050% due
11/04/94 to 11/18/94 ............ 993,000 991,703
Hershey Foods Corp.
4.800% due 11/01/94 .............. 2,000,000 2,000,000
Procter & Gamble Co.
5.000% due 11/01/94 .............. 850,000 850,000
-----------
6,839,226
FINANCIAL SERVICES - 5.13%
General Electric Capital Corp.
4.880% to 4.970% due
11/04/94 to 12/05/94 ............ 3,000,000 2,994,563
HEALTH CARE - 10.08%
Abbott Laboratories
4.800% to 4.950% due
11/22/94 to 12/06/94 ............ 2,500,000 2,489,981
Schering Corp.
4.750% to 4.800% due
11/02/94 to 12/15/94............. 2,400,000 2,397,389
Warner-Lambert Co.
4.870% due 11/28/94............... 1,000,000 996,348
-----------
5,883,718
INDUSTRIAL - 3.43%
Donnelley (R.R.) & Sons Co.
4.980% due 11/03/94 .............. 1,000,000 999,723
E.I. duPont deNemours & Co.
4.920% due 11/03/94 .............. 1,000,000 999,727
-----------
1,999,450
TECHNOLOGY-RELATED - 15.18%
American Telephone &
Telegraph Co.
4.800% to 5.280% due
11/18/94 to 01/03/95.............. 1,995,000 1,982,734
Bellsouth
Telecommunications Inc.
4.850% to 4.950% due
11/16/94 to 11/23/94 ............. 2,395,000 2,388,258
Motorola, Inc.
4.880% due 11/14/94 ............... 2,500,000 2,495,594
Raytheon Co.
4.850% due 11/21/94 ............... 2,000,000 1,994,611
-----------
8,861,197
UTILITIES - 6.39%
Laclede Gas Co.
4.920% due 11/09/94 ............... 2,000,000 1,997,813
Madison Gas & Electric Co.
4.850% to 4.950% due
11/15/94 to 11/21/94 ............. 1,739,000 1,734,793
-----------
3,732,606
-----------
TOTAL COMMERCIAL PAPER
(Cost $40,294,492) .................. 40,294,492
</TABLE>
3
<PAGE> 159
<TABLE>
STATEMENT OF NET ASSETS
<CAPTION>
Continued
FACE
ISSUER AMOUNT VALUE
-------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY
----------------------
OBLIGATIONS - 31.21%
----------------------
FEDERAL FARM CREDIT
BANK - 4.16%
3.500% to 5.410% due
11/15/94 to 04/13/95 ............. 2,445,000 2,428,712
FEDERAL HOME LOAN
BANK - 5.94%
4.900% to 5.630% due
11/04/94 to 03/30/95 ............. 3,495,000 3,463,629
FEDERAL HOME LOAN
MORTGAGE
CORPORATION - 6.15%
3.960% to 5.570% due
11/03/94 to 05/22/95 ............. 3,615,000 3,590,533
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - 14.96%
4.650% to 5.220% due
11/10/94 to 03/20/95 ............. 8,780,000 8,733,278
-----------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(Cost $18,216,152) .................. 18,216,152
-----------
TOTAL INVESTMENTS - 100.25%
(Cost $58,510,644) .................. 58,510,644
CASH AND OTHER ASSETS,
LESS LIABILITIES - (0.25)% ........ (145,055)
-----------
NET ASSETS, at value,
equivalent to $1.00 per
share for 58,365,589
shares ($.01 par value)
of capital stock
outstanding - 100.00% ............ $58,365,589
===========
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 160
STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
STATEMENT OF OPERATIONS
Year Ended October 31, 1994
<S> <C> <C>
INVESTMENT INCOME
Interest ......................... $1,725,382
EXPENSES
Distribution expenses ............ $428,177
Management fees .................. 214,088
Transfer agent fees .............. 93,330
Administrative service fees ...... 46,621
Registration fees ................ 35,616
Shareholder reports .............. 19,295
Directors' fees and expenses ..... 16,553
Custodian fees ................... 15,692
Audit and legal fees ............. 9,221
Miscellaneous .................... 4,582 883,175
-------- ----------
NET INVESTMENT INCOME ............ $ 842,207
==========
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
OPERATIONS
Net investment income ...... $ 842,207 $ 242,168
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income ...... (842,207) (242,168)
CAPITAL SHARE
TRANSACTIONS
Increase in capital shares
outstanding .............. 26,819,423 65,794
----------- -----------
Increase in net assets ..... 26,819,423 65,794
NET ASSETS
Beginning of year .......... 31,546,166 31,480,372
----------- -----------
End of year ................ $58,365,589 $31,546,166
=========== ===========
</TABLE>
5
See Notes to Financial Statements.
<PAGE> 161
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per share income and capital changes for a share outstanding
during each year:
Net asset value, beginning of year .......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income ....................................... 0.018 0.009 0.017 0.045 0.061
LESS DISTRIBUTIONS
Dividends from net investment income ........................ (0.018) (0.009) (0.017) (0.045) (0.061)
------- ------- ------- ------- -------
Net asset value, end of year ................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return(1) ............................................. 1.87% 0.85% 1.73% 4.61% 6.30%
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net assets ..................... 2.06% 2.44% 2.47% 2.23% 2.31%
Ratio of expense reimbursement to average net assets ........ - - - (0.12)% (0.15)%
------- ------- ------- ------- -------
Ratio of net expenses to average net assets ................. 2.06% 2.44% 2.47% 2.11% 2.16%
======= ======= ======= ======= =======
Ratio of net investment income to average net assets ........ 1.97% 0.85% 1.69% 4.45% 6.11%
Net Assets, end of year (in thousands) ...................... $58,366 $31,546 $31,480 $20,763 $21,099
<FN>
(1) Total return does not include the effect of the contingent deferred sales charge.
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 162
NOTES TO FINANCIAL STATEMENTS
October 31, 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special Series,
Inc., is a diversified, open-end management investment company registered under
the Investment Company Act of 1940, as amended. The Issuer operates as a series
fund, currently issuing six series of shares. On May 20, 1994, the shareholders
of the Issuer approved changes to the name of the Issuer and to the names of
each of the series of the Issuer. These changes became effective on June 15,
1994.
Transamerica Money Market Fund B (the "Fund"), formerly Transamerica
Special Money Market Fund, is one of the series of the Issuer. The Fund made its
initial offering of shares to the public on October 26, 1987. The following is a
summary of significant accounting policies consistently followed by the Fund.
(1) The Fund values its investment securities at amortized cost
(original cost plus amortized discount or accrued interest).
(2) With respect to U.S. government and U.S. government agency
securities in which the Fund may invest, only U.S. Treasury and Government
National Mortgage Association (GNMA) issues are backed by the full faith and
credit of the U.S. government. All other government issues are backed by the
issuing agencies and their general ability to borrow from the U.S. government.
(3) Security transactions are accounted for on the trade date. Interest
income is accrued daily. The identified cost of securities at October 31, 1994
is the same for both financial reporting and federal income tax purposes.
(4) Distributions of the Fund are computed daily and reinvested in Fund
shares or paid to shareholders monthly. Income distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Distributions payable to shareholders at October 31, 1994
were $9,668.
(5) No provision for federal income taxes has been made since it is the
Fund's intention to distribute all of its taxable income and profits to its
shareholders and to comply with the requirements applicable to regulated
investment companies and the minimum distribution requirements of the Internal
Revenue Code.
(6) The Fund reports custodian fees net of credits and charges resulting
from cash positions in the custodial accounts greater than or less than the
amounts required to settle portfolio transactions. For the year ended October
31, 1994, these amounts were $1,375 and $1,558, respectively.
<TABLE>
NOTE B - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund's management fee is payable monthly to Transamerica Fund Management
Company (the "Investment Adviser") and is calculated based on the following
schedule:
<CAPTION>
AVERAGE DAILY
NET ASSETS
(in millions) ANNUAL RATE
------------- -----------
<S> <C>
First $500 0.500%
Next $250 0.425%
Next $250 0.375%
Next $500 0.350%
Next $500 0.325%
Next $500 0.300%
Over $2,500 0.275%
</TABLE>
At October 31, 1994, the management fee payable to the Investment
Adviser was $25,029.
The Investment Adviser provides administrative services to the Fund
pursuant to an administrative service agreement. During the year ended October
31, 1994, the Fund paid or accrued $36,221 to the Investment Adviser for these
services, of which $3,326 was payable at October 31, 1994.
The Fund paid no compensation directly to any officer. Certain officers
and a director of the Issuer are affiliated with the Investment Adviser.
During the year ended October 31, 1994, the Fund paid legal fees of $799
to Baker & Botts. A partner with Baker & Botts is an officer of the Issuer.
NOTE C - PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is
authorized to finance activities related to the distribution of its shares. The
distribution plan, together with the contingent deferred sales charge, complies
with the regulations covering maximum sales charges assessed by mutual funds
distributed through securities dealers that are NASD members.
The plan permits payments to Transamerica Fund Distributors, Inc. (the
"Distributor"), an affiliate of the Investment Adviser and principal underwriter
of the Fund, of up to 0.25% annually of average daily net assets for certain
distribution costs such as service fees paid to dealers, production and
distribution of prospectuses to prospective investors, services provided to new
and existing shareholders and other distribution related activities. During the
year ended
7
<PAGE> 163
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE C (Continued)
October 31, 1994, payments made to the Distributor of $107,432 or 0.25% were
related to the above activities.
The plan also permits reimbursement to the Distributor up to 0.75%
annually of average daily net assets for costs related to compensation paid to
securities dealers, in place of an initial sales charge to investors. These
costs are based upon a commission payment charge of 5% of the value of shares
sold (excluding shares acquired through reinvestment), reduced by the amount of
contingent deferred sales charges (CDSC) that have been received by the
Distributor on redemptions of shares. These costs also include a charge of
interest (carrying charge) at an annual rate of 1% over the prevailing prime
rate to the extent cumulative commission payment charges, plus any previous
carrying charges, less CDSC received by the Distributor, have not been paid in
full by the Fund. For the year ended October 31, 1994, the Fund reimbursed the
Distributor $320,745 or 0.75% for such costs. For the year ended October 31,
1994, the Distributor received $343,829 in CDSC. At October 31, 1994, the
balance of unrecovered costs was $1,233,281.
At October 31, 1994, the Fund had $53,504 payable to the Distributor
pursuant to the above distribution plan.
-----------------------------------
<TABLE>
NOTE D - CAPITAL AND RELATED TRANSACTIONS
A summary of the capital stock transactions follows:
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1994 1993
---------------------------- ----------------------------
SHARES DOLLARS SHARES DOLLARS
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 237,416,247 $ 237,416,247 162,110,025 $ 162,110,025
Shares issued in reinvestment of distributions ...... 683,416 683,416 208,860 208,860
Shares redeemed ..................................... (211,280,240) (211,280,240) (162,253,091) (162,253,091)
------------ ------------- ------------ -------------
Net increase in capital shares outstanding .......... 26,819,423 $ 26,819,423 65,794 $ 65,794
============ ============= ============ =============
</TABLE>
At October 31, 1994, net assets were comprised of $58,365,589 in capital
paid-in, representing 58,365,589 shares of Common Stock outstanding (150,000,000
shares authorized).
8
<PAGE> 164
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
John Hancock Money Market Fund B,
a series of John Hancock Series, Inc.
We have audited the accompanying statement of net assets of John Hancock Money
Market Fund B, formerly Transamerica Money Market Fund B, a series of John
Hancock Series, Inc., formerly Transamerica Series, Inc., as of October 31,
1994, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of John Hancock Money Market Fund B, a series of John Hancock Series,
Inc., at October 31, 1994, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the indicated periods, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Houston, Texas
December 2, 1994
9
<PAGE> 165
Financial Statements
John Hancock Funds - Money Market Fund B
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
ASSETS:
Investments, in money market instruments,
at value - Note C:
Commercial paper (cost - $36,423,414) $36,423,414
Negotiable bank certificates of deposit
(cost - $4,000,089).............................. 4,000,089
Bankers' acceptances (cost - $1,982,274) 1,982,274
Corporate interest-bearing obligations
(cost - $992,740)................................ 992,740
U.S. government obligations (cost - $5,736,722).. 5,736,722
Joint repurchase agreement (cost - $10,750,000) 10,750,000
-----------
59,885,239
Cash............................................... 68
Interest receivable................................ 209,416
Miscellaneous assets............................... 13,767
-----------
Total Assets.................. 60,108,490
----------------------------------------------------
Liabilities:
Payable for investments purchased.................. 3,500,000
Payable to John Hancock Advisers, Inc. and
affiliates - Note B................................ 27,875
Accounts payable and accrued expenses.............. 58,488
-----------
Total Liabilities............. 3,586,363
----------------------------------------------------
Net Assets:
Capital paid-in.................................... 56,522,127
-----------
Net Assets.................... $56,522,127
====================================================
Net Asset Value, Offering Price and
Redemption Price Per Share:
(based on 56,522,127 shares of beneficial
interest outstanding - 150,000,000 shares
authorized with $0.01 per share par value)........... $ 1.00
===========================================================================
</TABLE>
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON APRIL 30, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE
AS OF THAT DATE.
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED
AND EXPENSES INCURRED IN OPERATING THE FUND.
<TABLE>
STATEMENT OF OPERATIONS
Six months ended April 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
INVESTMENT INCOME:
Interest........................................... $ 1,603,318
-----------
Expenses:
Distribution/service fee - Note B................ 275,387
Investment management fee - Note B............... 137,693
Transfer agent fee - Note B...................... 52,718
Registration and filing fees..................... 34,813
Custodian fee.................................... 30,526
Auditing fee..................................... 14,530
Printing......................................... 6,789
Trustees' fees................................... 6,308
Shareholder service fee.......................... 4,374
Advisory board fee............................... 2,207
Legal fees....................................... 1,976
Miscellaneous.................................... 1,754
-----------
Total Expenses............... 569,075
---------------------------------------------------
Net Investment Income........ 1,034,243
===================================================
Net Increase in Net Assets
Resulting from Operations.... $ 1,034,243
===================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> 166
Financial Statements
John Hancock Funds - Money Market Fund B
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1995 OCTOBER 31,
(UNAUDITED) 1994
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment Income......................................................... $ 1,034,243 $ 842,207
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ($0.0187 and $0.0180 per share, respectively) ( 1,034,243) ( 842,207)
--------------- ---------------
FROM FUND SHARE TRANSACTIONS - Net*................................................. ( 1,843,462) 26,819,423
--------------- ---------------
NET ASSETS:
Beginning of period........................................................... 58,365,589 31,546,166
--------------- ---------------
End of period................................................................. $ 56,522,127 $ 58,365,589
=============== ===============
* ANALYSIS OF FUND SHARE TRANSACTIONS:
Shares sold................................................................... $ 117,586,279 $ 237,416,247
Shares issued to shareholders in reinvestment of distributions................ 828,944 683,416
--------------- ---------------
118,415,223 238,099,663
Less shares repurchased....................................................... ( 120,258,685) ( 211,280,240)
--------------- ---------------
Net increase (decrease)....................................................... $( 1,843,462) $ 26,819,423
=============== ===============
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE
REFLECTS EARNINGS LESS EXPENSES, DISTRIBUTIONS PAID TO SHAREHOLDERS AND ANY
INCREASE OR DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE FUND. THE FOOTNOTE
ILLUSTRATES THE NUMBER OF FUND SHARES SOLD, REINVESTED AND REDEEMED DURING
THE LAST TWO PERIODS.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 167
Financial Statements
John Hancock Funds - Money Market Fund B
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the period indicated, investment returns, key ratios and
supplemental data are as follows:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1995(b) ------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
---------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Net Investment Income.............................. 0.02 0.02 0.01 0.02 0.05 0.06
Less Distributions:
Dividends from Net Investment Income............... (0.02) (0.02) (0.01) (0.02) (0.05) (0.06)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value......... 1.88% 1.87% 0.85% 1.73% 4.61% 6.30%
Total Adjusted Investment Return at
Net Asset Value (a).............................. ..... ..... ..... ..... 4.49%(c) 6.15%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).......... $56,522 $58,366 $31,546 $31,480 $20,763 $21,099
Ratio of Expenses to Average Net Assets ........... 2.07%* 2.06% 2.44% 2.47% 2.11% 2.16%
Ratio of Adjusted Expenses to Average Net Assets... ..... ..... ..... ..... 2.23% 2.31%
Ratio of Net Investment Income to Average
Net Assets (a)................................... 3.76%* 1.97% 0.85% 1.69% 4.57% 6.26%
Ratio of Adjusted Net Investment Income to
Average Net Assets (a)........................... ..... ..... ..... ..... 4.45% 6.11%
<FN>
* On an annualized basis.
(a) On an unreimbursed basis without expense reduction.
(b) On December 22, 1994 John Hancock Advisers, Inc. became the Investment Adviser of the Fund.
(c) Unaudited.
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF NET INVESTMENT INCOME AND
DIVIDENDS ON A SINGLE SHARE FOR THE PERIOD INDICATED. ADDITIONALLY, IMPORTANT
RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE FINANCIAL STATEMENTS ARE
EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 168
Financial Statements
John Hancock Funds - Money Market Fund B
<TABLE>
SCHEDULE OF INVESTMENTS
April 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY MONEY MARKET
FUND B ON APRIL 30, 1995. IT'S DIVIDED INTO SIX TYPES OF SHORT-TERM INVESTMENTS. MOST
CATEGORIES OF SHORT-TERM INVESTMENTS ARE FURTHER BROKEN DOWN BY INDUSTRY GROUP.
<CAPTION>
PAR VALUE
INTEREST QUALITY (000'S
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
------------------- -------- -------- --------- -----
<S> <C> <C> <C> <C>
COMMERCIAL PAPER
AUTOMOTIVE (5.08%)
Ford Motor Credit Co., 05-22-95.................................................. 6.020% Tier 1 $ 2,900 $ 2,870,903
-----------
BANKING (5.08%)
Norwest Corp.,
06-16-95................................................................... 6.000 Tier 1 2,900 2,871,000
-----------
BANKING - FOREIGN (0.37%)
Deutsche Bank Financial, Inc.,
05-01-95................................................................... 6.050 Tier 1 211 209,121
-----------
BROKER SERVICES (15.04%)
Bear Stearns Cos., Inc.,
06-20-95................................................................... 6.000 Tier 1 3,000 2,970,000
Goldman Sachs Group, L.P.,
06-01-95................................................................... 6.100 Tier 1 2,400 2,365,027
Merrill Lynch & Co., Inc.,
05-22-95................................................................... 6.030 Tier 1 300 296,985
Merrill Lynch & Co., Inc.,
06-12-95................................................................... 6.020 Tier 1 1,000 990,970
Merrill Lynch & Co., Inc.,
06-19-95................................................................... 6.010 Tier 1 1,900 1,880,968
-----------
8,503,950
-----------
FINANCE (3.51%)
American Honda Finance Corp.,
06-01-95................................................................... 6.050 Tier 1 2,000 1,981,178
-----------
INSURANCE (5.08%)
American General Finance Corp.,
06-12-95................................................................... 6.000 Tier 1 2,900 2,871,000
-----------
MORTGAGE BANKING (5.10%)
Countrywide Funding Corp.,
05-12-95................................................................... 6.040 Tier 1 2,900 2,885,403
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 169
Financial Statements
John Hancock Funds - Money Market Fund B
<TABLE>
<CAPTION>
PAR VALUE
INTEREST QUALITY (000'S
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
------------------- -------- -------- --------- -----
<S> <C> <C> <C> <C>
RETAIL STORES (10.18%)
Dayton Hudson Corp.,
06-16-95..................................................................... 6.020% Tier 1 $ 2,900 $ 2,870,903
Sears Roebuck Acceptance Corp.,
05-12-95..................................................................... 6.000 Tier 1 2,900 2,885,500
-----------
5,756,403
-----------
TOBACCO (5.29%)
Philip Morris Cos., Inc.,
05-05-95..................................................................... 6.000 Tier 13,000 2,987,500
-----------
UTILITIES (9.71%)
Pennsylvania Power & Light Co.,
05-09-95..................................................................... 5.970 Tier 1 2,000 1,995,356
Public Service Electric & Gas Co.,
05-09-95..................................................................... 6.000 Tier 1 2,900 2,894,200
U.S. West Communications, Inc.,
05-02-95..................................................................... 6.000 Tier 1 600 597,400
-----------
5,486,956
-----------
TOTAL COMMERCIAL PAPER
(Cost $36,423,414) ( 64.44%) 36,423,414
------- -----------
NEGOTIABLE BANK CERTIFICATES OF DEPOSIT
U.S. BRANCHES OF FOREIGN BANKS (7.08%)
Industrial Bank of Japan Ltd.,
06-21-95..................................................................... 6.250 Tier 1 2,000 2,000,076
Sanwa Bank Ltd.,
05-25-95..................................................................... 6.040 Tier 1 2,000 2,000,013
-----------
4,000,089
TOTAL NEGOTIABLE BANK
CERTIFICATES OF DEPOSIT
(Cost $4,000,089) ( 7.08%) 4,000,089
------- -----------
BANKERS' ACCEPTANCES
U.S. BRANCHES OF FOREIGN BANKS (3.51%)
Bank of Tokyo Ltd.,
06-05-95..................................................................... 6.020 Tier 1 2,000 1,982,274
-----------
TOTAL BANKERS' ACCEPTANCES
(Cost $1,982,274) ( 3.51%) 1,982,274
------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 170
Financial Statements
John Hancock Funds - Money Market Fund B
<TABLE>
<CAPTION>
PAR VALUE
INTEREST QUALITY (000'S
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
------------------- -------- -------- --------- -----
<S> <C> <C> <C> <C>
CORPORATE INTEREST-BEARING OBLIGATIONS
Finance (1.75%)
General Electric Capital Corp.,
11-15-95................................................................... 5.250% Tier 1 $ 1,000 $ 992,740
-----------
TOTAL CORPORATE INTEREST
BEARING OBLIGATIONS
(Cost $992,740) ( 1.75%) 992,740
------- -----------
U. S. GOVERNMENT OBLIGATIONS
Governmental - U. S. Agencies (10.15%)
Federal Farm Credit Bank,
08-01-95................................................................... 6.650 Tier 1 1,000 1,000,083
Federal Farm Credit Bank,
11-01-95................................................................... 6.100 Tier 1 3,500 3,500,000
Federal Home Loan Mortgage Corp.,
05-22-95................................................................... 7.438 Tier 1 250 241,684
Federal National Mortgage Association,
05-22-95................................................................... 6.340 Tier 1 485 473,128
Federal National Mortgage Association,
06-15-95................................................................... 6.549 Tier 1 540 521,827
-----------
5,736,722
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $5,736,722) ( 10.15%) 5,736,722
------- -----------
JOINT REPURCHASE AGREEMENT
Investment in a joint repurchase agreement
transaction with BT Securities Corp. -
Dated 04-28-95, Due 05-01-95
(secured by U.S. Treasury Bond,
10.75% Due 08-15-05 and U.S.
Treasury Note, 6.875% Due 10-31-96)............................. 5.960 10,750 10,750,000
------- -----------
TOTAL JOINT REPURCHASE AGREEMENT ( 19.02%) 10,750,000
------- -----------
TOTAL INVESTMENTS (105.95%) $59,885,239
======= ===========
<FN>
*Quality ratings indicate the categories of eligible securities, as defined by Rule 2a-7 of the U.S. Securities and Exchange
Commission, owned by the Fund. The percentage shown for each investment category is the total value of that category expressed
as a percentage of total net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 171
Notes to Financial Statements
John Hancock Funds - Money Market Fund B
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Trust") is a diversified, open-end management
investment company, registered under the Investment Company Act of 1940, as
amended. The Trust consists of six series portfolios: John Hancock Money
Market Fund B (the "Fund"), John Hancock Emerging Growth Fund, John Hancock
Global Resources Fund, John Hancock High Yield Tax Free Fund, John Hancock
High Yield Bond Fund and John Hancock Government Income Fund. The Trustees
may authorize the creation of additional Funds from time to time to satisfy
various investment objectives. Effective December 22, 1994 (see Note B), the
Trust and Funds changed names by replacing the word Transamerica with John
Hancock.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS The Trustees have determined appropriate methods for
valuing portfolio securities. Accordingly, portfolio securities are valued at
amortized cost, in accordance with Rule 2a-7 of the Investment Company Act of
1940, which approximates market value. The amortized cost method involves
valuing a security at its cost on the date of purchase and thereafter
assuming a constant amortization to maturity of the difference between the
principal amount due at maturity and the cost of the security to the Fund.
Interest income on certain portfolio securities such as negotiable bank
certificates of deposit and interest bearing notes is accrued daily and
included in interest receivable.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring
that the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date
of purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis for both financial
reporting and federal income tax purposes.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of
the Internal Revenue Code that are applicable to regulated investment
companies. It will not be subject to Federal income tax on taxable earnings
which are distributed to shareholders.
DIVIDENDS The Fund's net investment income is declared daily as dividends to
shareholders of record as of the close of business on the preceding day and
distributed monthly.
NOTE B -
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES AND TRANSACTIONS WITH AFFILIATES
AND OTHERS
On December 22, 1994, the Adviser became the investment adviser for the Fund
with approval of the Trustees and shareholders of the Fund. The Fund's former
investment manager was Transamerica Fund Management Company ("TFMC").
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment program
equivalent, on an annual basis, to the sum of (a) 0.50% of the first
$500,000,000 of the Fund's average daily net asset value, (b) 0.425% of the
next $250,000,000, (c) 0.375% of the next $250,000,000, (d) 0.350% of the next
$500,000,000, (e) 0.325% of the next $500,000,000, (f) 0.300% of the next
$500,000,000 and (g) 0.275% of the Fund's average daily net asset value in
excess of $2,500,000,000. This fee structure is consistent with the former
agreement with TFMC. For the period ended April 30, 1995, the advisory fee
earned by the Adviser and TFMC amounted to $87,082 and $50,611, respectively,
resulting in a total fee of $137,693.
11
<PAGE> 172
Notes to Financial Statements
John Hancock Funds - Money Market Fund B
The Adviser and TFMC, for their respective periods, provided
administrative services to the Fund pursuant to an administrative service
agreement through January 16, 1995 on which day the agreement was terminated.
In the event normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of the most
restrictive state limit where the Fund is registered to sell shares of
beneficial interest, the fee payable to the Adviser will be reduced to the
extent of such excess and the Adviser will make additional arrangements
necessary to eliminate any remaining excess expenses. The current limits are
2.5% of the first $30,000,000 of the Fund's average daily net asset value,
2.0% of the next $70,000,000 and 1.5% of the remaining average daily net
asset value.
On December 22, 1994 John Hancock Funds, Inc. ("JH Funds"), a
wholly-owned subsidiary of the Adviser, became the principal underwriter of
the Fund. Prior to this date, Transamerica Fund Distributors, Inc. ("TFD")
served as the principal underwriter and distributor of the Fund.
Class B shares which are redeemed within six years of purchase will
be subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSC are paid to JH Funds, formerly TFD, and are used in
whole or in part to defray its expenses related to providing distribution
related services to the Fund in connection with the sale of Class B shares.
For the period ended April 30, 1995, contingent deferred sales charges
amounted to $302,060.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Accordingly,
the Fund will make payments for distribution and service expenses which in
total will not exceed on an annual basis 1.00% of the Fund's average daily
net assets to reimburse for its distribution/service costs. Up to a maximum
of 0.25% of such payments may be service fees as defined by the amended Rules
of Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. This fee structure and plan
is similar to the former arrangement with TFD.
The Board of Trustees approved a shareholder servicing agreement
between the Fund and John Hancock Investor Services Corporation ("Investor
Services"), a wholly owned subsidiary of The Berkeley Financial Group, for
the period between December 22, 1994 and May 12, 1995, inclusive under which
Investor Services processed telephone transactions on behalf of the Fund. As of
May 15, 1995, the Fund entered into a full service transfer agent agreement
with Investor Services. Prior to this date The Shareholder Services Group was
the transfer agent. The Fund will pay Investor Services a fee based on
transaction volume and number of shareholder accounts.
A partner with Baker & Botts was an officer of the Trust until
December 22, 1994. During the period ended April 30, 1995, legal fees paid to
Baker & Botts amounted to $688.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser
and its affiliates as well as Trustee of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Trustees may elect to defer their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation
Plan. The Fund will make investments into other John Hancock Funds, as
applicable, to cover its liability with regard to the deferred compensation.
Investments to cover the Fund's deferred compensation liability will be
recorded on the Fund's books as other assets. The deferred compensation
liability will be marked to market on a periodic basis and income earned by
the investment will be recorded on the Fund's books.
The Fund has an independent advisory board composed of certain
members of the former Transamerica Board of Trustees who provide advice to
the current Trustees in order to facilitate a smooth management transition
for which the Fund pays the advisory board and its counsel a fee.
12
<PAGE> 173
Notes to Financial Statements
John Hancock Funds - Money Market Fund B
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities, including discount earned
on investment securities, during the period ended April 30, 1995 aggregated
$1,348,016,627 and $1,332,603,541, respectively. The cost of investments
owned at April 30, 1995 for Federal income tax purposes was $59,885,239.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 174
GLOBAL RESOURCES FUND
<TABLE>
STATEMENT OF NET ASSETS
<CAPTION>
October 31, 1994
COMPANY SHARES VALUE
--------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 101.18%
--------------------------
CONSUMER CYCLICALS - 1.55%
Tolmex S.A. de C.V. ............................. 4,500 $ 654,750
CONSUMER GOODS &
SERVICES - 3.14%
Grupo Industrial Durango S.A.
de C.V.* ...................................... 45,000 821,250
Reliance Industries Ltd.* ....................... 20,000 508,750
-----------
1,330,000
ENERGY - EXPLORATION
AND PRODUCTION - 24.51%
Abraxas Petroleum Corp.* ........................ 20,000 215,000
Barrett Resources Corp.* ........................ 65,000 1,291,875
Bellwether Exploration Co.* ..................... 158,300 890,438
Brown (Tom), Inc.* .............................. 80,000 1,025,000
Cairn Energy USA, Inc.* ......................... 127,500 988,125
Louisiana Land & Exploration Co. ................ 15,000 680,625
Newfield Exploration Co.*........................ 35,000 844,375
Noble Affiliates Inc. ........................... 25,000 750,000
Nuevo Energy Co.* ............................... 45,000 1,006,875
PTT Exploration & Production
Public Co., Ltd.*.............................. 70,000 792,400
PetroCorp, Inc.*................................. 110,000 1,210,000
YPF Sociedad Anonima............................. 28,000 675,500
-----------
10,370,213
ENERGY - PROCESSING AND
MARKETING - 5.87%
Methanex Corp.* ................................. 30,000 450,000
Repsol S.A. ..................................... 15,000 487,500
Shanghai Petrochemical Ltd. ..................... 16,500 556,875
Total S.A. ...................................... 30,000 990,000
-----------
2,484,375
ENERGY - SERVICES AND
EQUIPMENT - 16.47%
American Ecology Corp. .......................... 72,500 616,250
Camco International Inc. ........................ 25,000 515,625
Coflexip ADS .................................... 28,583 657,409
Energy Service Co., Inc.* ....................... 70,000 1,015,000
Global Industries Ltd.* ......................... 40,000 980,000
Hornbeck Offshore
Services, Inc.*................................ 55,000 825,000
Petroleum Geo-Services A/S*...................... 40,000 1,012,500
Pool Energy Services Co.*........................ 50,000 437,500
Weatherford International, Inc.* ................ 80,000 910,000
-----------
6,969,284
FINANCIAL SERVICES - 2.51%
Brassie Golf Corp.*.............................. 287,900 1,062,351
INDUSTRIAL - CAPITAL
GOODS - 5.24%
Apasco S.A. de C.V. ............................. 14,000 651,840
Ionics Inc.* .................................... 17,000 913,750
Osmonics, Inc.* ................................. 45,000 652,500
-----------
2,218,090
INDUSTRIAL - INTERMEDIATE
MATERIALS - 24.44%
American Barrick
Resources Corp. ............................... 28,000 668,500
Broken Hill Proprietary Co. Ltd. ................ 14,000 857,500
Elf Aquitaine ADS ............................... 20,000 732,500
First National Resources Trust................... 620,000 598,300
Grupo Simec S.A. de C.V.*........................ 20,000 495,000
Hindalco Industries Ltd.*........................ 20,000 670,000
Industrias Campos
Hermanos S.A.*................................. 155,000 370,450
Inland Steel Industries Inc.*.................... 21,000 750,750
Kymmene Oy....................................... 20,000 547,800
NKK Corp.*....................................... 225,000 695,250
Newmont Gold Co. ................................ 15,000 596,250
O'Okiep Copper Ltd.* ............................ 43,000 499,875
PT Indah Kiat Pulp & Paper Corp. ................ 490,000 553,700
Placer Dome Inc. ................................ 30,000 648,750
Pohang Iron and Steel Co., Ltd.*................. 25,000 821,875
USX-U.S. Steel Group............................. 12,000 450,000
Venezolana de Prerreducidos
Caroni* ....................................... 61,000 381,250
-----------
10,337,750
</TABLE>
8
<PAGE> 175
<TABLE>
STATEMENT OF NET ASSETS
<CAPTION>
Continued
COMPANY SHARES VALUE
-------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL -
MISCELLANEOUS - 15.27%
Empresas ICA Sociedad
Controladora S.A. de C.V. ..................... 23,000 681,375
Freeport-McMoRan Copper &
Gold Inc. ..................................... 15,000 341,250
Giant Cement Holding, Inc.*...................... 37,500 525,000
Holderbank Financiere
Glarus AG*..................................... 712 549,087
MacMillan Bloedel Ltd. .......................... 50,000 693,750
RTZ Corp. PLC.................................... 12,000 684,000
U.S. Filter Corp.*............................... 40,000 810,000
United Waste System Inc.* ....................... 35,000 848,750
Waste Management
International PLC* ............................ 50,000 806,250
York Research Corp.* ............................ 160,000 520,000
-----------
6,459,462
UTILITIES - 2.18%
OEMV AG*......................................... 5,625 513,225
Transportadora de Gas
del Sur S.A. .................................. 35,000 409,062
-----------
922,287
-----------
TOTAL COMMON STOCKS
(Cost $38,657,870)............................... 42,808,562
-----------
TOTAL INVESTMENTS - 101.18%
(Cost $38,657,870)............................... 42,808,562
-----------
CASH AND OTHER ASSETS,
LESS LIABILITIES - (1.18)% .................... (499,688)
-----------
NET ASSETS, at value, equivalent to
$15.62 per share for 343,877
Class A Shares ($.01 par value)
of capital stock outstanding
and $15.58 per share for
2,371,466 Class B Shares
($.01 par value) of capital stock
outstanding - 100.00% ...................... $42,308,874
===========
<FN>
* Non-income producing.
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 176
<TABLE>
STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS
STATEMENT OF OPERATIONS
Year Ended October 31, 1994
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign
withholding taxes of $13,399).................. $ 265,590
Interest ........................................ 32,224
---------
297,814
EXPENSES
Distribution expenses
(see Note D)................................... $284,735
Management fees.................................. 220,869
Transfer agent fees.............................. 79,536
Administrative service fees...................... 54,259
Registration fees................................ 35,562
Shareholder reports.............................. 25,669
Custodian fees................................... 13,665
Audit and legal fees............................. 12,466
Directors' fees and expenses..................... 9,178
Miscellaneous.................................... 3,259 739,198
-------- ---------
NET INVESTMENT LOSS............................ (441,384)
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments
with currency fluctuations..................... (90,344)
Net change in unrealized
appreciation of investments with
currency fluctuations.......................... 553,900
---------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS............................ 463,556
---------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS................................ 22,172
=========
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------
1994 1993
----------- ------------
<S> <C> <C>
OPERATIONS
Net investment loss.................. $ (441,384) $ (210,089)
Net realized gain (loss)
on investments with
currency fluctuations.............. (90,344) 276,194
Net change in unrealized
appreciation of
investments with
currency fluctuations.............. 553,900 2,814,349
----------- -----------
Increase in net assets
resulting from operations.......... 22,172 2,880,454
CAPITAL SHARE
TRANSACTIONS
Increase in capital shares
outstanding........................ 22,788,288 9,190,126
----------- -----------
Increase in net assets............... 22,810,460 12,070,580
NET ASSETS
Beginning of year.................... 19,498,414 7,427,834
----------- -----------
End of year.......................... $42,308,874 $19,498,414
=========== ===========
</TABLE>
See Notes to Financial Statements.
10
<PAGE> 177
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
CLASS A SHARES CLASS B SHARES
--------------- -----------------------------------------------------
PERIOD FROM
JUNE 15, 1994 TO YEAR ENDED OCTOBER 31,
OCTOBER 31, -----------------------------------------------------
1994(2) 1994 1993 1992 1991 1990
--------------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Per share income and capital changes for a share
outstanding during each period(1):
Net asset value, beginning of period ................... $14.89 $ 15.69 $ 12.41 $12.20 $ 11.57 $11.99
INCOME FROM INVESTMENT OPERATIONS
Net investment loss .................................... (0.08) (0.23) (0.24) (0.24) (0.17) (0.10)
Net realized and unrealized gain on investments ........ 0.81 0.12 3.52 0.58 1.24 0.16
------ ------- ------- ------ ------- -------
Total from Investment Operations ..................... 0.73 (0.11) 3.28 0.34 1.07 0.06
LESS DISTRIBUTIONS
Dividends from net investment income ................... - - - - - (0.01)
Distributions from realized gains....................... - - - (0.13) (0.44) (0.47)
------ ------- ------- ------ ------- -------
Total Distributions .................................... - - - (0.13) (0.44) (0.48)
------ ------- ------- ------ ------- -------
Net asset value, end of period ......................... $15.62 $ 15.58 $ 15.69 $12.41 $ 12.20 $11.57
====== ======= ======= ====== ======= ======
TOTAL RETURN(3)......................................... 4.90% (0.70)% 26.43% 2.93% 9.81% 0.09%
====== ======= ======= ====== ======= ======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net assets ................ 0.73% 2.54% 2.92% 3.75% 3.64% 3.55%
Ratio of expense reimbursement to average net assets.... - - - - - (0.05)%
------ ------- ------- ------ ------- -------
Ratio of net expenses to average net assets ............ 0.73% 2.54% 2.92% 3.75% 3.64% 3.50%
====== ======= ======= ====== ======= ======
Ratio of net investment loss to average net assets ..... (0.42)% (1.52)% (1.65)% (2.01)% (1.47)% (0.82)%
Portfolio turnover ..................................... 96% 96% 83% 59% 93% 59%
Net Assets, end of period (in thousands) ............... $5,372 $36,937 $19,498 $7,428 $10,766 $7,746
<FN>
(1) Per share information has been calculated using the average number of shares outstanding.
(2) Financial highlights, including total return, have not been annualized. Portfolio turnover is for
the year ended October 31, 1994.
(3) Total return does not include the effect of the initial sales charge for Class A Shares nor the
contingent deferred sales charge for Class B Shares.
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 178
NOTES TO FINANCIAL STATEMENTS
October 31, 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special Series,
Inc., is a diversified, open-end management investment company registered under
the Investment Company Act of 1940, as amended. The Issuer operates as a series
fund, currently issuing six series of shares. On May 20, 1994, the shareholders
of the Issuer approved changes to the name of the Issuer and to the names of
each of the series of the Issuer. These changes became effective on June 15,
1994.
Transamerica Global Resources Fund (the "Fund"), formerly Transamerica
Natural Resources Fund, is one of the series of the Issuer. The Fund made its
initial offering of shares to the public on October 26, 1987. On June 15, 1994,
the Fund commenced issuing a second class of shares. The new Class A Shares are
subject to an initial sales charge of up to 5.75% and a 12b-1 distribution plan
and the Class B Shares are subject to a contingent deferred sales charge and a
separate 12b-1 distribution plan. The following is a summary of significant
accounting policies consistently followed by the Fund.
(1) Securities traded on stock exchanges or in the over-the-counter
market are valued at the last sale price on the primary exchange or market on
which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the mean between the most
recent closing bid and asked prices. All securities initially expressed in terms
of foreign currencies are translated into U.S. dollar equivalents based on
quoted exchange rates as of the close of the NYSE. Securities for which market
quotations are not readily available are valued at a fair value as determined in
good faith by the Issuer's Board of Directors. Short-term investments are valued
at amortized cost (original cost plus amortized discount or accrued interest).
(2) Security transactions are accounted for on the trade date. Dividend
income is recorded on the ex-dividend date for both financial reporting and
federal income tax purposes. Interest income is accrued daily. Realized gains
and losses from security transactions are determined on the basis of identified
cost for both financial reporting and federal income tax purposes. The Fund
does not report separately the gain or loss resulting from changes in foreign
exchange rates on investments from changes in market prices of securities held.
Such fluctuations are included with net realized and unrealized gains or losses
from investments.
(3) Dividends and other distributions are recorded by the Fund on the
ex-dividend date and may be reinvested at net asset value. Income and capital
gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
(4) No provision for federal income taxes has been made since it is the
Fund's intention to distribute all of its taxable income and profits to its
shareholders and to comply with the requirements applicable to regulated
investment companies and the minimum distribution requirements of the Internal
Revenue Code. At October 31, 1994, the Fund had a realized capital loss
carryforward of approximately $107,000, which will expire as follows: $17,000 -
2000 and $90,000 - 2002.
(5) The Fund reports custodian fees net of credits and charges resulting
from cash positions in the custodial accounts greater than or less than the
amounts required to settle portfolio transactions. For the year ended October
31, 1994, these amounts were $2,693 and $4,695, respectively.
(6) On a daily basis, income, unrealized and realized gains and losses,
and expenses which are not class specific are allocated to each class based on
their respective relative net assets. Class specific expenses, such as
distribution expenses, are applied to the class to which they are attributed.
NOTE B - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund's management fee is payable monthly to Transamerica Fund Management
Company (the "Investment Adviser") and is calculated monthly on the average
daily net assets of the Fund at an annual rate of 0.75%. At October 31, 1994,
the management fee payable to the Investment Adviser was $26,382.
The Investment Adviser provides administrative services to the Fund
pursuant to an administrative service agreement. During the year ended October
31, 1994, the Fund paid or accrued $43,512 to the Investment Adviser for these
services, of which $4,242 was payable at October 31, 1994.
12
<PAGE> 179
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE B (Continued)
Transamerica Fund Distributors, Inc. (the "Distributor"), an affiliate
of the Investment Adviser, as principal underwriter, retained $8,618 as its
portion of the commissions charged on sales of Class A Shares of the Fund. At
October 31, 1994, receivables from the Distributor for Fund share transactions
were $131,155.
The Fund paid no compensation directly to any officer. Certain officers
and a director of the Issuer are affiliated with the Investment Adviser.
During the year ended October 31, 1994, the Fund paid legal fees of
$947 to Baker & Botts. A partner with Baker & Botts is an officer of the
Issuer.
NOTE C - COST, PURCHASES AND SALES OF INVESTMENT SECURITIES
During the year ended October 31, 1994, purchases and sales of securities, other
than short-term obligations, aggregated $52,321,428 and $28,114,988,
respectively. At October 31, 1994, receivables from and payables to brokers for
securities sold and purchased were $656,768 and $1,017,601, respectively.
At October 31, 1994, the identified cost of total investments owned is
the same for both financial reporting and federal income tax purposes. At
October 31, 1994, the gross unrealized appreciation and gross unrealized
depreciation of investments for federal income tax purposes were $5,014,345 and
$863,653, respectively.
NOTE D - PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is
authorized under separate distribution plans to finance activities related to
the distribution of its Class A and Class B Shares (the "Class A Plan" and the
"Class B Plan," respectively). The distribution plans, together with the initial
sales charge on Class A Shares and the contingent deferred sales charge on
Class B Shares, comply with the regulations covering maximum sales charges
assessed by mutual funds distributed through securities dealers that are NASD
members.
The Class A Plan and the Class B Plan permit each class to make payments
to the Distributor up to 0.25% annually of average daily net assets for certain
distribution costs such as service fees paid to dealers, production and
distribution of prospectuses to prospective investors, services provided to new
and existing shareholders and other distribution related activities. During the
period June 15, 1994 to October 31, 1994, Class A made payments to the
Distributor of $3,253 or 0.10% related to the above activities. During the year
ended October 31, 1994, Class B made payments of $70,523 or 0.25% related to
these activities.
The Class B Plan also permits Class B to reimburse to the Distributor up
to 0.75% annually of average daily net assets for costs related to compensation
paid to securities dealers, in place of an initial sales charge to investors, on
the sale of Class B Shares. These costs are based upon a commission payment
charge of 5% of the value of shares sold (excluding shares acquired through
reinvestment) reduced by the amount of contingent deferred sales charges (CDSC)
that have been received by the Distributor on redemptions of Class B Shares.
These costs also include a charge of interest (carrying charge) at an annual
rate of 1% over the prevailing prime rate to the extent cumulative commission
payment charges, plus any previous carrying charges, less CDSC received by the
Distributor, have not been paid in full by the Fund. For the year ended October
31, 1994, the Fund reimbursed the Distributor $210,959 or 0.75% for such costs.
For the year ended October 31, 1994, the Distributor received $68,696 in CDSC.
At October 31, 1994, the balance of unrecovered costs was $965,044.
At October 31, 1994, Class A had $895 and Class B had $42,487 payable to
the Distributor pursuant to the above distribution plans.
13
<PAGE> 180
NOTES TO FINANCIAL STATEMENTS
Continued
<TABLE>
NOTE E - CAPITAL AND RELATED TRANSACTIONS
A summary of the capital stock transactions follows:
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------
1994(1) 1993 (1)
------------------------ ------------------------
SHARES DOLLARS SHARES DOLLARS
--------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Shares sold - Class A............................ 419,756 $ 6,352,382 - -
Shares sold - Class B............................ 1,781,599 27,695,930 1,157,900 $16,586,284
Shares redeemed - Class A........................ (75,879) (1,159,547) - -
Shares redeemed - Class B........................ (652,737) (10,100,477) (513,700) (7,396,158)
--------- ------------ --------- -----------
Net increase in capital shares outstanding......... 1,472,739 $ 22,788,288 644,200 $ 9,190,126
========= ============ ========= ===========
<FN>
(1) Class A share transactions are for the period June 15, 1994 to October 31, 1994.
The components of net assets at October 31, 1994, are as follows:
Capital paid-in (75,000,000 shares authorized).............................................. $38,265,043
Accumulated net realized loss on investments................................................ (106,861)
Net unrealized appreciation of investments.................................................. 4,150,692
-----------
NET ASSETS.................................................................................. $42,308,874
===========
</TABLE>
14
<PAGE> 181
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
John Hancock Global Resources Fund,
a series of John Hancock Series, Inc.
We have audited the accompanying statement of net assets of John Hancock Global
Resources Fund (formerly Transamerica Resources Fund), a series of John Hancock
Series, Inc. (formerly Transamerica Series, Inc.), as of October 31, 1994, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibilty is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspon- dence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of John Hancock Global Resources Fund, a series of John Hancock Series,
Inc., at October 31, 1994, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the indicated periods, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Houston, Texas
December 2, 1994
15
<PAGE> 182
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON APRIL 30, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $33,243,835)............... $35,201,093
Joint repurchase agreement (cost - $159,000)..... 159,000
Corporate savings account........................ 479
-----------
35,360,572
Receivable for shares sold......................... 16,274
Receivable for investments sold.................... 117,771
Interest receivable................................ 52
Dividend receivable................................ 92,891
Foreign tax receivable............................. 12,251
Prepaid expenses................................... 7,745
-----------
Total Assets................ 35,607,556
------------------------------------------
LIABILITIES:
Payable for shares repurchased..................... 65,183
Payable for investments purchased.................. 256,105
Payable to John Hancock Advisers, Inc. and
affiliates - Note B.............................. 28,378
Accounts payable and accrued expenses.............. 7,948
-----------
Total Liabilities........... 357,614
------------------------------------------
NET ASSETS:
Capital paid-in.................................... 34,650,721
Accumulated net realized loss on investments and
foreign currency transactions.................... (1,190,907)
Net unrealized appreciation of investments and
foreign currency transactions...................... 1,957,174
Net investment loss................................ (167,046)
-----------
Net Assets.................. $35,249,942
==========================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial
interest outstanding - 75,000,000 shares authorized
with $0.01 per share par value, respectively)
Class A - $2,920,606 / 201,528..................... $ 14.49
=================================================================
Class B - $32,329,336 / 2,246,183.................. $ 14.39
=================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - $(14.49 x 106.10%)....................... $ 15.37
=================================================================
<FN>
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED
AND EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES)
FOR THE PERIOD STATED.
<TABLE>
STATEMENT OF OPERATIONS
Six months ended April 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes
of $22,627)........................................... $ 247,965
Interest................................................ 5,769
-----------
253,734
-----------
Expenses:
Distribution/service fee - Note B
Class A........................................... 4,838
Class B........................................... 157,504
Investment management fee - Note B.................... 132,642
Transfer agent fee.................................... 50,768
Custodian fee......................................... 26,894
Registration and filing fees.......................... 21,332
Auditing fee.......................................... 15,459
Trustees' fees........................................ 6,692
Printing.............................................. 3,725
Legal fees............................................ 926
-----------
Total Expenses................... 420,780
-------------------------------------------------
Net Investment Loss.............. (167,046)
-------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investments sold................... (1,083,008)
Net realized loss on foreign currency transactions...... (1,038)
Change in net unrealized appreciation/depreciation
of investments........................................ (2,193,434)
Change in net unrealized appreciation/depreciation
of foreign currency transactions...................... (84)
-----------
Net Realized and Unrealized
Loss on Investments and
Foreign Currency Transactions.... (3,277,564)
-------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations........ $(3,444,610)
=================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 183
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1995 OCTOBER 31,
(UNAUDITED) 1994
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment loss............................................................. $ (167,046) $ (441,384)
Net realized loss on investments sold and foreign currency transactions......... (1,084,046) (90,344)
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions............................................. (2,193,518) 553,900
----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations............... (3,444,610) 22,172
----------- -----------
FROM FUND SHARE TRANSACTIONS -- NET*.............................................. (3,614,322) 22,788,288
----------- -----------
NET ASSETS:
Beginning of period............................................................. 42,308,874 19,498,414
----------- -----------
End of period (including net investment loss of $167,046 and $441,384,
respectively)............................................................. $35,249,942 $42,308,874
=========== ===========
<FN>
*ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1995 YEAR ENDED OCTOBER 31,
(UNAUDITED) 1994
----------------------- ---------------------------
Shares Amount Shares Amount
-------- ----------- --------- -----------
<S> <C> <C> <C> <C>
CLASS A**
Shares sold............................................... 61,427 $ 895,719 419,756 $ 6,352,382
Less shares repurchased................................... (203,776) (2,838,257) (75,879) (1,159,547)
-------- ----------- --------- -----------
Net increase (decrease)................................... (142,349) $(1,942,538) 343,877 $ 5,192,835
======== =========== ========= ===========
CLASS B
Shares sold............................................... 362,827 $ 5,105,903 1,781,599 $27,695,930
Less shares repurchased................................... (488,110) (6,777,687) (652,737) (10,100,477)
-------- ----------- --------- -----------
Net increase (decrease)................................... (125,283) $(1,671,784) 1,128,862 $17,595,453
======== =========== ========= ===========
<FN>
** Class A share commenced operations on June 15, 1994.
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE
REFLECTS EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES AND ANY
INCREASE OR DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE FUND. THE FOOTNOTE
ILLUSTRATES THE NUMBER OF FUND SHARES SOLD AND REDEEMED DURING THE LAST TWO
PERIODS, ALONG WITH THE CORRESPONDING DOLLAR VALUES.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 184
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
FOR THE PERIOD
JUNE 15, 1994
SIX MONTHS ENDED (COMMENCEMENT OF
APRIL 30, 1995(a) OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1994
---------------- ----------------
<S> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................................................ $15.62 $14.89
------ ------
Net Investment Loss (b)..................................................................... (0.01) (0.08)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions.... (1.12) 0.81
------ ------
Total from Investment Operations.......................................................... (1.13) 0.73
------ ------
Net Asset Value, End of Period.............................................................. $14.49 $15.62
====== ======
Total Investment Return at Net Asset Value.................................................. (7.24%) 4.90%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................................................... $2,921 $5,372
Ratio of Expenses to Average Net Assets..................................................... 1.71%* 0.73%
Ratio of Net Investment Loss to Average Net Assets.......................................... (0.28%)* (0.42%)
Portfolio Turnover Rate..................................................................... 53% 96%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIODS INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DIVIDENDS, AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE
FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 185
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1995 (a) ---------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------------- -------- ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period......................... $ 15.58 $ 15.69 $ 12.41 $12.20 $ 11.57 $11.99
------- ------- ------- ------ ------- ------
Net Investment Loss (b)...................................... (0.07) (0.23) (0.24) (0.24) (0.17) (0.10)(c)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions.............................. (1.12) 0.12 3.52 0.58 1.24 0.16
------- ------- ------- ------ ------- ------
Total from Investment Operations........................... (1.19) (0.11) 3.28 0.34 1.07 0.06
------- ------- ------- ------ ------- ------
Less Distributions
Dividends from Net Investment Income......................... -- -- -- -- -- (0.01)
Distributions from Realized Gains on Investments Sold........ -- -- -- (0.13) (0.44) (0.47)
------- ------- ------- ------ ------- ------
Total Distributions to Shareholders........................ -- -- -- (0.13) (0.44) (0.48)
------- ------- ------- ------ ------- ------
Net Asset Value, End of Period............................... $ 14.39 $ 15.58 $ 15.69 $12.41 $ 12.20 $11.57
======= ======= ======= ====== ======= ======
Total Investment Return at Net Asset Value................... (7.88%) (0.70%) 26.43% 2.93% 9.81% 0.09%
Total Adjusted Investment Return at Net Asset Value.......... -- -- -- -- -- 0.04%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).................... $32,329 $36,937 $19,498 $7,428 $10,766 $7,746
Ratio of Expenses to Average Net Assets...................... 2.46%* 2.54% 2.92% 3.75% 3.64% 3.50%(c)
Ratio of Net Investment Loss to Average Net Assets........... (1.03%)* (1.52%) (1.65%) (2.01%) (1.47%) (0.82%)(c)
Portfolio Turnover Rate...................................... 53% 96% 83% 59% 93% 59%
<FN>
* On an annualized basis.
(a) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
(b) Per share information has been calculated using the average number of shares outstanding.
(c) Reflects expense limitation in effect during the year ended October 31, 1990 (see Note B).
As a result of such limitation, expenses of Class B shares for the year ended October 31, 1990
reflect a reduction of $0.01 per share. Absent of such reduction, the ratio of expenses to
average net assets would have been 3.55% and the ratio of net investment income to average
net assets would have been (0.87%).
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 186
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
GLOBAL RESOURCES FUND ON APRIL 30, 1995. IT'S DIVIDED INTO TWO MAIN
CATEGORIES:COMMON STOCKS AND SHORT-TERM INVESTMENTS. THE COMMON STOCKS ARE FUR
THER BROKEN DOWN BY INDUSTRY GROUPS. SHORT-TERM INVESTMENTS, WHICH REPRESENT
THE FUND'S "CASH" POSITION, ARE LISTED LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
April 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
------------------- ---------------- ------
<S> <C> <C>
COMMON STOCKS
CONSUMER CYCLICALS (1.14%)
Tolmex S.A. de C.V. American Depository
Receipt (ADR)(Mexico)...................... 12,000 $ 401,024
----------
CONSUMER GOODS & SERVICES (1.80%)
Reliance Industries Ltd.(ADR) (India)**.... 40,000 633,120
----------
DIVERSIFIED OPERATIONS (15.07%)
Barret Resources Corp. **.................. 40,000 940,000
Belden and Blake Corp. **.................. 35,000* 511,875
Broken Hill Proprietary Co. Ltd.
(ADR) (Austrailia)....................... 14,000 808,500
Grupo Mexico S.A. B(Mexico)................ 120,000* 370,932
NKK Corp.(Japan) **........................ 225,000 629,325
Phelps Dodge Corp.......................... 12,500* 707,813
Sungei Way Holdings Berhad(Malaysia)....... 140,000* 555,646
Tesoro Petroleum Corp. **.................. 80,000* 790,000
----------
5,314,091
----------
ENERGY - EXPLORATION AND PRODUCTION (24.21%)
Abraxas Petroleum Corp. * *................ 45,000 405,000
Bellwether Exploration Co. ............... 190,000 1,163,750
Cairn Energy USA, Inc.** .................. 135,000 1,316,250
Dusty Mac Oil and Gas Ltd.(Canada) **...... 50,000* 137,500
International Petroleum Corp.(Canada) **... 500,000* 1,062,500
Newscope Resources Ltd.(Canada) ** ........ 255,200* 731,429
Nuevo Energy Co. **........................ 55,000 1,051,875
PTT Exploration & Production Public Co.,
Ltd.(Thailand) **........................ 70,000 683,081
PetroCorp, Inc. **......................... 100,000 875,000
Ranger Oil Ltd.(Canada).................... 150,000* 1,106,250
----------
8,532,635
----------
ENERGY - PROCESSING AND MARKETING (8.02%)
Methanex Corp.(Canada) **.................. 60,000 637,500
Repsol S.A.(ADR) (Spain)................... 25,000 800,000
Shanghai Petrochemical Ltd.(ADR) (China)... 21,000 606,375
Total Compagnie Francaise des Petroles
(ADR) (France)........................... 25,000 784,375
----------
2,828,250
----------
ENERGY - SERVICES AND EQUIPMENT (7.69%)
Amercian Ecology Corp...................... 104,200 677,300
Newpark Resources Inc. ** ................. 20,000* 445,000
Petroleum Geo-Services A/S (ADR)
(Norway) **.............................. 40,000 $1,092,500
Reading and Bates Corp. **................. 60,000* 495,000
----------
2,709,800
----------
FINANCIAL SERVICES (1.99%)
Brassie Golf Corp.(Canada) **.............. 287,900 701,756
----------
INDUSTRIAL - INTERMEDIATE MATERIALS (20.18%)
AK Steel Holding Corp. **.................. 30,000* 806,250
Concordia Paper Holdings, (ADR)
(Hong Kong)**............................ 50,000* 681,250
Hindalco Industries Ltd.(India) **......... 20,000 572,600
Industrias Campos Hermanos S.A.
(Mexico) **.............................. 155,000 198,819
Kimberly Clark de Mexico S.A.(ADR)
(Mexico)................................ 29,000* 599,102
Kymmene Oy(Finland)........................ 20,000 601,378
O'Okiep Copper Ltd. (ADR) (Portugal) **.... 43,000 419,250
PT Indah Kiat Pulp & Paper Corp.
(Indonesia).............................. 600,000 665,040
PT Indocement Tunggal Prakar(Indonesia).... 170,000* 563,363
Pohang Iron and Steel Co., Ltd. (ADR)
(South Korea) **......................... 35,000 966,875
USX-U.S. Steel Group....................... 18,000 549,000
Venezolana de Prerreducidos Caroni
(Venezuela) **........................... 101,000 492,375
----------
7,115,302
----------
Industrial - Miscellaneous (12.10%)
Eastern Aluminium Ltd.(Austrailia) **...... 620,000* 518,878
Giant Cement Holding, Inc. **.............. 60,000 780,000
Holderbank Financiere Glarus AG
(Switzerland) **......................... 712 573,596
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 187
FINANCIAL STATEMENTS
<TABLE>
John Hancock Funds - Global Resources Fund
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
------------------- ---------------- ------
<S> <C> <C>
INDUSTRIAL - MISCELLANEOUS (CONTINUED)
Mercer International, Inc. .............. 34,000* $ 510,000
RTZ Corp. PLC (ADR) (United Kingdom)..... 12,000 618,000
York Research Corp. **................... 230,000 1,265,000
-----------
4,265,474
-----------
MINING (3.71%)
Amax Gold Inc. **........................ 115,000* 646,875
Battle Mountain Gold Co. ................ 60,000* 660,000
-----------
1,306,875
-----------
UTILITIES (3.95%)
OEMV AG(Austria) **...................... 5,625 583,016
Transportadora de Gas del Sur S.A.(ADR)..
(Argentina)............................ 82,000 809,750
-----------
1,392,766
-----------
TOTAL COMMON STOCKS
(Cost $33,243,835) (99.86%) 35,201,093
------- -----------
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
------------------- -------- --------------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (0.45%)
Investment in a joint repurchase
agreement transaction with
B.T. Securities Corp. -
Dated 04-28-95, Due 05-01-95
(secured by U.S. Treasury Bond,
10.75% Due 08-15-05, and by
U.S. Treasury Note, 6.875%
Due 10-31-96) Note A.................... 5.93% $ 159 $ 159,000
-----------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%..................... 479
-----------
TOTAL SHORT-TERM INVESTMENTS (0.45%) 159,479
------- -----------
TOTAL INVESTMENTS (100.31%) $35,360,572
======= ===========
<FN>
** Securities, other than short-term investments, newly added to the portfolio
during the period ended April 30, 1995.
** Non-income producing security.
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 188
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
<TABLE>
PORTFOLIO CONCENTRATION
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The Global Resources Fund invests primarily in equity securities of
issuers in the natural resource industry in the United States and abroad. The
concentration of investments by industry category for individual securities
held by the Fund is shown in the schedule of investments. In addition,
concentration of investments can be aggregated by various countries. The table
below shows the percentage of the Fund's investments at April 30, 1995 assigned
to the various country categories.
<CAPTION>
MARKET VALUE AS A
COUNTRY DIVERSIFICATION % OF NET ASSETS
----------------------- -----------------
<S> <C>
Argentina........................................................... 2.30%
Australia........................................................... 3.76
Austria............................................................. 1.65
Canada.............................................................. 12.42
China............................................................... 1.72
Finland............................................................. 1.71
France.............................................................. 2.23
Hong Kong........................................................... 1.92
India............................................................... 3.42
Indonesia........................................................... 3.48
Japan............................................................... 1.79
Malaysia............................................................ 1.58
Mexico.............................................................. 4.45
Norway.............................................................. 3.10
Portugal............................................................ 1.19
South Korea......................................................... 2.74
Spain............................................................... 2.27
Switzerland......................................................... 1.63
Thailand............................................................ 1.94
United Kingdom...................................................... 1.75
United States....................................................... 41.41
Venezuela........................................................... 1.40
-----
TOTAL INVESTMENTS 99.86%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 189
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Trust") is a diversified, open-end management
investment company, registered under the Investment Company Act of 1940, as
amended. The Trust consists of six series portfolios: John Hancock Global
Resources Fund (the "Fund"), John Hancock Emerging Growth Fund, John Hancock
High Yield Tax Free Fund, John Hancock High Yield Bond Fund, John Hancock
Money Market Fund B and John Hancock Government Income Fund. The Trustees may
authorize the creation of additional Funds from time to time to satisfy various
investment objectives. Effective December 22, 1994 (see Note B), the Trust and
Funds changed names by replacing the word Transamerica with John Hancock.
The Trustees have authorized the issuance of two classes of shares of
the Fund, designated as Class A and Class B. The shares of each class
represent an interest in the same portfolio of investments of the Fund and
have equal rights to voting, redemption, dividends, and liquidation, except
that certain expenses, subject to the approval of the Trustees, may be
applied differently to each class of shares in accordance with current
regulations of the Securities and Exchange Commission and the Internal Revenue
Service. Shareholders of a class which bears distribution/service expenses
under the terms of a distribution plan have exclusive voting rights regarding
such distribution plan. Class A Shares are subject to an initial sales charge
of up to 5.00% and a 12b-1 distribution plan. Prior to May 15, 1995, the
maximum sales charge was 5.75%. Class B Shares are subject to a contingent
deferred sales charge and a separate 12b-1 distribution plan. On June 15,
1994, Class A shares were sold to commence class activity. Significant
accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing
services or, at fair value as determined in good faith in accordance with
procedures approved by the Trustees. Short-term debt investments maturing
within 60 days are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial
Group, may participate in a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
REVERSE REPURCHASE AGREEMENT Prior to December 22, 1994, the Fund entered
into reverse repurchase agreements which involve the sale of securities held
by the Fund to a bank or securities firm with an agreement that the Fund will
buy back the securities at a fixed future date at a fixed price plus an
agreed amount of "interest" which may be reflected in the repurchase price.
Reverse repurchase agreements are considered to be borrowings by the Fund and
the Fund used the proceeds obtained from the sale of securities to purchase
other investments. On December 22, 1994, the Fund discontinued investing in
reverse repurchase agreements.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked-to-market to reflect the current market
value of the written option.
The Fund may use option contracts to manage its exposure to the stock
market. Writing puts and buying calls will tend to increase the Fund's
exposure to the underlying instrument and buying puts and
14
<PAGE> 190
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
writing calls will tend to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited
to the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the
contracts' terms, or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To
minimize credit and liquidity risks in over-the-counter option contracts, the
Fund will continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended April
30, 1995.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it
will be required to deposit with its custodian a specified amount of cash or
U.S. government securities, known as "initial margin", equal to a certain
percentage of the value of the financial futures contract being traded. Each
day, the futures contract will be valued at the official settlement price of
the board of trade or U.S. commodities exchange. Subsequent payments, known as
"variation margin", to and from the broker will be made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund will recognize a gain or
loss. Risks of entering into futures contracts include the possibility that
there may be an illiquid market and/or that a change in the value of the
contracts may not correlate with changes in the value of the underlying
securities. In addition, the Fund could be prevented from opening or
realizing the benefits of closing out futures positions because of position
limits or limits on daily price fluctuations imposed by an exchange.
For Federal income tax purposes, the amount, character and timing of
the Fund's gains and/or losses can be affected as a result of futures
contracts.
At April 30, 1995, there were no open positions in financial futures
contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts
are marked-to-market daily at the applicable foreign currency exchange rates.
Any resulting unrealized gains and losses are included in the determination
of the Fund's daily net assets. The Fund records realized gains and losses at
the time the forward foreign currency contract is closed out or offset by a
matching contract. Risks may arise upon entering these contracts from
potential inability of counterparties to meet the terms of the contract and
from unanticipated movements in the value of a foreign currency relative to
the U.S. dollar. These contracts involve market or credit risk in excess of
the unrealized gain or loss reflected in the Fund's Statement of Assets and
Liabilities. The Fund may also purchase and sell forward contracts to
facilitate the settlement of foreign currency denominated portfolio
transactions, under which it intends to take delivery of the foreign currency.
Such contracts normally involve no market risk other than that offset by the
currency amount of the underlying transaction.
At April 30, 1995, there were no open forward foreign currency
exchange contracts.
15
<PAGE> 191
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed
in terms of foreign currencies are translated into U.S.dollars based on
London currency exchange quotations as of 5:00 p.m., London time, on the date
of any determination of the net asset value of the Fund. Transactions
affecting statement of operations accounts and net realized gain/loss on
investments are translated at the rates prevailing at the dates of the
transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from
sales of foreign currency, currency gains or losses realized between the
trade and settlement dates on securities transactions and the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign exchange gains and losses
arise from changes in the value of assets and liabilities other than investmen
ts in securities at fiscal year end, resulting from changes in the exchange
rate.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date
of purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis for both financial
reporting and federal income tax purposes.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on
securities from either the date of issue or the date of purchase over the
life of the security, as required by the Internal Revenue Code.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of
the Internal Revenue Code that are applicable to regulated investment
companies and to distribute all of its taxable income, including any net
realized gain on investments, to its shareholders. Therefore, no federal
income tax provision is required. For federal income tax purposes, at October
31, 1994, the Fund has approximately $107,000 of capital loss carryforwards
available, to the extent provided by regulations, to offset future net
realized capital gains. If such carryforwards are used by the Fund, no
capital gain distributions will be made. The carryforwards expire as follows:
October 31, 2000 -- $17,000 and October 31, 2002 -- $90,000. For Federal income
tax purposes, net currency exchange gains and losses from sale of foreign
debt securities must be treated as ordinary income even though such items are
gains and losses for accounting purposes.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment
securities is recorded on the accrual basis. Foreign income may be subject to
foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net
investment income and realized gains on the ex-dividend date. Such
distributions are determined in conformity with income tax regulations, which
may differ from generally accepted accounting principles. Dividends paid by
the Fund, if any, with respect to each class of shares will be calculated in
the same manner, at the same time and will be in the same amount, except for
effect of expenses that may be applied differently to each class as explained
previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable
to an individual Fund. Expenses which are not readily identifiable to a
specific Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Fund.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class
of shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level
based on the appropriated net assets of each class and the specific expense
rate(s) applicable to each class.
RECLASSIFICATION Certain reclassifications have been made to 1994 amounts to
permit comparisons to 1995 presentations.
16
<PAGE> 192
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
NOTE B -
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES AND TRANSACTIONS WITH AFFILIATES
AND OTHERS
On December 22, 1994, John Hancock Advisers, Inc. (the "Adviser"), a wholly
owned subsidiary of The Berkeley Financial Group, became the investment
adviser for the Fund with approval of the Trustees and shareholders of the
Fund. The Fund's former investment manager was Transamerica Fund Management
Company ("TFMC").
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment program
equivalent, to 0.75% of the Fund's average daily net assets. This fee
structure is consistent with the former agreement with TFMC. For the period
ended April 30, 1995, the advisory fee earned by the Adviser and TFMC
amounted to $82,126 and $50,516, respectively, resulting in a total fee of
$132,642.
The Adviser and TFMC, for their respective periods, provided
administrative services to the Fund pursuant to an administrative service
agreement through January 16, 1995 on which day the agreement was terminated.
In the event normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of the most
restrictive state limit where the Fund is registered to sell shares of
beneficial interest, the fee payable to the Adviser will be reduced to the
extent of such excess and the Adviser will make additional arrangements
necessary to eliminate any remaining excess expenses. The current
limits are 2.5% of the first $30,000,000 of the Fund's average daily net
asset value, 2.0% of the next $70,000,000 and 1.5% of the remaining average
daily net asset value.
On December 22, 1994 John Hancock Funds, Inc. ("JH Funds"), a
wholly-owned subsidiary of the Adviser, became the principal underwriter of
the Fund. Prior to this date, Transamerica Fund Distributors, Inc. ("TFD")
served as the principal underwriter and distributor of the Fund. For the
period ended April 30, 1995, JH Funds and TFD received net sales charges of
$20,173 with regard to sales of Class A shares. Out of this amount, $1,933
was retained and used for printing prospectuses, advertising, sales literature
and other purposes, and $18,240 was paid as sales commissions to unrelated
broker-dealers.
Class B shares which are redeemed within six years of purchase will
be subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSC are paid to JH Funds, formerly TFD, and are used in
whole or in part to defray its expenses related to providing distribution
related services to the Fund in connection with the sale of Class B shares.
For the period ended April 30, 1995, contingent deferred sales charges
amounted to $51,597.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan
with respect to Class A and Class B pursuant to
Rule 12b-1 under the Investment Company Act of 1940. Accordingly, the
Fund will make payments for distribution and service expenses which in total
will not exceed on an annual basis 0.25% of the Fund's average daily net assets
attributable to Class A shares and 1.00% of the Fund's average daily net assets
attributable to Class B shares, to reimburse for its distribution/service
costs. Up to a maximum of 0.25% of such payments may be service fees as defined
by the amended Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances. This fee
structure and plan is similar to the former arrangement with TFD.
The Board of Trustees approved a shareholder servicing agreement
between the Fund and John Hancock Investor Services Corporation ("Investor
Services"), a wholly owned subsidiary of The Berkeley Financial Group, for the
period between December 22, 1994 and May 12, 1995, inclusive under which
Investor Services processed telephone transactions on behalf of the Fund. As of
May 15, 1995, the Fund entered into a full service transfer agent agreement
with Investor Services. Prior to this date The Shareholder Services Group was
the transfer agent. The Fund will pay Investor Services a fee based on
transaction volume and number of shareholder accounts.
17
<PAGE> 193
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
A partner with Baker & Botts was an officer of the Trust until
December 22, 1994. During the period ended April 30, 1995, legal fees paid to
Baker & Botts amounted to $460.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser
and its affiliates as well as Trustee of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Trustees may elect to defer their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund will make investments into other John Hancock funds, as applicable, to
cover its liability with regard to the deferred compensation. Investments to
cover the Fund's deferred compensation liability will be recorded on the Fund's
books as other assets. The deferred compensation liability will be marked to
market on a periodic basis and income earned by the investment will be recorded
on the Fund's books.
The Fund has an independent advisory board composed of certain members
of the former Transamerica Board of Trustees who provide advice to the current
Trustees in order to facilitate a smooth management transition for which the
Fund pays the advisory board and its counsel a fee.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended April 30, 1995 aggregated $19,417,011
and $23,748,038, respectively.
The cost of investments owned at April 30, 1995 (including the joint
repurchase agreement) for Federal income tax purposes was $33,402,835. Gross
unrealized appreciation and depreciation of investments aggregated
$4,053,590, and $2,096,332, respectively, resulting in net unrealized
appreciation of $1,957,258.
NOTE D
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended October 31, 1994, the Fund has reclassified the
accumulated net investment loss in the amount of $441,384 to capital paid-in.
This represents the cumulative amount necessary to report these balances on a
tax basis, excluding certain temporary differences, as of October 31, 1994.
Additional adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the Fund,
are primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus
generally accepted accounting principles.
18
<PAGE> 194
Transamerica Government Income Fund
(effective December 22, 1994, John Hancock Government Income Fund)
STATEMENT OF NET ASSETS
October 31, 1994
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 84.66%
FEDERAL HOME
LOAN MORTGAGE
CORPORATION -- 23.88%
Pass Through Securities
7.750% due 11/01/08.......... $ 35,948 $ 34,832
8.000% due 04/01/07.......... 70,904 69,363
CMO -- Planned
Amortization Class
4.500% due 05/15/14.......... 2,000,000 1,639,687
5.000% due 04/15/21.......... 6,000,000 4,779,375
5.750% due 05/15/21.......... 17,005,946 14,715,458
6.000% due 06/15/08.......... 8,000,000 6,601,250
6.500% with various
maturities to 03/25/23 (A).. 31,888,400 27,783,969
7.000% due 06/15/21.......... 2,300,000 2,004,594
-----------
57,628,528
FEDERAL JUDICIARY OFFICE
BUILDING -- 0.06%
Zero Coupon due 02/15/01...... 250,000 152,025
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 25.69%
6.000% with various
maturities to 11/01/23...... 16,127,062 13,728,162
6.500% due 05/01/08.......... 13,217,197 12,263,048
7.000% due 04/01/08.......... 3,889,611 3,696,298
8.500% with various
maturities to 09/01/24...... 5,085,856 5,027,051
9.750% due 02/10/99.......... 125,000 125,681
9.950% due 05/10/99.......... 250,000 252,738
CMO -- Interest Only
6.500% due 10/01/23.......... 14,475,477 5,319,738
CMO -- Planned
Amortization Class
6.000% due 04/25/24.......... 6,388,638 4,815,436
6.500% with various
maturities to 08/25/20...... 11,660,000 10,073,969
6.750% due 06/25/21.......... 4,000,000 3,358,750
7.000% due 05/25/20(A)....... 3,700,000 3,132,859
7.500% due 05/25/20.......... 200,000 178,988
-----------
61,972,718
FINANCING CORPORATION -- 2.58%
9.400% due 02/08/18.......... 4,000,000 4,410,000
9.650% due 11/02/18.......... 1,600,000 1,806,000
-----------
6,216,000
TENNESSEE VALLEY
AUTHORITY -- 4.59%
7.250% due 07/15/43.......... 8,000,000 6,644,000
7.850% due 06/15/44.......... 5,000,000 4,432,050
-----------
11,076,050
U.S. TREASURY
SECURITIES -- 27.86%
Bonds
12.625% due 05/15/95(B)....... 40,400,000 41,944,492
15.750% due 11/15/01.......... 16,865,000 24,250,352
Notes
11.250% due 05/15/95(B)....... 1,000,000 1,028,810
-----------
67,223,654
TOTAL U.S. GOVERNMENT
AND U.S. GOVERNMENT
AGENCY OBLIGATIONS
(Cost $217,385,536)........... 204,268,975
FOREIGN BONDS -- 10.10%
U.S. DOLLAR DENOMINATED
FOREIGN GOVERNMENT
BONDS -- 10.10%
Argentina (Republic of)
Notes Series L
6.500% due 03/31/05(C)........ 2,000,000 1,445,000
Brazil (Republic of)
Notes IDU Series A-L
6.063% due 01/01/01(C)........ 2,940,000 2,407,125
</TABLE>
5
<PAGE> 195
Transamerica Government Income Fund
(Effective December 22, 1994, John Hancock Government Income Fund)
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
British Columbia Hydro & Power Authority
15.000% due 04/15/11............................. 3,900,000 4,514,250
15.500% due 11/15/11............................. 1,700,000 2,061,250
Hydro-Quebec Corp.
8.250% with various maturities to 01/15/27...... 2,000,000 1,833,750
8.875% due 03/01/26............................. 2,000,000 1,962,500
9.375% due 04/15/30............................. 2,000,000 2,052,500
11.750% due 02/01/12............................. 270,000 336,825
Province of Ontario, Canada
15.125% due 05/01/11............................. 1,345,000 1,568,606
17.000% due 11/05/11............................. 5,000,000 6,193,750
------------
TOTAL FOREIGN BONDS
(Cost $27,857,579)............................... 24,375,556
MULTI-FAMILY MORTGAGE BACKED BONDS -- 3.78%
DLJ Mortgage Acceptance Corp.
7.200% due 07/14/03............................. 4,856,909 4,521,479
7.400% due 06/18/03............................. 4,909,808 4,589,137
------------
TOTAL MULTI-FAMILY MORTGAGE BACKED BONDS
(Cost $9,998,016)................................ 9,110,616
------------
TOTAL LONG-TERM OBLIGATIONS -- 98.54%
(Cost $255,241,131).............................. 237,755,147
CASH AND OTHER ASSETS, LESS
LIABILITIES -- 1.46%............................ 3,529,283
------------
NET ASSETS, at value, equivalent to $8.75 per
share for 25,478 Class A Shares ($.01 par
value) of capital stock outstanding and $8.75
per share for 27,547,677 Class B Shares ($.01
par value) of capital stock outstanding --
100.00%......................................... $241,284,430
============
</TABLE>
(A) Federal Home Loan Mortgage Corporation and Federal
National Mortgage Association securities with a value of
$7,718,559 owned by the Fund were designated as margin
deposits for futures contracts at October 31, 1994.
(B) Long-term obligations that will mature in less than
one year.
(C) Floating rate security.
See Notes to Financial Statements.
6
<PAGE> 196
Transamerica Government Income Fund
(effective December 22, 1994, John Hancock Government Income Fund)
STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS
STATEMENT OF OPERATIONS
Year Ended October 31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest ........................... $ 23,940,679
EXPENSES
Distribution expenses
(See Note D) ..................... $ 2,685,334
Management fees .................... 1,728,997
Transfer agent fees ................ 337,677
Administrative service fees ........ 132,786
Custodian fees ..................... 64,967
Registration fees .................. 64,878
Shareholder reports ................ 59,668
Audit and legal fees ............... 47,962
Directors' fees and
expenses ......................... 26,069
Interest expense ................... 14,332
Miscellaneous ...................... 38,909 5,201,579
------------ ------------
NET INVESTMENT
INCOME ......................... 18,739,100
REALIZED AND UNREALIZED
GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on:
Investments ....................... (10,308,076)
Futures contracts ................. (2,190,367)
Forward currency
contracts ....................... 426,179 (12,072,264)
------------
Net change in
unrealized appreciation
(depreciation) of:
Investments ....................... (25,329,099)
Futures contracts ................. 404,876
Forward currency
contracts ....................... 19,551 (24,904,672)
------------ ------------
NET REALIZED AND
UNREALIZED LOSS ON
SECURITIES ........................ (36,976,936)
------------
DECREASE IN NET ASSETS
RESULTING FROM
OPERATIONS......................... $(18,237,836)
============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------
1994 1993
------------ -----------
<S> <C> <C>
OPERATIONS
Net investment income ............... $ 18,739,100 $18,614,695
Net realized gain (loss) on
securities ........................ (12,072,264) 774,222
Net change in unrealized
appreciation
(depreciation) of
securities ........................ (24,904,672) 5,274,938
------------ ------------
Increase (decrease) in
net assets resulting
from operations ................... (18,237,836) 24,663,855
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income --
Class A ........................... (1,228) -
Class B ........................... (18,621,004) (18,900,217)
Net realized gain on
securities -- Class B ............. (730,403) -
------------ ------------
Total distributions to
shareholders ...................... (19,352,635) (18,900,217)
CAPITAL SHARE
TRANSACTIONS
Increase (decrease) in
capital shares
outstanding ....................... (14,538,382) 62,109,749
------------ ------------
Increase (decrease) in
net assets ........................ (52,128,853) 67,873,387
NET ASSETS
Beginning of year ................... 293,413,283 225,539,896
------------ ------------
End of year ......................... $241,284,430 $293,413,283
============ ============
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 197
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------- -------------------------------------------------------
PERIOD FROM
SEPTEMBER 30,
1994 TO YEAR ENDED OCTOBER 31,
OCTOBER 31, -------------------------------------------------------
1994(1) 1994 1993 1992 1991 1990
-------------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Per share income and capital changes for a share
outstanding during each period:
Net asset value, beginning of period..................... $ 8.85 $ 10.05 $ 9.83 $ 9.79 $ 9.37 $ 9.98
INCOME FROM INVESTMENT OPERATIONS
Net investment income................................... 0.06 0.65 0.70 0.80 0.89 0.88
Net realized and unrealized gain (loss) on securities... (0.10) (1.28) 0.24 0.03 0.40 (0.54)
------- -------- -------- -------- -------- -------
Total from Investment Operations.................... (0.04) (0.63) 0.94 0.83 1.29 0.34
LESS DISTRIBUTIONS
Dividends from net investment income.................... (0.06) (0.65) (0.72) (0.79) (0.87) (0.95)
Distributions from realized gains........................ - (0.02) - - - -
------- -------- -------- -------- -------- -------
Total Distributions................................. (0.06) (0.67) (0.72) (0.79) (0.87) (0.95)
------- -------- -------- -------- -------- -------
Net asset value, end of period.......................... $ 8.75 $ 8.75 $ 10.05 $ 9.83 $ 9.79 $ 9.37
======= ======== ======== ======== ======== =======
TOTAL RETURN (2)....................................... (0.45)% (6.42)% 9.86% 8.81% 14.38% 3.71%
======= ======== ======== ======== ======== =======
RATIOS AND SUPPLEMENTAL DATA
Ratio of operating expenses to average net assets....... 0.12% 1.93% 2.00% 2.00% 2.00% 2.04%
Ratio of interest expense to average net assets......... - 0.01% 0.01% 0.15% - -
------- -------- -------- -------- -------- -------
Ratio of total expenses to average net assets........... 0.12% 1.94% 2.01% 2.15% 2.00% 2.04%
Ratio of expense reimbursement to average net assets.... - - - - - (0.04)%
------- -------- -------- -------- -------- -------
Ratio of net expenses to average net assets............. 0.12% 1.94% 2.01% 2.15% 2.00% 2.00%
======= ======== ======== ======== ======== =======
Ratio of net investment income to average net assets.... 0.71% 6.98% 7.06% 8.03% 9.09% 9.22%
Portfolio turnover...................................... 92% 92% 138% 112% 162% 83%
Net Assets, end of period (in thousands)................ $ 223 $241,061 $293,413 $225,540 $129,014 $64,707
Debt outstanding at end of period (in thousands)(3)..... $ 0 $ 0 $ 0 $ 0 - -
Average daily amount of debt outstanding during
the period (in thousands)(3).......................... $ 349 $ 349 $ 503 $ 6,484 - -
Average monthly number of shares outstanding during
the period (in thousands)............................. 28,696 28,696 26,378 18,572 - -
Average daily amount of debt outstanding per share
during the period(3).................................. $ 0.01 $ 0.01 $ 0.02 $ 0.35 - -
<FN>
(1) Financial highlights, including total return, have not been annualized.
Portfolio turnover and information regarding debt outstanding are for the
year ended October 31, 1994 and are not class specific.
(2) Total return does not include the effect of the initial sales charge
for Class A Shares nor the contingent deferred sales charge for Class B
Shares.
(3) Debt outstanding consists of reverse repurchase agreements entered
into during the period.
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 198
Transamerica Government Income Fund
(effective December 22, 1994, John Hancock Government Income Fund)
NOTES TO FINANCIAL STATEMENTS
October 31, 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special Series,
Inc., is a diversified, open-end management investment company registered under
the Investment Company Act of 1940, as amended. The Issuer operates as a series
fund, currently issuing six series of shares. On May 20, 1994, the shareholders
of the Issuer approved changes to the name of the Issuer and to the names of
each of the series of the Issuer. These changes became effective on June 15,
1994.
Transamerica Government Income Fund (the "Fund"), formerly Transamerica
Special Government Income Fund, is one of the series of the Issuer. The Fund
made its initial offering of shares to the public on February 23, 1988. On
September 30, 1994, the Fund commenced issuing a second class of shares. The
new Class A Shares are subject to an initial sales charge of up to 4.75% and a
12b-1 distribution plan and the Class B Shares are subject to a contingent
deferred sales charge and a separate 12b-1 distribution plan. The following is
a summary of significant accounting policies consistently followed by the Fund.
(1) The Fund values its debt securities at quotations provided by
pricing services and market makers. Interest rate futures contracts and options
on interest rate futures are valued based on their daily settlement price.
Securities which are not traded on U.S. markets, forward currency contracts and
other assets and liabilities stated in foreign currency are translated into
U.S. dollar equivalents based on quoted exchange rates. Securities for which
market quotations are not readily available are valued at a fair value as
determined in good faith by the Issuer's Board of Directors. Short-term
investments are valued at amortized cost (original cost plus amortized discount
or accrued interest).
(2) The premium paid by the Fund for the purchase of a call or put
option is recorded as an investment and subsequently "marked to market" to
reflect the current market value of the option purchased. If an option which
the Fund has purchased expires on the stipulated expiration date, the Fund
realizes a loss in the amount of the cost of the option. If the Fund enters
into a closing transaction, it realizes a gain (loss) if the proceeds from the
sale are greater (less) than the cost of the option purchased. If the Fund
exercises a put option, it realizes a gain or a loss from the sale of the
underlying security and the proceeds from such sale will be decreased by the
premium originally paid. If the Fund exercises a call option, the cost of the
security purchased upon exercise is increased by the premium originally paid.
(3) The Fund may enter into futures contracts for delayed delivery of
securities on a future date at a specified price. Initial margin deposits made
upon entering into futures contracts are maintained by the Fund's custodian in
segregated asset accounts. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
received or made, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Fund's basis in the contract.
(4) The Fund may enter into reverse repurchase agreements which involve
the sale of securities held by the Fund to a bank or securities firm with an
agreement that the Fund will buy back the securities at a fixed future date at
a fixed price plus an agreed amount of "interest" which may be reflected in
the repurchase price. Reverse repurchase agreements are considered to be
borrowings by the Fund and the Fund will use the proceeds obtained from the
sale of securities to purchase other investments.
(5) Security transactions are accounted for on the trade date. Interest
income is accrued daily. Debt discounts are amortized using the straight-line
method. Realized gains and losses from security transactions are determined on
the basis of identified cost for both financial reporting and federal income
tax purposes.
(6) Income dividends are declared daily by the Fund and paid or
reinvested at net asset value monthly. Other distributions are recorded on the
ex-dividend date and may be reinvested at net asset value. Income distributions
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Distributions payable to shareholders
at October 31, 1994 were $711,439.
(7) No provision for federal income taxes has been made since it is the
Fund's intention to distribute all of its taxable income and profits to its
shareholders and to comply with the requirements applicable to regulated
investment companies and the minimum distribution requirements of the Internal
Revenue Code. The Fund's tax year end is December 31.
(8) On a daily basis, income, unrealized and realized gains and losses,
and expenses which are not class specific are allocated to each class based on
their respective relative net assets. Class specific expenses, such as
distribution expenses, are applied to the class to which they are attributed.
9
<PAGE> 199
Transamerica Government Income Fund
(effective December 22, 1994, John Hancock Government Income Fund)
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE A (Continued)
(9) With respect to U.S. government and U.S. government agency
securities in which the Fund may invest, only U.S. Treasury and Government
National Mortgage Association (GNMA) issues are backed by the full faith and
credit of the U.S. government. All other government issues are backed by the
issuing agencies and their general ability to borrow from the U.S. government.
Options and futures contracts on U.S. government securities are not issues of,
nor guaranteed by the U.S. government or its agencies.
(10) The Fund reports custodian fees net of credits and charges
resulting from cash positions in the custodial accounts greater than or less
than the amounts required to settle portfolio transactions. For the year ended
October 31, 1994, these amounts were $14,301 and $13,948, respectively.
NOTE B - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund's management fee is payable monthly to Transamerica Fund Management
Company (the "Investment Adviser") and is calculated based on the following
schedule:
<TABLE>
<CAPTION>
AVERAGE DAILY
NET ASSETS ANNUAL RATE
------------- -----------
<S> <C>
First $200 million 0.650%
Next $300 million 0.625%
Over $500 million 0.600%
</TABLE>
At October 31, 1994, the management fee payable to the Investment
Adviser was $133,624.
The Investment Adviser provides administrative services to the Fund
pursuant to an administrative service agreement. During the year ended October
31, 1994, the Fund paid or accrued $107,246 for these services, of which $9,471
was payable at October 31, 1994.
Transamerica Fund Distributors Inc. (the "Distributor"), an affiliate
of the Investment Adviser, is the principal underwriter of the Fund. At October
31, 1994, receivables from and payables to the Distributor for Fund share
transactions were $61,205 and $671,881, respectively.
The Fund paid no compensation directly to any officer. Certain officers
and a director of the Issuer are affiliated with the Investment Adviser.
During the year ended October 31, 1994, the Fund paid legal fees of
$9,618 to Baker & Botts. A partner with Baker & Botts is an officer of the
Issuer.
NOTE C - COST, PURCHASES AND SALES OF INVESTMENT SECURITIES
During the year ended October 31, 1994, purchases and sales of
securities, other than short-term obligations, aggregated $244,231,077 and
$259,987,372, respectively. At October 31, 1994, payables to brokers for
securities purchased were $2,500,605.
At October 31, 1994, the identified cost of investments owned is the
same for both financial reporting and federal income tax purposes. At October
31, 1994, the gross unrealized appreciation and gross unrealized depreciation
of investments and futures contracts for federal income tax purposes were
$920,652 and $17,993,511, respectively.
Futures contracts which were open at October 31, 1994, were as follows:
<TABLE>
<CAPTION>
DELIVERY NUMBER OF UNREALIZED
MONTH/YEAR/COMMITMENT CONTRACTS(1) APPRECIATION
-------------------------- ------------ ------------
<S> <C> <C>
U.S. Treasury Ten Year
Note Futures
Dec/94/short 135 $366,094
U.S. Treasury Bond Futures
Dec/94/short 70 47,031
--- --------
205 $413,125
=== ========
</TABLE>
(1) Each contract represents $100,000 in par value.
NOTE D - PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is
authorized under separate distribution plans to finance activities related
to the distribution of its Class A and Class B Shares (the "Class A Plan" and
the "Class B Plan," respectively). The distribution plans, together with the
initial sales charge on Class A Shares and the contingent deferred sales charge
on Class B Shares, comply with the regulations covering maximum sales charges
assessed by mutual funds distributed through securities dealers that are NASD
members.
The Class A Plan and the Class B Plan permit each class to make
payments to the Distributor up to 0.25% annually of average daily net assets
for certain distribution costs such as service fees paid to dealers,
production and distribution of prospectuses to prospective investors, services
provided to new and existing shareholders and other distribution related
activities. During the period September 30, 1994 to
10
<PAGE> 200
Transamerica Government Income Fund
(effective December 22, 1994, John Hancock Government Income Fund)
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE D (Continued)
October 31, 1994, Class A made payments to the Distributor of $37 or 0.02%
related to the above activities. During the year ended October 31, 1994,
Class B made payments of $671,915 or 0.25% related to these activities.
The Class B Plan also permits Class B to reimburse the Distributor up
to 0.75% annually of average daily net assets for costs related to compensation
paid to securities dealers, in place of an initial sales charge to investors,
on the sale of Class B Shares. These costs are based upon a commission payment
charge of 5% of the value of Class B Shares sold (excluding shares acquired
through reinvestment), reduced by the amount of contingent deferred sales
charges (CDSC) that have been received by the Distributor on redemptions of
Class B Shares. These costs also include a charge of interest (carrying charge)
at an annual rate of 1% over the prevailing prime rate to the extent cumulative
commission payment charges, plus any previous carrying charges, less CDSC
received by the Distributor, have not been paid in full by the Fund. For the
year ended October 31, 1994, Class B reimbursed the Distributor $2,013,382 or
0.75% for such costs. For the year ended October 31, 1994, the Distributor
received $766,358 in CDSC. At October 31, 1994, the balance of unrecovered
costs was $10,485,386.
At October 31, 1994, Class A had $37 and Class B had $265,299 payable
to the Distributor pursuant to the above distribution plans.
_____________________________
NOTE E - CAPITAL AND RELATED TRANSACTIONS
A summary of the capital stock transactions follows:
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------------------------------
1994(1) 1993
--------------------------- ---------------------------
Shares Dollars Shares Dollars
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold--Class A..................................... 25,409 $ 223,359 - -
Shares sold--Class B..................................... 4,611,686 43,702,215 10,924,803 $108,497,899
Shares issued in reinvestment of distributions--Class A.. 69 606 - -
Shares issued in reinvestment of distributions--Class B.. 1,061,434 9,872,309 993,283 9,861,880
Shares redeemed--Class A................................. - - - -
Shares redeemed--Class B................................. (7,326,339) (68,336,871) (5,650,502) (56,250,030)
---------- ------------ ---------- ------------
Net increase (decrease) in capital shares outstanding.... (1,627,741) $(14,538,382) 6,267,584 $ 62,109,749
========== ============ ========== ============
</TABLE>
(1) Class A share transactions are for the period September 30, 1994 to
October 31, 1994.
The components of net assets at October 31, 1994, are as follows:
<TABLE>
<S> <C>
Capital paid-in (350,000,000 shares authorized).......................................................... $271,079,720
Accumulated net realized loss on investments, futures contracts and forward currency contracts........... (12,722,431)
Net unrealized depreciation of investments and futures contracts......................................... (17,072,859)
------------
NET ASSETS............................................................................................... $241,284,430
============
</TABLE>
11
<PAGE> 201
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
John Hancock Government Income Fund,
a series of Transamerica Series, Inc.
We have audited the accompanying statement of net assets of John
Hancock Government Income Fund (formerly Transamerica Government Income Fund),
a series of John Hancock Series, Inc. (formerly Transamerica Special Series,
Inc.), as of October 31, 1994, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of John Hancock Government Income Fund, a series of John Hancock
Series, Inc., at October 31, 1994, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Houston, Texas
December 2, 1994
12
<PAGE> 202
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON APRIL 30, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF THAT
DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995 (Unaudited)
------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
U.S. government and agencies securities
(cost - $193,972,895)............................... $193,669,454
Foreign government bonds (cost - $28,574,874) 24,964,493
Multi-family mortgage backed bonds
(cost - $9,896,545)................................. 9,320,670
Joint repurchase agreement ($230,000)................. 230,000
Corporate savings account............................. 452
------------
228,185,069
Receivable for shares sold.............................. 248,044
Receivable for investments sold......................... 1,041
Interest receivable..................................... 5,684,300
Other assets............................................ 105,050
------------
Total Assets......................... 234,223,504
----------------------------------------------------
LIABILITIES:
Dividend payable........................................ 582,590
Payable for shares repurchased.......................... 410,172
Payable to John Hancock Advisers, Inc. and
affiliates - Note B................................... 118,032
Accounts payable and accrued expenses................... 119,217
------------
Total Liabilities.................... 1,230,011
----------------------------------------------------
NET ASSETS:
Capital paid-in......................................... 257,949,685
Accumulated net realized loss on investments and
financial futures contracts........................... (19,956,438)
Net unrealized depreciation of investments and
financial futures contracts........................... (4,429,384)
Distributions in excess of net investment income ....... (570,370)
------------
Net Assets........................... $232,993,493
====================================================
NET ASSET VALUE PER SHARE:
(Based on net assets and shares of beneficial
interest outstanding - 350,000,000 shares authorized
with $0.01 per share par value, respectively)
Class A - $528,362/59,048............................... $ 8.95
=======================================================================
Class B - $232,465,131/25,974,481....................... $ 8.95
=======================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($8.95 x 105.03%)............................. $ 9.40
=======================================================================
</TABLE>
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
STATEMENT OF OPERATIONS
Six months ended April 30, 1995 (Unaudited)
--------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $11,109,546
-----------
Expenses:
Distribution/service fee - Note B
Class A................................................ 331
Class B................................................ 1,151,100
Investment management fee - Note B...................... 744,785
Transfer agent fee...................................... 178,409
Interest expense........................................ 54,175
Custodian fee........................................... 39,618
Auditing fee............................................ 36,974
Registration and filing fees............................ 30,188
Miscellaneous........................................... 13,687
Trustees' fees.......................................... 13,643
Printing................................................ 9,246
Advisory board fee...................................... 8,694
Legal fees.............................................. 8,265
-----------
Total Expenses......................... 2,289,115
------------------------------------------------------
Net Investment Income.................. 8,820,431
------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FINANCIAL FUTURES CONTRACTS:
Net realized loss on investments sold..................... (7,392,486)
Net realized loss on financial futures contracts (257,031)
Change in net unrealized appreciation/depreciation
of investments.......................................... 12,996,287
Change in net unrealized appreciation/depreciation
of financial futures contracts.......................... (352,813)
-----------
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts............ 4,993,957
------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations.............. $13,814,388
======================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 203
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1995 OCTOBER 31,
(UNAUDITED) 1994
---------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income .................................................... $ 8,820,431 $ 18,739,100
Net realized loss on investments sold and financial futures contracts .... (7,649,517) (12,072,264)
Change in net unrealized appreciation/depreciation of investments ........ 12,643,474 (24,904,672)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations ........ 13,814,388 (18,237,836)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.3600 and $0.0600 per share, respectively) ................ (10,739) (1,228)
Class B - ($0.3270 and $0.6500 per share, respectively) ................ (8,652,273) (18,621,004)
Distributions from net realized gain on investments sold
and financial futures contracts
Class B - (none and $0.0200 per share, respectively) ................... -- (730,403)
------------ ------------
Total Distributions to Shareholders .................................... (8,663,012) (19,352,635)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET* ...................................... (13,442,313) (14,538,382)
------------ ------------
NET ASSETS:
Beginning of period ...................................................... 241,284,430 293,413,283
------------ ------------
End of period (including distibutions in excess of net investment income
of $570,370 and $727,789, respectively) ................................ $232,993,493 $241,284,430
============ ============
</TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1995 OCTOBER 31,
(UNAUDITED) 1994
----------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS A** --------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold ..................................... 43,782 $ 388,329 25,409 $ 223,359
Shares issued to shareholders in reinvestment
of distributions ............................. 311 2,736 69 606
---------- ------------ ---------- ------------
44,093 391,065 25,478 223,965
Less shares repurchased ........................ (10,523) (91,772) -- --
---------- ------------ ---------- ------------
Net increase ................................... 33,570 $ 299,293 25,478 $ 223,965
========== ============ ========== ============
CLASS B
Shares sold .................................... 1,476,867 $ 12,978,783 4,611,686 $ 43,702,215
Shares issued to shareholders in reinvestment
of distributions ............................. 514,520 4,527,495 1,061,434 9,872,309
---------- ------------ ---------- ------------
1,991,387 17,506,278 5,673,120 53,574,524
Less shares repurchased ........................ (3,564,583) (31,247,884) (7,326,339) (68,336,871)
---------- ------------ ---------- ------------
Net decrease ................................... (1,573,196) ($13,741,606) (1,653,219) ($14,762,347)
========== ============ ========== ============
</TABLE>
** Class A shares commenced operations on September 30, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 204
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
--------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
SEPTEMBER 30, 1994
SIX MONTHS ENDED (COMMENCEMENT OF
APRIL 30, 1995 OPERATIONS) TO
(UNAUDITED)(a) OCTOBER 31, 1994
---------------- ------------------
<S> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ........................... $8.75 $8.85
------ ------
Net Investment Income .......................................... 0.33(b) 0.06
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts .................. 0.23 (0.10)
------ ------
Total from Investment Operations ............................. 0.56 (0.04)
Less Distributions:
Dividends from Net Investment Income ........................... (0.36) (0.06)
------ ------
Net Asset Value, End of Period ................................. $8.95 $8.75
====== ======
Total Investment Return at Net Asset Value ..................... 6.54% (0.45%)
Total Adjusted Investment Return at Net Asset Value ............ 6.52% (0.46%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ...................... $528 $223
Ratio of Adjusted Expenses to Average Net Assets (c) ........... 1.19%* 0.12%
Ratio of Adjusted Net Investment Income to Average Net Assets... 8.45%* 0.71%
Portfolio Turnover Rate ........................................ 49% 92%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIODS INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DISTRIBUTIONS, AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW
THE FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 205
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1995 -----------------------------------------------------
(UNAUDITED)(a) 1994 1993 1992 1991 1990
-------------- --------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period .................. $ 8.75 $ 10.05 $ 9.83 $ 9.79 $ 9.37 $ 9.98
-------- -------- ------- -------- -------- -------
Net Investment Income ................................. 0.33(b) 0.65 0.70 0.80 0.89 0.88
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts ......... 0.20 (1.28) 0.24 0.03 0.40 (0.54)
-------- -------- ------- -------- -------- -------
Total from Investment Operations .................... 0.53 (0.63) 0.94 0.83 1.29 0.34
-------- -------- ------- -------- -------- -------
Less Distributions:
Dividends from Net Investment Income .................. (0.33) (0.65) (0.72) (0.79) (0.87) (0.95)
Distributions from Net Realized Gains on Investments
Sold and Financial Futures Contracts ................ -- (0.02) -- -- -- --
-------- -------- -------- -------- -------- -------
Total Distributions ................................. (0.33) (0.67) (0.72) (0.79) (0.87) (0.95)
-------- -------- -------- -------- -------- -------
Net Asset Value, End of Period ........................ $ 8.95 $ 8.75 $ 10.05 $ 9.83 $ 9.79 $ 9.37
======== ======== ======== ======== ======== =======
Total Investment Return at Net Asset Value ............ 6.15% (6.42%) 9.86% 8.81% 14.38% 3.71%
Total Adjusted Investment Return at Net Asset Value ... 6.13% (6.43%) 9.85% 8.66% -- --
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ............. $232,465 $241,061 $293,413 $225,540 $129,014 $64,707
Ratio of Expenses to Average Net Assets (c) ........... 1.94%* 1.93% 2.00% 2.00% 2.00% 2.00%(d)
Ratio of Net Investment Income to Average Net Assets .. 7.70%* 6.98% 7.06% 8.03% 9.09% 9.22%(d)
Portfolio Turnover Rate ............................... 49% 92% 138% 112% 162% 83%
</TABLE>
* On an annualized basis.
(a) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(b) On average month end shares outstanding.
(c) Excluding interest expense, which equalled 0.02% for the six months ended
April 30, 1995, and 0.01%, 0.01% and 0.15% for the years ended October 31,
1994, 1993 and 1992, respectively.
(d) Reflects expense limitation in effect during the year ended October 31, 1990
(see Note B). As a result of such limitation, expenses of Class B shares for
the year ended October 31, 1990 reflect a reduction of $0.02 per share.
Absent of such reduction, the ratio of expenses to average net assets would
have been 2.04% and the ratio of net investment income to average net assets
would have been 9.18%.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 206
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
<TABLE>
SCHEDULE OF INVESTMENTS
April 30, 1995 (Unaudited)
-----------------------------------------------------------------------------------------------------------------------------
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
GOVERNMENT INCOME FUND ON APRIL 30, 1995. IT'S DIVIDED INTO FOUR MAIN
CATEGORIES:U.S. GOVERNMENT AND AGENCIES SECURITIES, FOREIGN GOVERNMENT BONDS,
MULTI-FAMILY MORTGAGE BACKED BONDS AND SHORT-TERM INVESTMENTS. SHORT-TERM
INVESTMENTS, WHICH REPRESENT THE FUND'S "CASH" POSITION, ARE LISTED LAST.
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
GOVERNMENTAL - U.S. (42.21%)
Financing Corp.,
Bond................................................................ 9.400% 02-08-18 $ 4,000 $ 4,671,880
Bond................................................................ 9.650 11-02-18 1,600 1,920,000
Tennessee Valley Authority,
Pwr Bond 1993 Ser D................................................. 7.250 07-15-43 8,000 7,170,080
Pwr Bond 1994 Ser A................................................. 7.850 06-15-44 5,000 4,785,200
United States Treasury,
Bond................................................................ 12.625 05-15-95 8,150 8,167,849
Bond................................................................ 11.500 11-15-95* 17,770 18,236,487
Bond................................................................ 15.750 11-15-01 16,865 24,601,819
Bond **............................................................. 11.625 11-15-04* 22,000 28,792,500
-----------
98,345,815
-----------
GOVERNMENTAL - U.S. AGENCIES (40.91%)
Federal Home Loan Mortgage Corp.,
30 Yr SF Pass Thru Ctf.............................................. 7.750 11-01-08 33 33,021
30 Yr SF Pass Thru Ctf.............................................. 8.000 04-01-07 67 67,097
CMO REMIC 1094-K.................................................... 7.000 06-15-21 2,300 2,149,051
CMO REMIC 1218-G.................................................... 4.500 05-15-14 2,000 1,732,500
CMO REMIC 1408-H.................................................... 6.500 10-15-19 4,754 4,382,939
CMO REMIC 1611-F.................................................... 5.750 05-15-21 17,006 15,342,424
Federal Judiciary Office Building,
Zero Coupon Bond.................................................... 0.000 02-15-01 250 164,500
Federal National Mortgage Association,
30 Yr SF Pass Thru Ctf.............................................. 8.500 08-01-24 to 22,642 23,005,387
10-01-24
GTD REMIC Pass Thru Ctf 1990-51- H.................................. 7.500 05-25-20 200 193,312
GTD REMIC Pass Thru Ctf 1990-58- J.................................. 7.000 05-25-20 3,700 3,435,191
GTD REMIC Pass Thru Ctf 1990-94- D.................................. 6.500 08-25-20 1,660 1,514,750
GTD REMIC Pass Thru Ctf 1991-56- M.................................. 6.750 06-25-21 4,000 3,645,000
GTD REMIC Pass Thru Ctf 1992-210-H.................................. 6.500 03-25-19* 10,000 9,196,800
GTD REMIC Pass Thru Ctf 1994-72-K................................... 6.000 04-25-24 6,389 5,082,928
STRIP MBS Ser 249 Class 2........................................... 6.500 10-25-23 1,892 672,907
Indexed Sinking Fund................................................ 9.950 05-10-99* 131 131,363
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 207
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
GOVERNMENTAL - U.S. AGENCIES (CONTINUED)
Government National Mortgage Association,
30 Yr SF Pass Thru Ctf.............................................. 8.000% 05-15-24 to *$24,570 $ 24,574,469
08-15-24 ------------
95,323,639
------------
TOTAL U.S. GOVERNMENT AND AGENCIES SECURITIES
(Cost $193,972,895) (83.12%) 193,669,454
------- ------------
FOREIGN GOVERNMENT BONDS
U.S. DOLLAR DENOMINATED FOREIGN GOVERNMENT BONDS (10.71%)
Brazil, Republic of,
Notes IDU Ser A-L................................................... 7.813# 01-01-01 2,940 2,227,050
British Columbia Hydro and Power Auth.
Bond Ser FG......................................................... 15.000 04-15-11 3,900 4,382,040
Bond Ser FJ......................................................... 15.500 11-15-11 1,700 2,005,014
Hydro-Quebec Corp.,
Deb Ser GH.......................................................... 8.250 04-15-26 1,000 975,210
Deb Ser GQ.......................................................... 8.250 01-15-27 1,000 977,040
Deb Ser GF.......................................................... 8.875 03-01-26 2,000 2,090,620
Deb Ser HK.......................................................... 9.375 04-15-30 2,000 2,197,480
Deb Ser FU.......................................................... 11.750 02-01-12 270 355,355
International Bank for Reconstruction and Development,
Forty Year Bond Ser 1986............................................ 8.875 03-01-26* 2,000 2,231,980
Ontario, Province of,
30 Year Deb......................................................... 15.125 05-01-11 1,345 1,521,854
30 Year Deb......................................................... 17.000 11-05-11 5,000 6,000,850
------------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $28,574,874 ) (10.71%) 24,964,493
------- ------------
MULTI-FAMILY MORTGAGE BACKED BONDS (4.00%)
DLJ Mortgage Acceptance Corp.,
CMO REMIC 1993-M10-A2............................................... 7.200 07-15-03 4,795 4,609,654
CMO REMIC 1993-MF7-A1............................................... 7.400 06-18-03 4,872 4,711,016
------------
TOTAL MULTI-FAMILY MORTGAGE BACKED BONDS
(Cost $9,896,545) (4.00%) 9,320,670
------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 208
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (0.10%)
Investment in a joint repurchase agreement transaction
with BT Securities Corp., Dated 04-28-95, Due 05-01-95
(secured by U. S. Treasury Bond 10.75% Due 08-15-05 and
by U.S. Treasury Note 6.875% Due 10-31-96) Note A................... 5.93% 05-01-95 $ 230 $ 230,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings
Account Current Rate 3.00%.......................................... 452
------------
TOTAL SHORT-TERM INVESTMENTS (0.10%) 230,452
------ ------------
TOTAL INVESTMENTS (97.93%) $228,185,069
====== ============
</TABLE>
* Securities, other than short-term investments, newly added to the portfolio
during the period ended April 30, 1995.
** U.S. Treasury Bonds with a value of $11,947,579 owned by the Fund were
designated as margin deposits for futures contracts at April 30, 1995.
# Represents rate in effect on April 30, 1995.
The percentage shown for each investment category is the total value of that
catgegory as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 209
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Trust") is a diversified, open-end management
investment company, registered under the Investment Company Act of 1940, as
amended. The Trust consists of six series portfolios: John Hancock Government
Income Fund (the "Fund"), John Hancock Emerging Growth Fund, John Hancock High
Yield Tax Free Fund, John Hancock High Yield Bond Fund, John Hancock Money
Market Fund B and John Hancock Global Resources Fund. The Trustees may authorize
the creation of additional Funds from time to time to satisfy various investment
objectives. Effective December 22, 1994 (see Note B), the Trust and Funds
changed names by replacing the word Transamerica with John Hancock.
The Trustees have authorized the issuance of two classes of shares of
the Fund, designated as Class A and Class B. The shares of each class represent
an interest in the same portfolio of investments of the Fund and have equal
rights to voting, redemption, dividends, and liquidation, except that certain
expenses, subject to the approval of the Trustees, may be applied differently
to each class of shares in accordance with current regulations of the
Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution/service expenses under the
terms of a distribution plan have exclusive voting rights regarding such
distribution plan. Class A Shares are subject to an initial sales charge of up
to 4.50% and a 12b-1 distribution plan. Prior to May 15, 1995, the maximum
sales charge was 4.75%. Class B Shares are subject to a contingent deferred
sales charge and a separate 12b-1 distribution plan. On September 30, 1994,
Class A shares were sold to commence class activity. Significant accounting
policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
REVERSE REPURCHASE AGREEMENT Prior to December 22, 1994, the Fund entered into
reverse repurchase agreements which involve the sale of securities held by the
Fund to a bank or securities firm with an agreement that the Fund will buy back
the securities at a fixed future date at a fixed price plus an agreed amount of
"interest" which may be reflected in the repurchase price. Reverse repurchase
agreements are considered to be borrowings by the Fund and the Fund used the
proceeds obtained from the sale of securities to purchase other investments. On
December 22, 1994, the Fund discontinued investing in reverse repurchase
agreements.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked-to-market to reflect the current market
value of the written option.
The Fund may use option contracts to manage its exposure to the
financial markets. Writing puts and buying calls will tend to increase the
Fund's exposure to the underlying instrument and buying puts
14
<PAGE> 210
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
and writing calls will tend to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited
to the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the
contracts' terms, or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To
minimize credit and liquidity risks in over-the-counter option contracts, the
Fund will continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or
credit risk may involve amounts in excess of those reflected in the Fund's
period-end Statement of Assets and Liabilities.
There were no written option transactions for the period ended April
30, 1995.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it
will be required to deposit with its custodian a specified amount of cash or
U.S. government securities, known as "initial margin", equal to a certain
percentage of the value of the financial futures contract being traded. Each
day, the futures contract will be valued at the official settlement price of the
board of trade or U.S. commodities exchange. Subsequent payments, known as
"variation margin", to and from the broker will be made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund will recognize a gain or loss.
Risks of entering into futures contracts include the possibility that there may
be an illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuations imposed by an exchange.
For Federal income tax purposes, the amount, character and timing of
the Fund's gains and/or losses can be affected as a result of futures contracts.
At April 30, 1995, open positions in financial futures contracts were
as follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION APPRECIATION
---------- -------------- -------- -------------
<S> <C> <C> <C>
JUNE 95 90 Treasury Bond(1) LONG $60,313
=======
</TABLE>
(1) Each contract represents $100,000 in par value.
At April 30, 1995, the Fund has deposited in a segregated account
$9,129,000 par value of U.S. Treasury Bond, 11.625% due 11-15-04 to cover margin
requirements on open financial futures contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. These
contracts involve market or credit risk in excess of the unrealized gain or loss
reflected
15
<PAGE> 211
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
in the Fund's Statement of Assets and Liabilities. The Fund may also purchase
and sell forward contracts to facilitate the settlement of foreign currency
denominated portfolio transactions, under which it intends to take delivery of
the foreign currency. Such contracts normally involve no market risk other than
that offset by the currency amount of the underlying transaction.
At April 30, 1995, there were no open forward foreign currency exchange
contracts.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S.dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/loss on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from
sales of foreign currency, currency gains or losses realized between the trade
and settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in
the value of assets and liabilities other than investments in securities at
fiscal year end, resulting from changes in the exchange rate.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis for both financial
reporting and federal income tax purposes.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. The Fund's tax year end is December 31.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis. Foreign income may be subject to foreign
withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund, if any,
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for effect of expenses that
may be applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Fund.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
RECLASSIFICATION Certain reclassifications have been made to 1994 amounts to
permit comparisons to 1995 presentations.
16
<PAGE> 212
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
NOTE B --
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES AND TRANSACTIONS WITH AFFILIATES
AND OTHERS
On December 22, 1994, John Hancock Advisers, Inc. ("the Adviser"), a wholly
owned subsidiary of The Berkeley Financial Group, became the investment adviser
for the Fund with approval of the Trustees and shareholders of the Fund. The
Fund's former investment manager was Transamerica Fund Management Company
("TFMC").
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment program
equivalent, to 0.650% of the first $200,000,000 of the Fund's average daily net
asset value, 0.625% of the next $300,000,000 and 0.600% of the Fund's average
daily net asset value in excess of $500,000,000. This fee structure is
consistent with the former agreement with TFMC. For the period ended April 30,
1995, the advisory fee earned by the Adviser and TFMC amounted to $488,064 and
$256,721, respectively, resulting in a total fee of $744,785.
The Adviser and TFMC, for their respective periods, provided
administrative services to the Fund pursuant to an administrative service
agreement through January 16, 1995 on which day the agreement was terminated.
In the event normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of the most restrictive
state limit where the Fund is registered to sell shares of beneficial interest,
the fee payable to the Adviser will be reduced to the extent of such excess and
the Adviser will make additional arrangements necessary to eliminate any
remaining excess expenses. The current limits are 2.5% of the first $30,000,000
of the Fund's average daily net asset value, 2.0% of the next $70,000,000 and
1.5% of the remaining average daily net asset value.
On December 22, 1994 John Hancock Funds, Inc. ("JH Funds"), a
wholly-owned subsidiary of the Adviser, became the principal underwriter of the
Fund. Prior to this date, Transamerica Fund Distributors, Inc. ("TFD") served
as the principal underwriter and distributor of the Fund. For the period ended
April 30, 1995, JH Funds and TFD received net sales charges of $10,458 with
regard to sales of Class A shares. Out of this amount, $1,121 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, and $9,337 was paid as sales commissions to unrelated broker-dealers.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds, formerly TFD, and are used in whole or in
part to defray its expenses related to providing distribution related services
to the Fund in connection with the sale of Class B shares. For the period ended
April 30, 1995, contingent deferred sales charges amounted to $654,605.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments for
distribution and service expenses which in total will not exceed on an annual
basis 0.25% of the Fund's average daily net assets attributable to Class A
shares and 1.00% of the Fund's average daily net assets attributable to Class B
shares, to reimburse for its distribution/service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. This fee structure and plan is
similar to the former arrangement with TFD.
The Board of Trustees approved a shareholder servicing agreement
between the Fund and John Hancock Investor Services Corporation ("Investor
Services"), a wholly owned subsidiary of The Berkeley Financial Group, for the
period between December 22, 1994 and May 12, 1995, inclusive under which
Investor Services processed telephone transactions on behalf of the Fund. As of
May 15, 1995, the Fund entered into a full service transfer agent agreement
with Investor Services. Prior to this date The Shareholder Services Group
17
<PAGE> 213
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
was the transfer agent. The Fund will pay Investor Services a fee based on
transaction volume and number of shareholder accounts.
A partner with Baker & Botts was an officer of the Trust until
December 22, 1994. During the period ended April 30, 1995, legal fees paid to
Baker & Botts amounted to $2,864.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser
and its affiliates as well as Trustee of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Trustees may elect to defer their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund will make investments into other John Hancock funds, as applicable, to
cover its liability with regard to the deferred compensation. Investments to
cover the Fund's deferred compensation liability will be recorded on the Fund's
books as other assets. The deferred compensation liability will be marked to
market on a periodic basis and income earned by the investment will be recorded
on the Fund's books.
The Fund has an independent advisory board composed of certain
members of the former Transamerica Board of Trustees who provide advice to the
current Trustees in order to facilitate a smooth management transition for
which the Fund pays the advisory board and its counsel a fee.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended April 30, 1995 aggregated $142,813,070 and
$158,520,564, respectively.
The cost of investments owned at April 30, 1995 (including the joint
repurchase agreement) for Federal income tax purposes was $232,674,314. Gross
unrealized appreciation and depreciation of investments aggregated $3,856,408,
and $8,346,105, respectively, resulting in net unrealized depreciation of
$4,489,697.
18
<PAGE> 214
Transamerica High Yield Bond Fund
(effective December 22, 1994, John Hancock High Yield Bond Fund)
STATEMENT OF NET ASSETS
October 31, 1994
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
NON-CONVERTIBLE
CORPORATE DEBT - 77.80%
CHEMICALS - 0.89%
N.L. Industries Inc.
11.750% due 10/15/03................ $1,500,000 $ 1,530,000
COMMUNICATIONS & CABLE - 7.27%
Cablevision Industries Corp.
9.250% due 04/01/08................ 3,000,000 2,670,000
10.750% due 01/30/02................ 2,000,000 1,997,500
Cablevision Systems Corp.
9.875% due 02/15/13................ 2,000,000 1,865,000
Century Communications Corp.
Zero coupon due 03/15/03............ 4,000,000 1,655,000
11.875% due 10/15/03................ 700,000 738,500
Continental Cablevision Inc.
9.500% due 08/01/13................ 4,000,000 3,610,000
-----------
12,536,000
CONSUMER CYCLICALS - 2.20%
Continental Homes Holding Corp.
12.000% due 08/01/99................ 2,000,000 2,030,000
Miles Homes Services Inc.(A)
12.000% due 04/01/01................ 2,000,000 1,768,000
-----------
3,798,000
CONSUMER GOODS & SERVICES - 5.38%
All American Bottling Corp.
13.000% due 08/15/01................ 1,840,000 1,846,900
Apparel Ventures, Inc.(B)
12.250% due 12/31/00................ 1,500,000 1,425,000
Arcadian Partners L.P.
10.750% due 05/01/05................ 1,500,000 1,468,125
Chattem Inc.(C)
12.750% due 06/15/04................ 1,500,000 1,447,500
Fresh Del Monte Produce N.V.
10.000% due 05/01/03................ 2,000,000 1,680,000
J.B. Williams Holdings Inc.
12.500% due 03/01/04................ 1,000,000 960,000
Paul Harris Stores, Inc.
11.375% due 01/31/00................ 452,300 450,039
-----------
9,277,564
ENERGY - 15.09%
Dual Drilling Co.
9.875% due 01/15/04................ 3,750,000 3,525,000
Falcon Drilling Co., Inc.
9.750% due 01/15/01................ 2,500,000 2,440,625
Global Marine Inc.
12.750% due 12/15/99................ 2,100,000 2,281,125
HS Resources, Inc.
9.875% due 12/01/03................ 2,581,000 2,426,140
Maxus Energy Corp.
11.080% due 05/15/01................ 2,000,000 2,000,000
11.500% due 11/15/15................ 2,000,000 1,997,500
Nuevo Energy Co.
12.500% due 06/15/02................ 4,000,000 4,245,000
OPI International Inc.
12.875% due 07/15/02................ 4,700,000 5,334,500
Wilrig AS
11.250% due 03/15/04................ 2,000,000 1,765,000
-----------
26,014,890
FINANCIAL SERVICES - 2.81%
American Financial Corp.
12.250% due 09/15/03................ 2,250,000 2,317,500
Indah Kiat International Finance Co.
12.500% due 06/15/06................ 2,500,000 2,521,875
-----------
4,839,375
GAMING & LODGING - 6.57%
Boomtown Inc.
11.500% due 11/01/03................ 2,600,000 2,210,000
Casino Magic Finance Corp.
11.500% due 10/15/01................ 4,000,000 2,760,000
HWCC-Tunica, Inc.
13.500% due 09/30/98................ 2,000,000 1,600,000
</TABLE>
4
<PAGE> 215
Transamerica High Yield Bond Fund
(effective December 22, 1994, John Hancock High Yield Bond Fund)
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
Sahara Finance Corp.
12.125% due 08/31/96 . . . . . . . . 3,471,204 3,297,644
Trump Plaza Funding Inc.
10.875% due 06/15/01 . . . . . . . . 2,000,000 1,455,000
----------
11,322,644
HEALTH CARE - 6.19%
Abbey Healthcare Group, Inc.
9.500% due 11/01/02 . . . . . . . . 2,200,000 2,013,000
Amerisource Distribution Corp.(D)
11.250% due 07/15/05 . . . . . . . . 2,112,500 2,051,766
General Medical Corp.(D)
12.125% due 08/15/05 . . . . . . . . 2,742,000 2,718,854
Healthtrust, Inc. - The Hospital Co.
8.750% due 03/15/05 . . . . . . . . . 4,000,000 3,895,000
----------
10,678,620
INDUSTRIALS - 6.54%
Grupo Industrial Durango S.A. de C.V.
12.000% due 07/15/01 . . . . . . . . 2,500,000 2,543,750
Rainy River Forest Products, Inc.
10.750% due 10/15/01 . . . . . . . . 500,000 499,375
Rexene Corp.
9.000% due 11/15/99 . . . . . . . . 1,780,000 1,775,550
10.000% due 11/15/02(D) . . . . . . . 6,500,000 6,467,500
----------
11,286,175
MEDIA & LEISURE - 0.58%
Garden State Newspaper, Inc.
12.000% due 07/01/04 . . . . . . . . 1,000,000 992,500
METALS & MINING - 6.88%
Geneva Steel Co.
9.500% due 01/15/04 . . . . . . . . 1,000,000 890,000
Renco Metals Inc.
12.000% due 07/15/00 . . . . . . . . 2,000,000 1,875,000
Sheffield Steel Corp.
12.000% due 11/01/01 . . . . . . . . 5,125,000 4,996,875
Weirton Steel Corp.
10.875% due 10/15/99 . . . . . . . . 2,500,000 2,543,750
11.500% due 03/01/98 . . . . . . . . 1,500,000 1,554,375
----------
11,860,000
PAPER & PACKAGING - 3.47%
Container Corp. of America
11.250% due 05/01/04 . . . . . . . . 2,000,000 2,075,000
15.500% due 12/01/04(E) . . . . . . . 1,500,000 1,951,729
Crown Packaging Holdings Ltd.
10.750% due 11/01/00 . . . . . . . . 1,000,000 1,015,000
Stone Container Corp.
10.750% due 04/01/02 . . . . . . . . 1,000,000 945,000
----------
5,986,729
RETAIL-FOOD & DRUG - 9.21%
American Restaurant Group Inc.
12.000% due 09/15/98 . . . . . . . . 1,750,000 1,671,250
Farm Fresh Holdings Corp.(D)
14.250% due 10/01/02 . . . . . . . . 6,161,702 4,240,021
Farm Fresh Inc.
12.250% due 10/01/00 . . . . . . . . 1,000,000 865,000
Flagstar Corp.
10.750% due 09/15/01 . . . . . . . . 2,000,000 1,890,000
Food 4 Less Supermarkets Inc.
10.450% due 04/15/00 . . . . . . . . 2,000,000 1,970,000
13.750% due 06/15/01 . . . . . . . . 2,400,000 2,622,000
Victory Markets Inc.
12.500% due 03/15/00 . . . . . . . . 500,000 372,500
White Rose Foods Inc.
Zero coupon due 11/01/98 . . . . . . 4,000,000 2,255,000
----------
15,885,771
TECHNOLOGY-RELATED - 0.82%
Genicom Corp.
12.500% due 02/15/97 . . . . . . . . 1,500,000 1,410,000
TRANSPORTATION - 0.68%
CHC Helicopter Corp.
11.500% due 07/15/02 . . . . . . . . 1,250,000 1,181,250
</TABLE>
5
<PAGE> 216
Transamerica High Yield Bond Fund
(effective December 22, 1994, John Hancock High Yield Bond Fund)
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION
EQUIPMENT - 3.22%
International Controls Corp.
12.750% due 08/01/01 ................. 2,435,000 2,435,000
14.500% due 01/01/06 ................. 3,132,000 3,116,340
-----------
5,551,340
-----------
TOTAL NON-CONVERTIBLE
CORPORATE DEBT
(Cost $138,195,215) .................. 134,150,858
DEFERRED INTEREST RATE
SETTING BONDS - 6.98%
COMMUNICATIONS &
CABLE - 0.52%
Nextel Communications, Inc.
Zero coupon to 02/15/99,
9.750% due 08/15/04 ................ 2,000,000 900,000
ENERGY - 1.98%
Mesa Capital Corp.
Zero coupon to 06/30/95,
12.750% due 06/30/98 ................ 4,000,000 3,420,000
INDUSTRIAL - 1.35%
Indspec Chemical Corp.
Zero coupon to 12/01/98,
11.500% due 12/01/03 ................. 4,000,000 2,330,000
MEDIA & LEISURE - 0.90%
Affiliated Newspaper
Investments Inc.(F)
Zero coupon to 07/01/99,
13.250% due 07/01/06 ................. 3,000,000 1,552,500
PAPER & PACKAGING - 1.25%
Crown Packaging
Holdings Ltd.
Zero coupon to 11/01/00,
12.250% due 11/01/03 ................. 4,250,000 2,156,875
UTILITIES - 0.98%
Celcaribe S.A.(G)
Zero coupon to 03/15/98,
13.500% due 03/15/04 ................. 2,000,000 1,679,988
-----------
TOTAL DEFERRED INTEREST
RATE SETTING BONDS
(Cost $12,932,727) ................... 12,039,363
U.S. DOLLAR DENOMINATED
FOREIGN BONDS - 3.20%
FOREIGN GOVERNMENT
BONDS - 2.04%
Brazil (Republic of)
Notes IDU Series A-L(H)
6.063% due 01/01/01 ................. 1,960,000 1,604,750
Repackaged Argentina
Domestic Securities Trust I
14.750% due 09/01/02 ................. 2,000,000 1,920,000
-----------
3,524,750
FOREIGN CORPORATE
BONDS - 1.16%
NTN Capital Co., Ltd.
Series A(I)(J)
12.360% due 04/05/95 ................. 2,000,000 2,000,000
-----------
TOTAL U.S. DOLLAR DENOMINATED
FOREIGN BONDS
(Cost $5,628,710) .................... 5,524,750
-----------
TOTAL LONG-TERM
OBLIGATIONS - 87.98%
(Cost $156,756,652) .................. 151,714,971
COMMON STOCKS - 1.22% SHARES
-------
RETAIL-FOOD & DRUG - 0.02%
Farm Fresh Holdings Corp.* ........... 1,000 40,000
TRANSPORTATION - 1.20%
America West Airlines, Inc.
Class B* ........................... 170,793 2,070,865
-----------
TOTAL COMMON STOCKS
(Cost $2,398,100) .................... 2,110,865
</TABLE>
6
<PAGE> 217
Transamerica High Yield Bond Fund
(effective December 22, 1994, John Hancock High Yield Bond Fund)
<TABLE>
STATEMENT OF NET ASSETS
Continued
<CAPTION>
ISSUER/COMPANY SHARE VALUE
----------------------------------------------------------------
<S> <C> <C>
FOREIGN DENOMINATED
PREFERRED STOCK - 5.48%
FINANCIAL SERVICES - 5.48%
Algoma Finance Corp.(K)
(Cost $9,191,465).................... 590,643 9,441,034
STOCK WARRANTS - 0.18% WARRANTS
--------
CONSUMER GOODS & SERVICES - 0.01%
Browne Bottling Co.*(L) ............ 237 12,324
GAMING & LODGING - 0.01%
Boomtown Inc.*(M) .................. 1,500 7,500
Casino Magic Finance Corp.*(N)...... 9,000 9,000
---------
16,500
METALS & MINING - 0.04%
Sheffield Steel Corp.*(O) .......... 22,500 67,500
PAPER & PACKAGING - 0.09%
Crown Packaging Holdings Ltd.*(P)... 2,750 151,250
TRANSPORTATION - 0.03%
CHC Helicopter Corp.*(Q)............ 16,000 64,000
---------
TOTAL STOCK WARRANTS
(Cost $37,500) ...................... 311,574
SHORT-TERM OBLIGATIONS - 2.72%
COMMERCIAL PAPER - 2.72%
CONSUMER GOODS & SERVICES - 2.72%
Archer-Daniels-Midland Co.
4.850% due 11/01/94
(Cost $4,685,000) ................... 4,685,000 4,685,000
-----------
TOTAL INVESTMENTS - 97.58%
(Cost $173,068,717) ................. 168,263,444
CASH AND OTHER ASSETS,
LESS LIABILITIES - 2.42% ............ 4,171,172
-----------
NET ASSETS, at value,
equivalent to $7.33 per
share for 1,594,818 Class A
Shares ($.01 par value)
of capital stock outstanding
and $7.33 per share for
21,913,963 Class B
Shares ($.01 par value)
of capital stock
outstanding - 100.00% ............ 172,434,616
===========
<FN>
(A) Each $1,000 face amount of Miles Homes Services Inc. equals one unit, which
consists of a bond and 12 warrants.
(B) Each $1,000 face amount of Apparel Ventures, Inc. equals one unit, which
consists of a bond and one warrant.
(C) Each $1,000 face amount of Chattem Inc. equals one unit, which consists of
a bond and one warrant.
(D) Payment-in-kind security. Coupon may be paid in cash or additional
securities at discretion of the Issuer.
(E) Deferred interest security.
(F) Each $1,000 face amount of Affiliated Newspaper Investments Inc. equals
one unit, which consists of a bond and one Affiliated Newspaper Investments
Inc. common stock.
(G) Each $10,000 face amount of Celcaribe S.A. equals one unit, which consists
of a bond and 1,626 shares of common stock.
(H) Floating rate security.
(I) Brazilian Indexed Dollar Securities.
(J) Long-term obligations that will mature in less than one year.
(K) Market value is in U.S. dollars.
(L) Each warrant entitles the holder to purchase one common share at an
exercise price of $.01 and will expire on August 15, 2003.
(M) Each warrant entitles the holder to purchase one common share at an
exercise price of $21.1875 and will expire on November 1, 1998.
(N) Each warrant entitles the holder to purchase one common share at an
exercise price of $25 and will expire on October 14, 1996.
(O) Each warrant entitles the holder to purchase one common share at an
exercise price of $.01 and will expire on November 1, 2001.
(P) Each warrant entitles the holder to purchase 0.257366 Class A common
share at an exercise price prepaid by the company and will expire on
October 15, 2003.
(Q) Each warrant entitles the holder to purchase one Class A Subordinate
Voting share at an exercise price of $9.375 and will expire on
December 15, 2000.
* Non-income producing.
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 218
Transamerica High Yield Bond Fund
(effective December 22, 1994, John Hancock High Yield Bond Fund)
STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS
STATEMENT OF OPERATIONS
Year Ended October 31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest .......................... $ 18,601,708
Dividends (net of foreign
withholding taxes of $51,162) ... 289,921
------------
18,891,629
EXPENSES
Distribution expenses
(see Note D) .................... $1,604,168
Management fees ................... 976,834
Transfer agent fees ............... 224,568
Administrative service fees ....... 100,822
Registration fees ................. 54,607
Custodian fees .................... 44,634
Shareholder reports ............... 43,869
Audit and legal fees .............. 38,241
Directors' fees and expenses ...... 25,464
Miscellaneous ..................... 23,899 3,137,106
---------- ------------
NET INVESTMENT INCOME 15,754,523
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS
Net realized loss on investments .. (8,882,766)
Net change in unrealized
depreciation of investments ..... (9,524,936)
------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (18,407,702)
------------
DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (2,653,179)
============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income ............. $ 15,754,523 $ 13,088,016
Net realized gain (loss) on
investments ..................... (8,882,766) 4,681,658
Net change in unrealized
appreciation (depreciation)
of investments .................. (9,524,936) 7,261,729
------------ ------------
Increase (decrease) in net
assets resulting from
operations ...................... (2,653,179) 25,031,403
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income -
Class A ......................... (821,430) (44,789)
Class B ......................... (15,331,034) (12,211,141)
Net realized gains -
Class A ......................... (18,900) -
Class B ......................... (870,444) -
------------ ------------
Total distributions to
shareholders .................... (17,041,808) (12,255,930)
CAPITAL SHARE TRANSACTIONS
Increase in capital shares
outstanding ..................... 35,571,332 45,222,622
------------ ------------
Increase in net assets ............ 15,876,345 57,998,095
NET ASSETS
Beginning of year ................. 156,558,271 98,560,176
------------ ------------
End of year ....................... $172,434,616 $156,558,271
============ ============
Undistributed Net Investment
Income .......................... $ 86,246 $ 393,074
============ ============
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 219
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION> CLASS A SHARES CLASS B SHARES
---------------------------- -----------------------------------------------------
YEAR PERIOD FROM
ENDED JUNE 30, 1993 YEAR ENDED OCTOBER 31,
OCTOBER 31, TO OCTOBER 31, -----------------------------------------------------
1994(1) 1993(2) 1994(1) 1993 1992 1991 1990
----------- -------------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share income and capital changes for
a shares outstanding during each period:
Net asset value, beginning of period........ $ 8.23 $ 8.10 $ 8.23 $ 7.43 $ 7.44 $ 6.45 $ 8.14
INCOME FROM INVESTMENT OPERATIONS
Net investment income....................... 0.80 0.33 0.74 0.80 0.87 0.98 1.09
Net realized and unrealized gain (loss)
on investments............................ (0.83) 0.09 (0.83) 0.75 (0.04) 1.06 (1.68)
------- ------ -------- -------- ------- ------- -------
Total from Investment Operations.......... (0.03) 0.42 (0.09) 1.55 0.83 2.04 (0.59)
LESS DISTRIBUTIONS
Dividends from net investment income........ (0.82) (0.29) (0.76) (0.75) (0.84) (0.98) (1.09)
Distributions from realized gains........... (0.05) - (0.05) - - - -
Returns of capital.......................... - - - - - (0.07) (0.01)
------- ------ -------- -------- ------- ------- -------
Total Distributions....................... (0.87) (0.29) (0.81) (0.75) (0.84) (1.05) (1.10)
------- ------ -------- -------- ------- ------- -------
Net asset value, end of period.............. $ 7.33 $ 8.23 $ 7.33 $ 8.23 $ 7.43 $ 7.44 $ 6.45
======= ====== ======== ======== ======= ======= =======
TOTAL RETURN(3)............................. (0.59)% 4.96% (1.33)% 21.76% 11.56% 34.21% (8.04)%
======= ====== ======== ======== ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net assets..... 1.16% 0.31% 1.91% 2.08% 2.25% 2.24% 2.25%
Ratio of expense reimbursement to
average net assets........................ - - - - - - (0.03)%
------- ------ -------- -------- ------- ------- -------
Ratio of net expenses to average
net assets................................ 1.16% 0.31% 1.91% 2.08% 2.25% 2.24% 2.22%
======= ====== ======== ======== ======= ======= =======
Ratio of net investment income to
average net assets........................ 10.14% 4.38% 9.39% 10.07% 11.09% 13.73% 14.59%
Portfolio turnover.......................... 153% 204% 153% 204% 206 93% 96%
Net Assets, end of period (in thousands).... $11,696 $2,344 $160,739 $154,214 $98,560 $72,023 $37,097
<FN>
(1) Per share information has been calculated using the average number of
shares outstanding.
(2) Financial highlights, including total return, have not been annualized.
Portfolio turnover is for the year ended October 31, 1993.
(3) Total return does not include the effect of the initial sales charge for
Class A Shares nor the contingent deferred sales charge for Class B Shares.
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 220
High Yield Bond Fund
(effective December 22, 1994, John Hancock High Yield Bond Fund)
NOTES TO FINANCIAL STATEMENTS
October 31, 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special
Series, Inc., is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Issuer
operates as a series fund, currently issuing six series of shares. On May 20,
1994, the shareholders of the Issuer approved changes in the names of the
Issuer and each series of the Issuer. These changes became effective on June
15, 1994.
Transamerica High Yield Bond Fund (the "Fund"), formerly Transamerica
Special High Yield Bond Fund, is one of the series of the Issuer. The Fund made
its initial offering of shares to the public on October 26, 1987 and presently
offers two classes of shares. Class A Shares are subject to an initial sales
charge of up to 4.75% and a 12b-1 distribution plan and Class B Shares are
subject to a contingent deferred sales charge and a separate 12b-1 distribution
plan. The following is a summary of significant accounting policies
consistently followed by the Fund.
(1) The Fund values its debt securities at quotations provided by
pricing services and market makers. Securities traded on stock exchanges or in
the over-the-counter market are valued at the last sale price on the primary
exchange or market on which such securities are traded, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the mean between the most recent bid and asked prices. Options on interest rate
futures are valued based on their daily settlement price. Securities which are
not traded on U.S. markets, forward currency contracts, and other assets and
liabilities stated in foreign currency are translated into U.S. dollar
equivalents based on quoted exchange rates. Securities for which market
quotations are not readily available are valued at a fair value as determined
in good faith by the Issuer's Board of Directors. Short-term investments are
valued at amortized cost (original cost plus amortized discount or accrued
interest).
(2) The premium paid by the Fund for the purchase of a call or put
option is recorded as an investment and subsequently "marked to market" to
reflect the current market value of the option purchased. If an option which
the Fund has purchased expires on the stipulated expiration date, the Fund
realizes a loss in the amount of the cost of the option. If the Fund enters
into a closing transaction, it realizes a gain (loss) if the proceeds from the
sale are greater (less) than the cost of the option purchased. If the Fund
exercises a put option, it realizes a gain or a loss from the sale of the
underlying security and the proceeds from such sale will be decreased by the
premium originally paid. If the Fund exercises a call option, the cost of the
security purchased upon exercise is increased by the premium originally paid.
(3) Security transactions are accounted for on the trade date. Dividend
income is recorded on the ex-dividend date. Interest income is accrued daily.
Debt discounts are amortized using the straight-line method. Realized gains and
losses from security transactions are determined on the basis of identified
cost for both financial reporting and federal income tax purposes.
(4) Income dividends are declared daily by the Fund and paid or
reinvested at net asset value monthly. Other distributions are recorded on the
ex-dividend date and may be reinvested at net asset value. Distributions
payable to shareholders at October 31, 1994 were $944,207.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to the difference
in the treatment of foreign currency gains and losses for tax and financial
reporting purposes.
(5) As described in the prospectus, the Fund may invest in debt
securities that, at the time of purchase, are assigned to the lower rating
categories of recognized rating agencies or are unrated by such agencies and
therefore, may involve greater credit and/or interest rate risk.
(6) No provision for federal income taxes has been made since it is the
Fund's intention to distribute all of its taxable income and profits to its
shareholders and to comply with the requirements applicable to regulated
investment companies and the minimum distribution requirements of the Internal
Revenue Code. The Fund's tax year end is December 31.
(7) The Fund reports custodian fees net of credits and charges
resulting from cash positions in the custodial accounts greater than or less
than the amounts required to settle portfolio transactions. For the year ended
October 31, 1994, these amounts were $12,355 and $12,820, respectively.
(8) On a daily basis, income, unrealized and realized gains and losses,
and expenses which are not class specific are allocated to each class based on
their respective relative net assets. Class specific expenses, such as
distribution expenses, are applied to the class to which they are attributed.
10
<PAGE> 221
Transamerica High Yield Bond Fund
(effective December 22, 1994, John Hancock High Yield Bond Fund)
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE B - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund's management fee is payable monthly to Transamerica Fund Management
Company (the "Investment Adviser") and is calculated based on the following
schedule:
AVERAGE DAILY
NET ASSETS ANNUAL RATE
------------- -----------
First $75 million 0.6250%
Next $75 million 0.5625%
Over $150 million 0.5000%
At October 31, 1994, the management fee payable to the Investment
Adviser was $85,355.
The Investment Adviser provides administrative services to the Fund
pursuant to an administrative service agreement. During the year ended October
31, 1994, the Fund paid or accrued $80,593 to the Investment Adviser for these
services, of which $7,600 was payable at October 31, 1994.
During the year ended October 31, 1994, Transamerica Fund Distributors,
Inc. (the "Distributor"), an affiliate of the Investment Adviser, as the
principal underwriter, retained $23,651 as its portion of the commissions
charged on sales of Class A Shares of the Fund. At October 31, 1994,
receivables from and payables to the Distributor for Fund share transactions
were $203,184 and $219,596, respectively.
The Fund paid no compensation directly to any officer. Certain officers
and a director of the Issuer are affiliated with the Investment Adviser.
During the year ended October 31, 1994, the Fund paid legal fees of
$5,778 to Baker & Botts. A partner with Baker & Botts is an officer of the
Issuer.
NOTE C - COST, PURCHASES AND SALES OF INVESTMENT SECURITIES
During the year ended October 31, 1994, purchases and sales of securities,
other than short-term obligations, aggregated $274,586,475 and $244,745,264,
respectively. At October 31, 1994, receivables from and payables to brokers
for securities sold and purchased were $510,155 and $926,778, respectively.
At October 31, 1994, the identified cost of total investments owned is
the same for both financial reporting and federal income tax purposes. At
October 31, 1994, the gross unrealized appreciation and gross unrealized
depreciation of investments for federal income tax purposes were $1,415,870 and
$6,221,143, respectively.
NOTE D - PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is
authorized under separate distribution plans to finance activities related to
the distribution of its Class A and Class B Shares (the "Class A Plan" and
the "Class B Plan," respectively). The distribution plans, together with the
initial sales charge on Class A Shares and the contingent deferred sales charge
on Class B Shares, comply with the regulations covering maximum sales charges
assessed by mutual funds distributed through securities dealers that are NASD
members.
The Class A Plan and the Class B Plan permit each class to make
payments to the Distributor up to 0.25% annually of average daily net assets
for certain distribution costs such as service fees paid to dealers, production
and distribution of prospectuses to prospective investors, services provided to
new and existing shareholders and other distribution related activities. During
the year ended October 31, 1994, Class A and Class B made payments to the
Distributor of $20,179 or 0.25% and $390,708 or 0.25%, respectively, related
to these activities.
The Class B Plan also permits Class B to reimburse the Distributor up
to 0.75% annually of average daily net assets for costs related to compensation
paid to securities dealers, in place of an initial sales charge to investors,
on the sale of Class B Shares. These costs are based upon a commission payment
charge of 5% of the value of Class B Shares sold (excluding shares acquired
through reinvestment) reduced by the amount of contingent deferred sales
charges (CDSC) that have been received by the Distributor on redemptions of
Class B Shares. These costs also include a charge of interest (carrying charge)
at an annual rate of 1% over the prevailing prime rate to the extent cumulative
commission payment charges, plus any previous carrying charges, less CDSC
received by the Distributor, have not been paid in full by the Fund. For the
year ended October 31, 1994, Class B reimbursed the Distributor $1,193,281 or
0.75% for such costs. For this period, the Distributor received $387,591 in
CDSC. At October 31, 1994 , the balance of unrecovered costs was $6,398,026.
At October 31, 1994, Class A had $4,032 and Class B had $180,453
payable to the Distributor pursuant to the above distribution plans.
11
<PAGE> 222
Transamerica High Yield Bond Fund
(effective December 22, 1994, John Hancock High Yield Bond Fund)
NOTES TO FINANCIAL STATEMENTS
Continued
<TABLE>
NOTE E - CAPITAL AND RELATED TRANSACTIONS
A summary of the capital stock transactions follows:
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
1994 1995(1)
-------------------------- -------------------------
SHARES DOLLARS SHARES DOLLARS
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold - Class A 3,865,973 $ 30,826,064 404,922 $ 3,286,368
Shares sold - Class B 10,695,100 84,645,545 12,438,739 98,183,615
Shares issued in reinvestment of
distributions - Class A 56,266 435,342 4,681 38,120
Shares issued in reinvestment of
distributions - Class B 949,832 7,453,158 716,474 5,674,122
Shares redeemed - Class A (2,612,061) (20,718,136) (124,963) (1,009,795)
Shares redeemed - Class B (8,472,714) (67,070,641) (7,681,049) (60,949,808)
---------- ----------- ---------- ------------
Net increase in capital shares
outstanding 4,482,396 $ 35,571,332 5,758,804 $ 45,222,622
========== ============ ========== ============
<FN>
(1) Class A share transactions are for the period June 30, 1993 to October 31,
1993.
</TABLE>
The components of net assets at October 31, 1994, are as follows:
<TABLE>
<S> <C>
Capital paid-in (125,000,000 shares authorized).................................... $186,398,447
Undistributed net investment income................................................ 86,246
Accumulated net realized loss on investments....................................... (9,244,804)
Net unrealized depreciation of investments......................................... (4,805,273)
------------
NET ASSETS......................................................................... $172,434,616
============
</TABLE>
12
<PAGE> 223
John Hancock High Yield Bond Fund
(effective December 22, 1994, John Hancock High Yield Bond Fund)
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
John Hancock High Yield Bond Fund,
a series of John Hancock Series, Inc.
We have audited the accompanying statement of net assets of John Hancock High
Yield Bond Fund (formerly Transamerica High Yield Bond Fund), a series of John
Hancock Series, Inc. (formerly Transamerica Series, Inc.), as of October 31,
1994, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of John
Hancock High Yield Bond Fund, a series of John Hancock Series, Inc., at
October 31, 1994, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the indicated periods, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Houston, Texas
December 2, 1994,
except as to Note F as to which the date is January 25, 1995.
13
<PAGE> 224
FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON APRIL 30, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF THAT
DATE.
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Bonds (cost - $151,190,883) ............................... $ 151,443,895
Common and preferred stocks and warrants
(cost - $20,664,481) .................................... 23,798,074
Joint repurchase agreement (cost - $7,286,000) ............ 7,286,000
Corporate savings account ................................. 804
-------------
182,528,773
Dividends receivable ........................................ 233,290
Receivable for investments sold ............................. 2,881,242
Interest receivable ......................................... 4,647,629
Miscellaneous receivable .................................... 50,900
Receivable for shares sold .................................. 699,559
Miscellaneous assets ........................................ 47,056
-------------
Total Assets ............................. 191,088,449
------------------------------------------------------------
LIABILITIES:
Payable for investments purchased ........................... 6,000,360
Payable for shares repurchased .............................. 122,089
Dividend payable ............................................ 452,984
Payable for forward foreign currency exchange
contracts bought .......................................... 419,328
Payable to John Hancock Advisers, Inc. and affiliates -
Note B .................................................... 107,399
Accounts payable and accrued expenses ....................... 36,792
-------------
Total Liabilities ........................ 7,138,952
------------------------------------------------------------
NET ASSETS:
Capital paid-in ............................................. 203,651,002
Accumulated net realized loss on investments and
foreign currency transactions ............................. (23,108,247)
Net unrealized appreciation of investments and
foreign currency transactions ............................. 3,389,948
Undistributed net investment income ......................... 16,794
-------------
Net Assets ............................... $ 183,949,497
============================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares
of beneficial interest outstanding -
125,000,000 shares authorized with
$0.01 per share par value, respectively)
Class A - $18,429,522/2,603,407 ............................ $ 7.08
================================================================================
Class B - $165,519,975/23,371,966 .......................... $ 7.08
================================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($7.08 x 104.99%) ................................. $ 7.43
================================================================================
<FN>
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Six months ended April 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $50,900)... $ 9,008,860
Dividends ............................................... 714,253
---------
9,723,113
---------
Expenses:
Investment management fee - Note B .................... 487,123
Distribution/service fee - Note B
Class A .............................................. 17,164
Class B .............................................. 767,660
Transfer agent fee .................................... 122,024
Registration and filing fees .......................... 33,535
Auditing fee .......................................... 23,878
Custodian fee ......................................... 21,821
Trustees' fees ........................................ 15,330
Advisory board fee .................................... 15,196
Printing .............................................. 10,580
Legal fees ............................................ 8,814
Miscellaneous ......................................... 6,826
---------
Total Expenses ....................... 1,529,951
-----------------------------------------------------
Net Investment Income ................ 8,193,162
-----------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investments sold ................... (13,463,286)
Net realized loss on foreign currency transactions ...... (400,157)
Change in net unrealized appreciation/depreciation
of investments ........................................ 8,191,878
Change in net unrealized appreciation/depreciation of
foreign currency transactions ......................... 3,343
---------
Net Realized and Unrealized
Loss on Investments and
Foreign Currency Transactions ........ (5,668,222)
-----------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............ $ 2,524,940
=====================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 225
FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1995 OCTOBER 31,
(UNAUDITED) 1994
-------------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ............................................................... $ 8,193,162 $ 15,754,523
Net realized loss on investments sold and foreign currency transactions ............. (13,863,443) (8,882,766)
Change in net unrealized appreciation/depreciation of investments and foreign
currency transactions .............................................................. 8,195,221 (9,524,936)
------------ -------------
Net Increase (Decrease) in Net Assets Resulting from Operations ................... 2,524,940 (2,653,179)
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income:
Class A - ($0.3715 and $0.8200 per share, respectively) ........................... (762,342) (821,430)
Class B - ($0.3411 and $0.7600 per share, respectively) ........................... (7,500,272) (15,331,034)
Distributions from net realized gain on investments
Class A - (none and $0.0465 per share, respectively) .............................. -- (18,900)
Class B - (none and $0.0465 per share, respectively) .............................. -- (870,444)
------------ -------------
Total Distributions to Shareholders ............................................... (8,262,614) (17,041,808)
------------ -------------
FROM FUND SHARE TRANSACTIONS -- NET* ................................................. 17,252,555 35,571,332
------------ -------------
NET ASSETS:
Beginning of period ................................................................. 172,434,616 156,558,271
------------ -------------
End of period (including undistributed net investment income
of $16,794 and $86,246, respectively) ............................................. $183,949,497 $ 172,434,616
============ ==============
<FN>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1995 OCTOBER 31,
(UNAUDITED) 1994
-------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold..................................... 1,915,995 $13,385,451 3,865,973 $ 30,826,064
Shares issued to shareholders in reinvestment
of distributions............................... 60,462 424,157 56,266 435,342
--------- ----------- ----------- ------------
1,976,457 13,809,608 3,922,239 31,261,406
Less shares repurchased......................... (967,868) (6,728,113) (2,612,061) (20,718,136)
--------- ----------- ----------- ------------
Net increase.................................... 1,008,589 $ 7,081,495 1,310,178 $ 10,543,270
========= =========== =========== ============
CLASS B
Shares sold..................................... 4,605,962 $32,265,277 10,695,100 $ 84,645,545
Shares issued to shareholders in reinvestment
of distributions............................... 497,479 3,487,834 949,832 7,453,158
--------- ----------- ----------- ------------
5,103,441 35,753,111 11,644,932 92,098,703
Less shares repurchased......................... (3,645,438) (25,582,051) (8,472,714) (67,070,641)
--------- ----------- ----------- ------------
Net increase.................................... 1,458,003 $10,171,060 3,172,218 $ 25,028,062
========= =========== =========== ============
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, DISTRIBUTIONS PAID TO
SHAREHOLDERS, AND ANY INCREASE OR DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE
FUND. THE FOOTNOTE ILLUSTRATES THE NUMBER OF FUND SHARES SOLD, REINVESTED AND
REDEEMED DURING THE LAST TWO PERIODS, ALONG WITH THE CORRESPONDING DOLLAR
VALUES.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 226
FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
----------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
FROM JUNE 30,
1993
SIX MONTHS (COMMENCEMENT
ENDED YEAR ENDED OF OPERATIONS)
APRIL 30, 1995(b) OCTOBER 31, TO OCTOBER 31,
(UNAUDITED) 1994 1993
----------------- ------------ --------------
<S> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............................ $ 7.33 $ 8.23 $ 8.10
------ ------ ------
Net Investment Income .......................................... 0.36 0.80(a) 0.33
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions................................. (0.24) (0.83) 0.09
------ ------ ------
Total from Investment Operations ............................. 0.12 (0.03) 0.42
------ ------ ------
Less Distributions:
Dividends from Net Investment Income............................ (0.37) (0.82) (0.29)
Distributions from Net Realized Gain on Investments Sold........ -- (0.05) --
------ ------ ------
Total Distributions .......................................... (0.37) (0.87) (0.29)
Net Asset Value, End of Period.................................. $ 7.08 $ 7.33 $ 8.23
====== ====== ======
Total Investment Return at Net Asset Value...................... 1.82% ( 0.59%) 4.96%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)....................... $18,430 $11,696 $ 2,344
Ratio of Expenses to Average Net Assets......................... 1.14%* 1.16% 0.91%*
Ratio of Net Investment Income to Average Net Assets............ 10.49%* 10.14% 12.89%*
Portfolio Turnover Rate ........................................ 52% 153% 204%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIODS INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DIVIDENDS, AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE
FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 227
FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (continued)
---------------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, 1995(b) YEAR ENDED OCTOBER 31, 1994
---------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period................... $ 7.33 $ 8.23 $ 7.43 $ 7.44 $ 6.45 $ 8.14
------ ------ ------ ------ ------ ------
Net Investment Income ................................. 0.35 0.74(a) 0.80 0.87 0.98 1.09
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency Transactions...... (0.26) (0.83) 0.75 (0.04) 1.06 (1.68)
------ ------ ------ ------ ------ ------
Total from Investment Operations .................... 0.09 (0.09) 1.55 0.83 2.04 (0.59)
------ ------ ------ ------ ------ ------
Less Distributions
Dividends from Net Investment Income................... (0.34) (0.76) (0.75) (0.84) (0.98) (1.09)
Distributions from Net Realized Gain on
Investments Sold...................................... -- (0.05) -- -- -- --
Distributions from Capital Paid-in..................... -- -- -- -- (0.07) (0.01)
------ ------ ------ ------ ------ ------
Total Distributions ................................. (0.34) (0.81) (0.75) (0.84) (1.05) (1.10)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period......................... $ 7.08 $ 7.33 $ 8.23 $ 7.43 $ 7.44 $ 6.45
====== ====== ====== ====== ====== ======
Total Investment Return at Net Asset Value............. 1.38% (1.33%) 21.76% 11.56% 34.21% (8.04%)
Total Adjusted Investment Return at Net
Asset Value........................................... -- -- -- -- -- (8.07%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).............. $165,520 $160,739 $154,214 $98,560 $72,023 $37,097
Ratio of Expenses to Average Net Assets................ 1.89%* 1.91% 2.08% 2.25% 2.24% 2.22%
Ratio of Adjusted Expenses to Average
Net Assets............................................ -- -- -- -- -- 2.25%
Ratio of Net Investment Income to Average
Net Assets............................................ 9.74%* 9.39% 10.07% 11.09% 13.73% 14.59%
Ratio of Adjusted Net Investment Income to
Average Net Assets.................................... -- -- -- -- -- 14.56%
Portfolio Turnover Rate ............................... 52% 153% 204% 206% 93% 96%
<FN>
* On an annualized basis.
(a) On average month end shares outstanding.
(b) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 228
FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
HIGH YIELD BOND FUND ON APRIL 30, 1995. IT'S DIVIDED INTO THREE MAIN CATEGORIES:
PUBLICLY TRADED BONDS, COMMON AND PREFERRED STOCKS AND WARRANTS, AND SHORT-TERM
INVESTMENTS. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S "CASH" POSITION,
ARE LISTED LAST.
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
April 30, 1995 (Unaudited)
---------------------------------------------------------------------------------------------------------------------------------
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
------------------- ---- -------- -------- ------
<S> <C> <C> <C> <C>
PUBLICLY TRADED BONDS
AEROSPACE (1.68%)
Rohr, Inc.,
*Sr Note 05-15-03.................................... 11.625% BB- $3,000 $ 3,090,000
------------
AUTOMOBILE/TRUCK (3.02%)
Great Dane Holdings,
*Sr Sub Deb 08-01-01................................. 12.750 B- 2,435 2,459,350
*Sub Deb 01-01-06.................................... 14.500 CCC 3,132 3,100,680
------------
5,560,030
------------
BROADCASTING (8.47%)
Adelphia Communications Corp.,
*Sr Note 05-15-02.................................... 12.500 B 2,500 2,437,500
Cablevision Industries Corp.,
Deb 04-01-08........................................ 9.250 BB- 3,000 2,977,500
Sr Note 01-30-02.................................... 10.750 BB- 2,000 2,130,000
Cablevision Systems Corp.,
Sr Sub Deb 02-15-13................................. 9.875 B 2,000 1,980,000
CF Cable TV Inc.,
Sr Sec 2nd Priority Note 02-15-05 (Canada) (F)...... 11.625 BB+ 1,000 1,050,000
Continental Cablevision Inc.,
Deb 08-01-13........................................ 9.500 BB 4,000 3,970,000
Le Groupe Videotron Ltee,
*Sr Note 02-15-05 (Canada) (F)....................... 10.625 BB+ 1,000 1,040,000
15,585,000
COMPUTERS (4.24%)
Anacomp Inc.,
*Sr Sub Note 11-01-00 (A)............................ 15.000 D 3,000 2,100,000
Computervision Corp.,
*Sr Sub Note 08-15-99................................ 11.375 CCC+ 2,000 1,910,000
Data Documents, Inc.,
*Sr Sec Note 07-15-02................................ 13.500 B+ 2,000 2,005,000
Unisys Corp.,
*Sr Note 10-01-99.................................... 10.625 BB- 1,700 1,785,000
------------
7,800,000
------------
CONSTRUCTION (1.40%)
Primeco Inc.,
*Sr Sub Note 03-01-05................................ 12.750 B 2,500 2,578,125
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 229
FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
COSMETICS & TOILETRIES (1.05%)
Renaissance Cosmetics,
*Sr Note 08-15-01 ......................... 13.750% B $ 2,000 $1,930,000
----------
DRUGS (1.94%)
Amerisource Distribution Corp.,
Deb 07-15-05 ............................. 11.250 B- 1,116 1,216,073
Chattem Inc.,
Sr Sub Note 06-15-04 ..................... 12.750 B- 1,500 1,372,500
J.B. Williams Holdings, Inc.,
Sr Note 03-01-04 ......................... 12.000 B 1,000 972,500
----------
3,561,073
----------
ELECTRONICS (0.78%)
Alliant Techsystems, Inc.,
*Sr Sub Note 03-01-03 (R) ................. 11.750 B2 1,375 1,426,562
----------
FINANCE (1.35%)
Indah Kiat International Finance Co.,
Sr Sec Note 06-15-06 (Indonesia) (F)...... 12.500 BB 2,500 2,475,000
----------
FOODS (2.38%)
Di Giorgio Corp.,
*Sr Note 02-15-03 ......................... 12.000 B 3,000 2,565,000
Pilgrim's Pride Corp.,
*Sr Sub Note 08-01-03 ..................... 10.875 B- 2,000 1,820,000
----------
4,385,000
----------
GLASS PRODUCTS (0.94%)
Owens-Illinois, Inc.,
*Sr Sub Note 04-01-99 ..................... 10.250 B+ 1,700 1,729,750
----------
GOVERNMENTAL - FOREIGN (3.42%)
Argentina, Republic of,
*Deb 03-31-23 (Argentina) (F) ............. 5.000 B2 2,000 870,000
Brazil, Republic of,
Note IDU Ser A-L 01-01-01 (Brazil) (F) ... 7.813 B 1,960 1,484,700
Mexican Tesobono,
*Bond 06-01-95 (Mexico) (F) ............... Zero B 4,000 3,940,800
----------
6,295,500
----------
HEALTHCARE (2.35%)
Abbey Healthcare Group Inc.,
Sr Sub Note 11-01-02 ..................... 9.500 B- 2,200 2,233,000
National Medical Enterprises, Inc.,
*Sr Sub Note 03-01-05 ..................... 10.125 B+ 2,000 2,085,000
----------
4,318,000
----------
LEISURE & RECREATION (1.87%)
Bally's Grand, Inc.,
*1st Mtg 12-15-03 ......................... 10.375 B+ 2,000 1,940,000
Station Casinos, Inc.,
*Sr Sub Note 06-01-03 ..................... 9.625 B 1,000 885,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 230
FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
LEISURE & RECREATION (CONTINUED)
Stratosphere Corp.,
*1st Mtg Note 05-15-02 ................ 14.250% B $ 600 $ 612,000
------------
3,437,000
------------
METALS (3.90%)
Interlake Corp. (The),
*Sr Sub Deb 03-01-02 .................. 12.125 CCC+ 2,000 2,000,000
Kaiser Aluminum & Chemical Corp.,
*Sr Sub Note 02-01-03 ................. 12.750 B- 3,000 3,187,500
Renco Metals Inc.,
Sr Note 07-15-00 ..................... 12.000 B+ 2,000 1,990,000
------------
7,177,500
------------
MOTION PICTURES (0.58%)
Act III Theaters, Inc.,
*Sr Sub Note 02-01-03 ................. 11.875 B- 1,000 1,070,000
------------
OIL & GAS (17.64%)
Columbia Gas System, Inc., (The),
*Deb 08-01-93 (B) ..................... 9.000 D 2,595 3,581,100
Dual Drilling Co.,
Sr Sub Note 01-15-04 ................. 9.875 B- 3,750 3,196,875
Falcon Drilling Co., Inc.,
Sr Note 01-15-01 ..................... 9.750 B- 2,500 2,371,875
Global Marine, Inc.,
Sr Sec Note 12-15-99 ................. 12.750 B+ 2,100 2,296,875
Maxus Energy Corp.,
Deb 11-15-15 ......................... 11.500 BB- 2,000 1,870,000
Note 05-15-01 ........................ 11.080 BB- 2,000 1,774,400
Mesa Capital Corp.,
Discount Note 06-30-96 ............... Zero CCC 516 490,200
Discount Note 06-30-98 ............... Zero CCC+ 4,000 3,840,000
Nuevo Energy Co.,
Sr Sub Note 06-15-02 ................. 12.500 B- 4,000 4,200,000
OPI International, Inc.,
Sr Note 07-15-02 ..................... 12.875 B+ 4,700 5,170,000
TransAmerican Refining Corp.,
*Unit (1st Mtg Note 02-15-02 & Warr.).. 16.500 B- 1,500 1,647,030
Wilrig AS,
Sr Sec Note 03-15-04 (Norway) ........ 11.250 B 2,000 2,000,000
------------
32,438,355
------------
PAPER (2.53%)
Container Corp. Of America,
Sr Note Ser A 05-01-04 ............... 11.250 B+ 2,000 2,140,000
Crown Packaging Holdings Ltd.,
Sr Note 11-01-00 (Canada) (F) ........ 10.750 B3 1,500 1,503,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 231
FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
PAPER (CONTINUED)
Stone Container Corp.,
1st Mtg Note 04-01-02 ...... 10.750% B- $1,000 $ 1,015,000
-----------
4,658,750
-----------
PUBLISHING (1.74%)
American Media Operation, Inc.,
*Sr Sub Note 11-15-04 ....... 11.625 B 3,000 3,195,000
-----------
REAL ESTATE (1.00%)
NVR Inc.,
*Sr Note 04-15-03 ........... 11.000 B 2,000 1,840,000
-----------
RETAIL (6.20%)
American Restaurant Group Inc.,
Sr Sec Note 09-15-98 ....... 12.000 B+ 2,500 2,250,000
Flagstar Corp.,
*Sr Sub Deb 11-01-04 ........ 11.250 CCC+ 2,500 2,037,500
Food 4 Less Supermarkets, Inc.,
Sr Note 04-15-00 ........... 10.450 B+ 2,000 1,990,000
Sr Sub Note 06-15-01 ....... 13.750 B- 2,400 2,568,000
Petro PSC / Properties, L.P.,
*Sr Note 06-01-02 ........... 12.500 B 700 686,000
Specialty Retailers, Inc.,
*Sr Sub Note 08-15-03 ....... 11.000 B- 2,000 1,880,000
-----------
11,411,500
-----------
STEEL (3.73%)
Geneva Steel Co.,
Sr Note 01-15-04 ........... 9.500 B+ 1,000 850,000
Sheffield Steel Corp,
Sr Note 11-01-01 ........... 12.000 B 2,000 1,940,000
Weirton Steel Corp.,
Sr Note 03-01-98 ........... 11.500 B 1,500 1,545,000
Sr Note 10-15-99 ........... 10.875 B 2,500 2,525,000
-----------
6,860,000
-----------
TELECOMMUNICATIONS (0.93%)
Century Communications Corp.,
Sr Sub Deb 10-15-03 ........ 11.875 B+ 700 742,875
NEXTEL Communications, Inc.,
Sr Discount Note 08-15-04 .. Zero CCC- 2,000 975,000
-----------
1,717,875
-----------
TEXTILES (1.26%)
Apparel Ventures Inc,
Sr Note 12-31-00 ........... 12.250 B- 1,500 1,368,750
Westpoint Stevens,
*Sr Sub Deb 12-15-05 ........ 9.375 B+ 1,000 950,000
-----------
2,318,750
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 232
FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
TRANSPORTATION (6.96%)
AM General Corp.,
*Sr Note 05-01-02 (R) .............................. 12.875% B3 $2,000 $ 1,992,500
Burlington Motor Holdings Inc.,
*Sr Sub Note 11-01-03 .............................. 11.500 CCC+ 2,000 1,770,000
CHC Helicopter Corp.,
Sr Sub Note 07-15-02 (Canada) (F) ................. 11.500 B 1,250 1,028,125
NWA Trust,
*Sub Note 06-21-08 ................................. 13.875 B 4,075 4,319,500
USAir Inc.,
*Sr Note 02-01-01 .................................. 9.625 CCC+ 4,000 3,200,000
*Sr Deb 04-01-00 ................................... 12.875 CCC+ 500 490,000
-----------
12,800,125
-----------
UTILITIES (0.97%)
Petroleum Heat & Power Co., Inc.,
*Sub Deb 02-01-05 .................................. 12.250 B+ 1,700 1,785,000
-----------
TOTAL PUBLICLY TRADED BONDS
(Cost $151,190,883) (82.33%) 151,443,895
----------- ------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNITS OR WARRANTS
-----------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS
Algoma Finance Corp., 5.50% Ser A Preferred Stock (Canada) .............................. 590,643 $9,983,521
*AVI Holdings, Inc. Warrants (R) *** ..................................................... 1,500 67,500
Boomtown Inc. Warrants (R) *** .......................................................... 1,500 15
Browne Bottling Co. Warrants*** ......................................................... 237 237
Casino Magic Finance Corp. Warrants*** .................................................. 9,000 90
Chattem Inc. Warrants (R) *** ........................................................... 1,500 6,750
CHC Helicopter Corp. Warrants (Canada) (F) *** .......................................... 16,000 16,000
*Chevy Chase Savings Bank FSB, 13.00% Ser A Pref Stock ................................... 75,000 2,118,750
Crown Packaging Holdings Ltd. Common Stock (Canada) (F) *** ............................. 2,750 79,750
Farm Fresh Holdings Corp. Common Stock (Class B)*** ..................................... 1,000 20,000
*Northwest Airlines Corp. Common Stock (Class A)*** ...................................... 120,000 3,570,000
*PanAmSat Corp., 12.75% Mandatory Exchangeable Sr Red Pref. Stock ........................ 1,750 1,774,500
*Renaissance Cosmetics Warrants*** ....................................................... 4,000 70,000
Sheffield Steel Corp. Warrants*** ....................................................... 22,500 135,000
*Swissair Schweizerische Luftverkehr AG Reg. Shares (Switzerland)*** ..................... 3,400 2,084,086
*UAL Corp., 12.25% Ser B Depositary Shares Pref. Stock ................................... 75,000 2,212,500
Valero Energy Corp., 6.50% Pref. Stock .................................................. 35,400 1,659,375
------------
23,798,074
------------
TOTAL COMMON AND PREFERRED STOCKS, WARRANTS
(Cost $20,664,481) (12.94%) 23,798,074
----------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 233
FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
------------------- ---- -------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (3.96%)
Investment in a joint repurchase agreement transaction
with Bankers Trust Co., Dated 04-28-95, Due 05-01-95
(secured by U.S. Treasury Bond, 10.750%, due 08-15-05,
and U.S. Treasury Note, 6.875% due 10-31-96) - Note A..... 5.93% $ 7,286 $ 7,286,000
-----------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00% ....................................... 804
-----------
TOTAL SHORT-TERM INVESTMENTS (3.96%) 7,286,804
------- ------------
TOTAL INVESTMENTS (99.23%) $182,528,773
======= ============
</TABLE>
(A) Non-income producing -- issuer is in default of interest payment.
(B) Non-income producing -- issuer filed for protection under the Federal
Bankruptcy Code and has filed a comprehensive reorganization plan.
(F) Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer, however, security is U.S. dollar
denominated.
(R) These securites are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securites amounted to $3,493,327 as of April 30, 1995. See Note A
of the Notes to Financial Statements for valuation policy.
* Securities, other than short-term investments, newly added to the portfolio
during the six months ended April 30, 1995.
** Credit ratings are rated by Moody's Investor Services or John Hancock
Advisers, Inc. where Standard and Poors ratings are not available.
*** Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 234
FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
PORTFOLIO CONCENTRATION (UNAUDITED)
--------------------------------------------------------------------------------
THE HIGH YIELD BOND FUND INVESTS PRIMARILY IN SECURITIES ISSUED IN THE UNITED
STATES OF AMERICA. THE PERFORMANCE OF THIS FUND IS CLOSELY TIED TO THE ECONOMIC
AND FINANCIAL CONDITIONS WITHIN THE COUNTRIES IT INVESTS. THE CONCENTRATION OF
INVESTMENTS BY INDUSTRY CATEGORY FOR INDIVIDUAL SECURITIES HELD BY THE FUND IS
SHOWN IN THE SCHEDULE OF INVESTMENTS.
IN ADDITION, CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY VARIOUS
COUNTRIES. THE TABLE BELOW SHOWS THE PERCENTAGE OF THE FUND'S INVESTMENTS AT
APRIL 30, 1995 ASSIGNED TO COUNTRY CATEGORIES.
<TABLE>
<CAPTION>
MARKET VALUE AS A
COUNTRY DIVERSIFICATION % OF NET ASSETS
----------------------- -----------------
<S> <C>
Argentina........................................................................................ 0.47%
Brazil........................................................................................... 0.81
Canada........................................................................................... 7.99
Indonesia........................................................................................ 1.35
Mexico........................................................................................... 2.14
Norway........................................................................................... 1.09
Switzerland...................................................................................... 1.13
United States.................................................................................... 84.25
-----
TOTAL INVESTMENTS 99.23%
=====
</TABLE>
ADDITIONALLY, THE CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY THE QUALITY
RATING FOR EACH DEBT SECURITY.
<TABLE>
<CAPTION>
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
QUALITY DISTRIBUTION: NET ASSETS
--------------------- ----------
<S> <C>
BAA.............................................................................................. 0.27%
BA............................................................................................... 15.03
B................................................................................................ 60.74
CAA.............................................................................................. 6.29
-----
TOTAL BONDS 82.33%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 235
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Trust") is a diversified, open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of six series portfolios: John Hancock High Yield Bond Fund (the
"Fund"), John Hancock Emerging Growth Fund, John Hancock Global Resources Fund,
John Hancock Government Income Fund, John Hancock High Yield Tax-Free Fund, and
John Hancock Money Market Fund B. The Trustees may authorize the creation of
additional Funds from time to time to satisfy various investment objectives.
Effective December 22, 1994 (see Note B), the Trust and Funds changed names by
replacing the word Transamerica with John Hancock.
The Trustees have authorized the issuance of two classes of the Fund,
designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemption, dividends, and liquidation, except that certain expenses,
subject to the approval of the Trustees, may be applied differently to each
class of shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution/service expenses under the terms of a distribution plan
have exclusive voting rights regarding such distribution plan. Class A Shares
are subject to an initial sales charge of up to 4.50% and a 12b-1 distribution
plan. Prior to May 15, 1995, the maximum sales charge was 4.75%. Class B Shares
are subject to a contingent deferred sales charge and a separate 12b-1
distribution plan. On June 30, 1993, Class A shares were sold to commence class
activity. Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc., (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial
Group, may participate in a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked-to-market to reflect the current market
value of the written option.
The Fund may use option contracts to manage its exposure to financial
markets. Writing puts and buying calls will tend to increase the Fund's exposure
to the underlying instrument and buying puts and writing calls will tend to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited
to the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the
contracts' terms, or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded
18
<PAGE> 236
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
options have minimal credit risk as the exchanges act as counterparties to each
transaction, and only present liquidity risk in highly unusual market
conditions. To minimize credit and liquidity risks in over-the-counter option
contracts, the Fund will continuously monitor the creditworthiness of all its
counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended April
30, 1995.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it
will be required to deposit with its custodian a specified amount of cash or
U.S. government securities, known as "initial margin", equal to a certain
percentage of the value of the financial futures contract being traded. Each
day, the futures contract will be valued at the official settlement price of the
board of trade or U.S. commodities exchange. Subsequent payments, known as
"variation margin", to and from the broker will be made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund will recognize a gain or loss.
Risks of entering into futures contracts include the possibility that there may
be an illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuations imposed by an exchange.
For Federal income tax purposes, the amount, character and timing of
the Fund's gains and/or losses can be affected as a result of futures contracts.
At April 30, 1995, there were no open positions in financial futures
contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. These
contracts involve market or credit risk in excess of the unrealized gain or loss
reflected in the Fund's Statement of Assets and Liabilities. The Fund may also
purchase and sell forward contracts to facilitate the settlement of foreign
currency denominated portfolio transactions, under which it intends to take
delivery of the foreign currency. Such contracts normally involve no market risk
other than that offset by the currency amount of the underlying transaction.
At April 30, 1995, there were no open forward foreign currency exchange
contracts.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/loss on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales
of foreign currency, currency gains or losses realized between the
19
<PAGE> 237
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
trade and settlement dates on securities transactions and the difference between
the amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts actually received
or paid. Net unrealized foreign exchange gains and losses arise from changes in
the value of assets and liabilities other than investments in securities at
fiscal year end, resulting from changes in the exchange rate.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis for both financial
reporting and federal income tax purposes.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. The Fund's tax year end is December 31.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis. Foreign income may be subject to foreign
withholding tax and is accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund, if any,
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for effect of expenses that
may be applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Fund.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level based
on the appropriated net assets of each class and the specific expense rate(s)
applicable to each class.
NOTE B --
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES AND TRANSACTIONS WITH AFFILIATES
AND OTHERS
On December 22, 1994, the Adviser became the investment adviser for the Fund
with approval of the Trustees and shareholders of the Fund. The Fund's former
investment manager was Transamerica Fund Management Company ("TFMC").
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment program
equivalent, to 0.6250% of the first $75,000,000 of the Fund's average daily net
asset value, 0.5625% of the next $75,000,000, and 0.5000% of the Fund's average
daily net asset value in excess of $150,000,000. This fee structure is
consistent with the former agreement with TFMC. For the period ended April 30,
1995, the advisory fee earned by the Adviser and TFMC amounted to $324,749 and
$162,374, respectively, resulting in a total fee of $487,123.
The Adviser and TFMC, for their respective periods, provided
administrative services to the Fund pursuant to an administrative service
agreement through January 16, 1995 on which day the agreement was terminated.
In the event normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of the most restrictive
state limit where the Fund is registered to sell shares of beneficial interest,
the fee payable to the Adviser will be reduced to the extent of such excess and
the Adviser will make additional arrangements necessary to eliminate any
remaining excess expenses. The current limits are 2.5% of the first $30,000,000
of the Fund's average daily net asset value,
20
<PAGE> 238
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
2.0% of the next $70,000,000 and 1.5% of the remaining average daily net asset
value.
On December 22, 1994 John Hancock Funds, Inc. ("JH Funds"), a
wholly-owned subsidiary of the Adviser, became the principal underwriter of the
Fund. Prior to this date, Transamerica Fund Distributors, Inc. ("TFD") served as
the principal underwriter and distributor of the Fund. For the period ended
April 30, 1995, JH Funds and TFD received net sales charges of $93,570 with
regard to sales of Class A shares. Out of this amount, $10,535 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, and $83,035 was paid as sales commissions to unrelated broker-dealers.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 4.75% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds, formerly TFD, and are used in whole or in
part to defray its expenses related to providing distribution related services
to the Fund in connection with the sale of Class B shares. For the period ended
April 30, 1995, contingent deferred sales charges amounted to $330,387.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments for
distribution and service expenses which in total will not exceed on an annual
basis 0.25% of the Fund's average daily net assets attributable to Class A
shares and 1.00% of the Fund's average daily net assets attributable to Class B
shares, to reimburse for its distribution/service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. This fee structure and plan is
similar to the former arrangement with TFD.
The Board of Trustees approved a shareholder servicing agreement
between the Fund and John Hancock Investor Services Corporation ("Investor
Services"), a wholly owned subsidiary of The Berkeley Financial Group, for the
period between December 22, 1994 and May 12, 1995, inclusive under which
Investor Services processed telephone transactions on behalf of the Fund. As of
May 15, 1995, the Fund entered into a full service transfer agent agreement with
Investor Services. Prior to this date The Shareholder Services Group was the
transfer agent. The Fund will pay Investor Services a fee based on transaction
volume and number of shareholder accounts.
A partner with Baker & Botts was an officer of the Trust until December
22, 1994. During the period ended April 30, 1995, legal fees paid to Baker &
Botts amounted to $1,421.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser
and its affiliates as well as Trustee of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund will make investments into other John Hancock Funds,
as applicable, to cover its liability with regard to the deferred compensation.
Investments to cover the Fund's deferred compensation liability will be recorded
on the Fund's books as other assets. The deferred compensation liability will be
marked to market on a periodic basis and income earned by the investment will be
recorded on the Fund's books.
The Fund has an independent advisory board composed of certain members
of the former Transamerica Board of Trustees who provide advice to the current
Trustees in order to facilitate a smooth management transition for which the
Fund pays the advisory board and its counsel a fee.
21
<PAGE> 239
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Bond Fund
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended April 30, 1995 aggregated $98,763,095 and
$84,611,766, respectively.
The cost of investments owned at April 30, 1995 (including the
short-term investments) for Federal income tax purposes was $179,141,364. Gross
unrealized appreciation and depreciation of investments aggregated $7,024,162,
and $3,637,557, respectively, resulting in net unrealized appreciation of
$3,386,605.
22
<PAGE> 240
HIGH YIELD TAX FREE FUND
<TABLE>
STATEMENT OF NET ASSETS
<CAPTION>
October 31, 1994
FACE
ISSUER AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL
-------------------
OBLIGATIONS - 96.50%
----------------------
CALIFORNIA - 18.75%
Adelanto Improvement
Agency Revenue
Refunding Bonds
5.500% due 12/01/23 .......... $1,250,000 $ 1,037,500
Fontana Special Tax
Community Facilities
District Bonds
8.500% due 04/01/21 .......... 8,000,000 7,250,000
Fresno Joint Powers
Financing Authority
Revenue Refunding Bonds
7.350% due 09/02/12 .......... 5,640,000 5,259,300
Metropolitan Water District
Waterworks Revenue Bonds
5.000% due 07/01/20 .......... 2,000,000 1,550,000
Pleasanton Joint Powers
Financing Authority
Revenue Bonds
6.750% due 09/02/17 .......... 3,430,000 3,194,188
San Joaquin Hills
Transportation Corridor
Agency Toll Road
Revenue Bonds
5.000% due 01/01/33 .......... 1,000,000 678,750
6.750% due 01/01/32 .......... 6,600,000 5,956,500
South Orange County Public
Financing Authority
Special Tax Revenue Bonds
8.130% due 08/15/17 .......... 7,500,000 6,281,250
-----------
31,207,488
COLORADO - 2.74%
Denver City & County
Airport Revenue Bonds
7.250% due 11/15/25 .......... 5,000,000 4,568,750
DISTRICT OF COLUMBIA - 0.60%
District of Columbia
Certificates of
Participation
7.300% due 01/01/13 .......... 1,000,000 996,250
FLORIDA - 6.78%
Florida Housing Finance
Agency Revenue Bonds
8.400% due 10/01/12 .......... 3,300,000 3,279,375
Hillsborough County
Aviation Authority
Revenue Bonds
8.600% due 01/15/22 .......... 3,900,000 3,495,375
Homestead Industrial
Development
Revenue Bonds
7.950% due 11/01/18 .......... 2,000,000 1,825,000
Jacksonville Electric
Authority Revenue Bonds
5.250% due 10/01/28 .......... 1,000,000 783,750
South Indian River
Water Control District
Revenue Bonds
7.500% due 11/01/18 .......... 2,000,000 1,905,000
-----------
11,288,500
GEORGIA - 3.45%
Rockdale County
Development Authority
Solid Waste Disposal
Revenue Bonds
7.400% due 01/01/16 .......... 5,000,000 4,787,500
7.500% due 01/01/26 .......... 1,000,000 953,750
-----------
5,741,250
ILLINOIS - 10.94%
Bedford Park Tax Increment
Revenue Bonds
9.750% due 03/01/12 .......... 1,000,000 1,016,250
</TABLE>
4
<PAGE> 241
<TABLE>
STATEMENT OF NET ASSETS
<CAPTION>
Continued
FACE
ISSUER AMOUNT VALUE
----------------------------------------------------------
<S> <C> <C>
Chicago O'Hare International
Airport Special Facility
Revenue Bonds
8.850% due 05/01/18 .......... 1,975,000 2,120,656
Du Page County General
Obligation Bonds
5.600% due 01/01/21 .......... 5,000,000 4,306,250
Illinois Development Finance
Authority Solid Waste
Disposal Facility
Revenue Bonds
7.875% due 04/01/11 .......... 5,035,000 4,896,538
Illinois Health Facilities
Authority Revenue Bonds
9.000% due 10/01/22 .......... 1,500,000 1,453,125
9.500% due 10/01/22 .......... 2,500,000 2,550,000
Round Lake Beach Tax
Increment Revenue
Refunding Bonds
7.500% due 12/01/13 .......... 2,000,000 1,865,000
----------
18,207,819
INDIANA - 0.48%
Bluffton Economic Development
Revenue Refunding Bonds
7.850% due 08/01/15 .......... 750,000 793,125
IOWA - 0.12%
Iowa Finance Authority
Health Care Facility
Revenue Bonds
9.950% due 07/01/19 .......... 200,000 200,000
KANSAS - 1.15%
Prairie Village Revenue Bonds
8.750% due 08/15/23 .......... 2,000,000 1,910,000
KENTUCKY - 3.60%
Kenton County Airport
Revenue Bonds
7.250% due 02/01/22 .......... 3,800,000 3,491,250
7.800% due 12/01/15 .......... 2,500,000 2,496,875
----------
5,988,125
MARYLAND - 2.05%
Baltimore County Pollution
Control Revenue
Refunding Bonds
7.500% due 06/01/15 .......... 1,450,000 1,437,313
7.550% due 06/01/17 .......... 2,000,000 1,982,500
----------
3,419,813
MASSACHUSETTS - 3.24%
Massachusetts State
Industrial Finance Agency
Resource Recovery
Revenue Bonds
9.000% due 07/01/15 .......... 2,800,000 3,052,000
Massachusetts State Port
Authority Special Project
Revenue Bonds
10.000% due 03/01/26.......... 2,200,000 2,343,000
----------
5,395,000
MICHIGAN - 5.34%
Michigan State Highway
Truck Line General
Obligation Bonds
5.500% due 10/01/21 .......... 4,500,000 3,667,500
Michigan State Hospital
Finance Authority
Revenue Bonds
7.500% due 11/01/10 .......... 1,455,000 1,373,156
Monroe County Pollution
Control Revenue Bonds
10.500% due 12/01/16 ......... 250,000 270,000
Waterford Township Economic
Development Corporation
Revenue Bonds
8.375% due 07/01/23 .......... 3,500,000 3,583,125
----------
8,893,781
</TABLE>
5
<PAGE> 242
<TABLE>
STATEMENT OF NET ASSETS
<CAPTION>
Continued
FACE
ISSUER AMOUNT VALUE
----------------------------------------------------------
<S> <C> <C>
MISSOURI - 0.59%
Lee's Summit Industrial
Development Authority
Health Facilities
Revenue Bonds
7.125% due 08/15/12 .......... 1,000,000 976,250
NEW YORK - 2.23%
Triborough Bridge and
Tunnel Authority
Revenue Bonds
6.125% due 01/01/21 .......... 4,000,000 3,710,000
OHIO - 3.67%
Bedford Hospital Improvement
Revenue Bonds
8.500% due 05/15/09 .......... 1,520,000 1,573,200
Cleveland Parking Facilities
Revenue Bonds
8.000% due 09/15/12 .......... 1,000,000 1,012,500
Lorain County Project
Revenue Bonds
8.625% due 02/01/22 .......... 3,300,000 3,522,750
----------
6,108,450
OKLAHOMA - 1.14%
Tulsa Municipal Airport Trust
Revenue Bonds
7.350% due 12/01/11 .......... 2,000,000 1,902,500
OREGON - 2.48%
Western Generation Agency
Cogeneration Project
Revenue Bonds
7.125% due 01/01/21 .......... 4,300,000 4,122,625
PENNSYLVANIA - 12.34%
Cambria County Industrial
Development Authority
Pollution Control Revenue
Refunding Bonds
7.500% due 09/01/15 .......... 1,000,000 986,250
Chester County Industrial
Development Authority
Revenue Bonds
10.125% due 05/01/19 ......... 200,000 202,500
Montgomery County Higher
Education & Health
Authority Revenue Bonds
7.500% due 11/01/13 .......... 3,030,000 2,870,925
7.500% due 11/01/14 .......... 1,055,000 998,294
Pennsylvania Convention
Center Authority
Revenue Bonds
6.000% due 09/01/19 .......... 2,700,000 2,514,375
Pennsylvania Economic
Development Financing
Authority Resource
Recovery Revenue Bonds
6.875% due 01/01/11 .......... 5,800,000 5,256,250
Philadelphia Hospital &
Higher Education Facilities
Revenue Bonds
8.625% due 07/01/21 .......... 2,300,000 2,251,125
9.000% due 07/01/10 .......... 2,295,000 2,369,587
Philadelphia Industrial
Development
Revenue Bonds
10.250% due 02/01/18 ......... 290,000 297,250
Philadelphia Municipal
Authority Revenue
Refunding Bonds
6.300% due 07/15/17 .......... 2,000,000 1,755,000
Scranton-Lackawanna Health
& Welfare Authority
Revenue Bonds
8.500% due 07/01/20 .......... 1,000,000 1,042,500
----------
20,544,056
</TABLE>
6
<PAGE> 243
<TABLE>
STATEMENT OF NET ASSETS
<CAPTION>
Continued
FACE
ISSUER AMOUNT VALUE
----------------------------------------------------------
<S> <C> <C>
RHODE ISLAND - 1.32%
Providence Redevelopment
Agency Certificates of
Participation
8.000% due 09/01/24 .......... 2,250,000 2,202,187
SOUTH CAROLINA - 1.13%
McCormick County Hospital
Facilities Revenue Bonds
10.500% due 03/01/18 ......... 100,000 101,250
Piedmont Municipal Power
Agency Revenue
Refunding Bonds
5.375% due 01/01/25 .......... 2,155,000 1,775,181
-----------
1,876,431
TEXAS - 2.25%
Houston Housing Finance
Corporation Revenue Bonds
9.750% due 09/15/03 .......... 435,000 448,050
Sam Rayburn Municipal
Power Agency Power
Supply System
Revenue Bonds
6.750% due 10/01/14 .......... 3,525,000 3,304,688
-----------
3,752,738
UTAH - 3.20%
Carbon County Solid Waste
Disposal Revenue Bonds
7.500% due 07/01/07 .......... 1,500,000 1,417,500
9.000% due 07/01/12 .......... 2,000,000 1,947,500
9.250% due 07/01/18 .......... 1,900,000 1,959,375
-----------
5,324,375
VIRGINIA - 1.84%
Hopewell Industrial
Development Authority
Resource Recovery
Revenue Bonds
8.250% due 05/01/10 .......... 1,000,000 1,021,250
8.250% due 06/01/16 .......... 2,000,000 2,042,500
-----------
3,063,750
WEST VIRGINIA - 2.18%
Marion County Community
Solid Waste Disposal
Facility Revenue Bonds
7.750% due 12/01/11 .......... 4,000,000 3,625,000
WISCONSIN - 2.89%
Wisconsin Public Power
Supply System Revenue
Refunding Bonds
5.250% due 07/01/21 .......... 6,000,000 4,815,000
-----------
TOTAL LONG-TERM
MUNICIPAL OBLIGATIONS
(Cost $169,963,949) .......... 160,633,263
SHORT-TERM
----------
OBLIGATIONS - 3.67%
---------------------
VARIABLE RATE REVENUE
---------------------
BONDS - 3.67%
---------------
ALABAMA - 0.54%
Mobile Industrial
Development Board
Solid Waste Disposal
Revenue Bonds
3.400% due 11/02/94 (A) ...... 900,000 902,135
MICHIGAN - 0.12%
Michigan State Strategic
Fund Pollution Control
Revenue Bonds
3.500% due 11/01/94 (A) ...... 200,000 200,496
MISSISSIPPI - 1.99%
Jackson County Pollution
Control Revenue
Refunding Bonds
3.400% due 11/01/94 (A) ...... 200,000 200,448
Jackson County Port Facility
Revenue Bonds
3.400% due 11/01/94 (A) ...... 3,100,000 3,106,943
-----------
3,307,391
</TABLE>
7
<PAGE> 244
<TABLE>
STATEMENT OF NET ASSETS
<CAPTION>
Continued
FACE
ISSUER AMOUNT VALUE
-----------------------------------------------------------
<S> <C> <C>
TEXAS - 0.48%
Southwest Higher Education
Authority Revenue
Refunding Bonds
3.500% due 11/01/94 (A) .......... 800,000 801,844
WYOMING - 0.54%
Lincoln County Pollution
Control Revenue Bonds
3.600% due 11/01/94 (A)
Series A ........................ 400,000 400,973
Series C ........................ 500,000 501,216
------------
902,189
------------
TOTAL SHORT-TERM
OBLIGATIONS
(Cost $6,114,055) .................. 6,114,055
------------
TOTAL INVESTMENTS - 100.17%
(Cost $176,078,004) ................ 166,747,318
CASH AND OTHER ASSETS,
LESS LIABILITIES - (0.17)% ...... (277,616)
------------
NET ASSETS, at value,
equivalent to $8.82 per
share for 1,745,448 Class A
Shares ($.01 par value)
of capital stock outstanding
and $8.82 per share for
17,127,143 Class B
Shares ($.01 par value)
of capital stock
outstanding - 100.00% ........... $166,469,702
============
<FN>
(A) Interest rate reset date.
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 245
STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
STATEMENT OF OPERATIONS
Year Ended October 31, 1994
<S> <C> <C>
INVESTMENT INCOME
Interest ..................... $ 10,754,138
EXPENSES
Distribution expenses
(see Note D)............... $1,423,523
Management fees............... 886,380
Transfer agent fees........... 110,384
Administrative service fees... 88,709
Registration fees............. 59,160
Custodian fees................ 41,081
Audit and legal fees.......... 31,837
Shareholder reports........... 28,865
Directors' fees and expenses.. 25,400
Miscellaneous................. 18,251 2,713,590
---------- ------------
NET INVESTMENT INCOME...... 8,040,548
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS
Net realized loss on
investments................ (1,459,716)
Net change in unrealized
depreciation of
investments................ (14,473,003)
------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS........ (15,932,719)
------------
DECREASE IN NET ASSETS
RESULTING FROM
OPERATIONS................. (7,892,171)
============
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------
1994 1993
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income ......... 8,040,548 4,602,260
Net realized gain (loss) on
investments ................. (1,459,716) 2,331,358
Net change in unrealized
appreciation
(depreciation) of
investments ................. (14,473,003) 3,971,820
------------ ------------
Increase (decrease) in net
assets resulting from
operations .................. (7,892,171) 10,905,438
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income -
Class A ..................... (369,015) -
Class B ..................... (7,671,533) (4,876,985)
In excess of net investment
income -
Class A ..................... (67,471) -
Class B ..................... (1,136,918) -
From net realized gain on
investments - Class B ....... (1,980,359) (929,982)
------------ ------------
Total distributions to
shareholders ................ (11,225,296) (5,806,967)
CAPITAL SHARE
TRANSACTIONS
Increase in capital shares
outstanding ................ 72,145,259 42,410,147
------------ ------------
Increase in net assets ........ 53,027,792 47,508,618
NET ASSETS
Beginning of year ............. 113,441,910 65,933,292
------------ ------------
End of year ................... $166,469,702 $113,441,910
============ ============
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 246
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
CLASS A SHARES CLASS B SHARES
--------------- ---------------------------------------------------------
PERIOD FROM
DECEMBER 31, 1993 YEAR ENDED OCTOBER 31,
TO OCTOBER 31, ---------------------------------------------------------
1994(1) 1994 1993 1992 1991 1990
--------------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Per share income and capital changes for a share
outstanding during each period:
Net asset value, beginning of period ............. $ 9.85 $ 9.98 $ 9.39 $ 9.31 $ 9.07 $ 9.29
INCOME FROM INVESTMENT OPERATIONS
Net investment income ............................ 0.48 0.48 0.53 0.55 0.54 0.55
Net realized and unrealized gain (loss)
on investments ................................ (0.94) (0.90) 0.72 0.17 0.34 (0.14)
------- -------- -------- ------- ------- -------
Total from Investment Operations .............. (0.46) (0.42) 1.25 0.72 0.88 0.41
LESS DISTRIBUTIONS
Dividends from net investment income ............. (0.48) (0.48) (0.56) (0.55) (0.54) (0.55)
Dividends in excess of net investment income ..... (0.09) (0.07) - - - -
Distributions from realized gains ................ - (0.19) (0.10) (0.09) - -
Returns of capital ............................... - - - - (0.10) (0.08)
------- -------- -------- ------- ------- -------
Total Distributions ........................... (0.57) (0.74) (0.66) (0.64) (0.64) (0.63)
------- -------- -------- ------- ------- -------
Net asset value, end of period ................... $ 8.82 $ 8.82 $ 9.98 $ 9.39 $ 9.31 $ 9.07
======= ======== ======== ======= ======= =======
TOTAL RETURN(2) .................................. (4.82)% (4.44)% 13.69% 7.89% 10.07% 4.60%
======= ======== ======== ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net assets .......... 0.96% 1.85% 2.06% 2.17% 2.36% 2.20%
Ratio of net investment income to
average net assets ........................... 5.08% 5.36% 5.23% 5.78% 5.61% 5.96%
Portfolio turnover ............................... 62% 62% 100% 40% 83% 41%
Net Assets, end of period (in thousands) ......... $15,401 $151,069 $113,442 $65,933 $51,467 $35,820
<FN>
(1) Financial highlights, including total return, have not been annualized. Per share information has been calculated using the
average number of shares outstanding. Portfolio turnover is for the year ended October 31, 1994.
(2) Total return does not include the effect of the initial sales charge for Class A Shares nor the contingent deferred sales
charge for Class B Shares.
</TABLE>
See Notes to Financial Statements.
10
<PAGE> 247
NOTES TO FINANCIAL STATEMENTS
October 31, 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special Series,
Inc., is a diversified, open-end management investment company registered under
the Investment Company Act of 1940, as amended. The Issuer operates as a series
fund, currently issuing six series of shares. On May 20, 1994, the shareholders
of the Issuer approved changes to the name of the Issuer and to the names of
each of the series of the Issuer. These changes became effective on June 15,
1994.
Transamerica High Yield Tax-Free Fund (the "Fund"), formerly
Transamerica Special High Yield Tax Free Fund, is one of the series of the
Issuer. The Fund made its initial offering of shares to the public on August 25,
1986 and subsequently was reorganized as a series of the Issuer and made its
initial offering of shares to the public as a Series fund on May 1, 1987. On
December 31, 1993, the Fund commenced issuing a second class of shares. The new
Class A Shares are subject to an initial sales charge of up to 4.75% and a 12b-1
distribution plan and Class B Shares are subject to a contingent deferred sales
charge and a separate 12b-1 distribution plan. The following is a summary of
significant accounting policies consistently followed by the Fund.
(1) The Fund values its investments by using quotations provided by
market makers, estimates of market value, or values received from an independent
pricing service. Securities for which market quotations are not readily
available are valued at a fair value as determined in good faith by the Issuer's
Board of Directors. Short-term investments are valued at amortized cost
(original cost plus amortized discount or accrued interest).
(2) Security transactions are accounted for on the trade date. Interest
income is accrued daily. For financial reporting purposes, debt premiums are
amortized using the yield-to-maturity method. Realized gains and losses from
security transactions are determined on the basis of identified cost for both
financial reporting and federal income tax purposes.
(3) Income dividends are declared daily by the Fund and paid or
reinvested at net asset value monthly. Other distributions are recorded on the
ex-dividend date and may be reinvested at net asset value. Income and capital
gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. Distributions
payable to shareholders at October 31, 1994 were $627,636.
(4) As described in the prospectus, the Fund may invest in debt
securities that, at the time of purchase are assigned to the medium and lower
rating categories of recognized rating agencies or are unrated by such agencies
and therefore, may involve greater credit and/or interest rate risks.
(5) No provision for federal income taxes has been made since it is the
Fund's intention to distribute all of its taxable income and profits to its
shareholders and to comply with the requirements applicable to regulated
investment companies and the minimum distribution requirements of the Internal
Revenue Code. The Fund's tax year end is December 31.
(6) The Fund reports custodian fees net of credits and charges resulting
from cash positions in the custodial accounts greater than or less than the
amounts required to settle portfolio transactions. For the year ended October
31, 1994, these amounts were $5,364 and $6,203, respectively.
(7) On a daily basis, income, unrealized and realized gains and losses,
and expenses which are not class specific are allocated to each class based on
their respective relative net assets. Class specific expenses, such as
distribution expenses, are applied to the class to which they are attributed.
<TABLE>
NOTE B - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund's management fee is payable monthly to Transamerica Fund Management
Company (the "Investment Adviser") and is calculated based on the following
schedule:
<CAPTION>
AVERAGE DAILY
NET ASSETS ANNUAL RATE
------------------ -----------
<S> <C>
First $75 million 0.6250%
Next $75 million 0.5625%
Over $150 million 0.5000%
</TABLE>
At October 31, 1994, the management fee payable to the Investment
Adviser was $84,476.
The Investment Adviser provides administrative services to the Fund
pursuant to an administrative service agreement. During the year ended October
31, 1994, the Fund paid or accrued $60,488 for these services, of which $5,709
was payable at October 31, 1994.
During the year ended October 31, 1994, Transamerica Fund Distributors,
Inc. (the "Distributor"), an affiliate of the Investment Adviser, as principal
underwriter of the Fund, retained $24,453 as its portion of the commissions
charged on sales of Class A Shares of the Fund. At October 31, 1994, receivables
from and payables to the Distributor for Fund share transactions were $564,579
and $135,220, respectively.
11
<PAGE> 248
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE B (Continued)
The Fund paid no compensation directly to any officer. Certain officers
and a director of the Issuer are affiliated with the Investment Adviser.
During the year ended October 31, 1994, the Fund paid legal fees of
$5,114 to Baker & Botts. A partner with Baker & Botts is an officer of the
Issuer.
NOTE C - COST, PURCHASES AND SALES OF INVESTMENT SECURITIES
During the year ended October 31, 1994, purchases and sales of securities, other
than short-term obligations, aggregated $159,571,299 and $88,978,661,
respectively. At October 31, 1994, payables to brokers for securities purchased
were $2,587,700.
At October 31, 1994, the identified cost of total investments owned is
the same for both financial reporting and federal income tax purposes. At
October 31, 1994, the gross unrealized appreciation and gross unrealized
depreciation of investments for federal income tax purposes were $1,064,773 and
$10,395,459, respectively.
NOTE D - PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is
authorized under separate distribution plans to finance activities related to
the distribution of its Class A and Class B Shares (the "Class A Plan" and the
"Class B Plan," respectively). The distribution plans, together with the initial
sales charge on Class A Shares and the contingent deferred sales charge on Class
B Shares, comply with the regulations covering maximum sales charges assessed by
mutual funds distributed through securities dealers that are NASD members.
The Class A Plan and the Class B Plan permit each class to make payments
to the Distributor up to 0.25% annually of average daily net assets for certain
distribution costs such as service fees paid to dealers, production and
distribution of prospectuses to prospective investors, services provided to new
and existing shareholders and other distribution related activities. During the
period December 31, 1993 to October 31, 1994, Class A made payments to the
Distributor of $15,171 or 0.21% related to the above activities. During the year
ended October 31, 1994, Class B made payments of $360,232 or 0.25% related to
these activities.
The Class B Plan also permits Class B to reimburse the Distributor up to
0.75% annually of average daily net assets for costs related to compensation
paid to securities dealers, in place of an initial sales charge to investors, on
the sale of Class B Shares. These costs are based upon a commission payment
charge of 5% of the value of Class B Shares sold (excluding shares acquired
through reinvestment) reduced by the amount of contingent deferred sales charges
(CDSC) that have been received by the Distributor on redemptions of Class B
Shares. These costs also include a charge of interest (carrying charge) at an
annual rate of 1% over the prevailing prime rate to the extent cumulative
commission payment charges, plus any previous carrying charges, less CDSC
received by the Distributor, have not been paid in full by the Fund. For the
year ended October 31, 1994, Class B reimbursed the Distributor $1,048,120 or
0.73% for such costs. For the year ended October 31, 1994, the Distributor
received $253,265 in CDSC. At October 31, 1994, the balance of unrecovered costs
was $6,227,263.
At October 31, 1994, Class A had $4,515 and Class B had $205,393 payable
to the Distributor pursuant to the above distribution plans.
12
<PAGE> 249
NOTES TO FINANCIAL STATEMENTS
Continued
<TABLE>
NOTE E - CAPITAL AND RELATED TRANSACTIONS
A summary of the capital stock transactions follows:
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------
1994(1) 1993
------------------------ -----------------------
SHARES DOLLARS SHARES DOLLARS
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Shares sold - Class A ............................................... 1,811,428 $ 16,937,949 - -
Shares sold - Class B ............................................... 7,988,008 76,547,531 5,001,644 $48,865,219
Shares issued in reinvestment of distributions - Class A ............ 14,913 136,310 - -
Shares issued in reinvestment of distributions - Class B ............ 446,841 4,233,508 280,254 2,731,671
Shares redeemed - Class A ........................................... (80,893) (741,733) - -
Shares redeemed - Class B ........................................... (2,671,603) (24,968,306) (937,111) (9,186,743)
---------- ------------ --------- -----------
Net increase in capital shares outstanding ............................ 7,508,694 $ 72,145,259 4,344,787 $42,410,147
========== ============ ========= ===========
<FN>
(1) Class A share transactions are for the period December 31, 1993 to October 31, 1994.
The components of net assets at October 31, 1994, are as follows:
Capital paid-in (125,000,000 shares authorized).............................................................. $177,720,082
Accumulated net realized loss on investments................................................................. (1,919,694)
Net unrealized depreciation of investments................................................................... (9,330,686)
------------
NET ASSETS................................................................................................... $166,469,702
============
</TABLE>
13
<PAGE> 250
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
John Hancock High Yield Tax-Free Fund,
a series of John Hancock Series, Inc.
We have audited the accompanying statement of net assets of John Hancock High
Yield Tax-Free Fund (formerly Transamerica High Yield Tax Free Fund), a series
of John Hancock Series, Inc. (formerly Transamerica Series, Inc.), as of October
31, 1994, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of John Hancock High Yield Tax-Free Fund, a series of John Hancock
Series, Inc., at October 31, 1994, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Houston, Texas
December 2, 1994,
14
<PAGE> 251
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
ASSETS:
Investments at value - Note C:
Bonds (cost - $165,068,152) .............................................. $165,224,578
Short-term investments (cost - $200,000) ................................. 200,000
-------------
165,424,578
Cash ....................................................................... 2,240,944
Segregated assets for financial futures contracts .......................... 131,250
Receivable for shares sold ................................................. 271,014
Receivable for investments sold ............................................ 8,782,548
Interest receivable ........................................................ 3,497,216
Miscellaneous assets ....................................................... 43,444
-------------
Total Assets ............................................ 180,390,994
---------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased .......................................... 5,856,496
Payable for shares repurchased ............................................. 84,260
Dividend payable ........................................................... 466,471
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ...................................................... 50,032
Accounts payable and accrued expenses ...................................... 74,183
-------------
Total Liabilities ....................................... 6,531,442
---------------------------------------------------------------------------
NET ASSETS:
Capital paid-in ............................................................ 176,676,257
Accumulated net realized loss on investments ............................... (2,328,407)
Net unrealized appreciation of investments and
financial futures contracts .............................................. 149,395
Distributions in excess of net investment income ........................... (637,693)
-------------
Net Assets .............................................. $173,859,552
===========================================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial interest outstanding -
125,000,000 shares authorized with $0.01 per share par value, respectively)
Class A - $14,498,617/1,566,266 ............................................ $ 9.26
==============================================================================================
Class B - $159,360,935/17,211,821 .......................................... $ 9.26
==============================================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($9.26 x 104.99%) ................................................ $ 9.72
==============================================================================================
<FN>
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
</TABLE>
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON APRIL 30, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF THAT
DATE.
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
STATEMENT OF OPERATIONS
Six months ended April 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
INVESTMENT INCOME:
Interest ................................................................... $ 6,256,231
-----------
Expenses:
Investment management fee - Note B ....................................... 484,928
Distribution/service fee - Note B
Class A ................................................................. 19,084
Class B ................................................................. 755,590
Transfer agent fee ....................................................... 67,645
Registration and filing fees ............................................. 39,478
Custodian fee ............................................................ 34,353
Auditing fee ............................................................. 30,159
Trustees' fees ........................................................... 11,402
Printing ................................................................. 8,152
Miscellaneous ............................................................ 7,849
Advisory board fee ....................................................... 5,929
Legal fees ............................................................... 4,586
-----------
Total Expenses .......................................... 1,469,155
--------------------------------------------------------------------------
Net Investment Income ................................... 4,787,076
--------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FINANCIAL FUTURES CONTRACTS
Net realized loss on investments sold ...................................... (408,713)
Change in net unrealized appreciation/depreciation
of investments ........................................................... 9,487,112
Change in net unrealized appreciation/depreciation
on financial futures contracts ........................................... (7,031)
-----------
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts ............................. 9,071,368
--------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............................... $13,858,444
==========================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 252
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1995 OCTOBER 31,
(UNAUDITED) 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income................................................................. $ 4,787,076 $ 8,040,548
Net realized loss on investments sold and financial futures contracts................. (408,713) (1,459,716)
Change in net unrealized appreciation/depreciation of investments and
financial futures contracts.......................................................... 9,480,081 (14,473,003)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations..................... 13,858,444 (7,892,171)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income:
Class A** - ($0.3207 and $0.4800 per share, respectively)........................... (556,199) (369,015)
Class B - ($0.2848 and $0.4800 per share, respectively)............................. (4,868,570) (7,671,533)
Distributions fom net realized gain on investments sold
Class B - (none and $0.1900 per share, respectively)................................ -- (1,980,359)
Distributions in excess of net investment income
Class A** - (none and $0.0900 per share, respectively).............................. -- (67,471)
Class B - (none and $0.0700 per share, respectively)................................ -- (1,136,918)
------------ ------------
Total Distributions to Shareholders................................................ (5,424,769) (11,225,296)
------------ ------------
FROM FUND SHARE TRANSACTIONS-- NET*.................................................... (1,043,825) 72,145,259
------------ ------------
NET ASSETS:
Beginning of period................................................................... 166,469,702 113,441,910
------------ ------------
End of period (including distributions in excess of net investment
income of ($637,693) and none, respectively)......................................... $173,859,552 $166,469,702
============ ============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1995 YEAR ENDED OCTOBER 31,
(UNAUDITED) 1994
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A**
Shares sold ................................. 273,387 $ 2,438,701 1,811,428 $ 16,937,949
Shares issued to shareholders in reinvestment
of distributions ........................... 23,853 212,931 14,913 136,310
---------- ------------ ---------- ------------
297,240 2,651,632 1,826,341 17,074,259
Less shares repurchased ...................... (476,422) (4,328,562) (80,893) (741,733)
---------- ------------ ---------- ------------
Net increase (decrease) ...................... (179,182) ($ 1,676,930) 1,745,448 $ 16,332,526
========== ============ ========== ============
CLASS B
Shares sold .................................. 2,076,584 $ 18,411,151 7,988,008 $ 76,547,531
Shares issued to shareholders in reinvestment
of distributions ............................ 181,819 1,626,281 446,841 4,233,508
---------- ------------ ---------- ------------
2,258,403 20,037,432 8,434,849 80,781,039
Less shares repurchased ...................... (2,173,725) (19,404,327) (2,671,603) (24,968,306)
---------- ------------ ---------- ------------
Net increase ................................. 84,678 $ 633,105 5,763,246 $ 55,812,733
========== ============ ========== ============
</TABLE>
** Class A shares commenced operations on December 31, 1993
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 253
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
periods indicated, investment returns, key ratios and supplemental data are
listed as follows:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
PERIOD FROM
SIX MONTHS DECEMBER 31, 1993
ENDED (COMMENCEMENT OF
APRIL 30, OPERATIONS) TO
1995(b) OCTOBER 31,
(UNAUDITED) 1994
CLASS A ----------- -----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................................................ $ 8.82 $ 9.85
------- -------
Net Investment Income....................................................................... 0.28 0.48(a)
Net Realized and Unrealized Gain (Loss) on Investments Sold and Financial Futures Contracts. 0.48 (0.94)
------- -------
Total from Investment Operations........................................................... 0.76 (0.46)
------- -------
Less Distributions:
Dividends from Net Investment Income........................................................ (0.32) (0.48)
Distributions in Excess of Net Investment Income............................................ -- (0.09)
------- -------
Total Distributions........................................................................ (0.32) (0.57)
------- -------
Net Asset Value, End of Period.............................................................. $ 9.26 $ 8.82
======= =======
Total Investment Return at Net Asset Value.................................................. 8.81% 4.96%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................................................... $14,499 $15,401
Ratio of Expenses to Average Net Assets..................................................... 1.09%* 1.15%*
Ratio of Net Investment Income to Average Net Assets........................................ 6.49%* 6.08%*
Portfolio Turnover Rate..................................................................... 18% 62%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIODS INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DIVIDENDS, AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE
FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 254
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
SIX MONTHS
ENDED
APRIL 30, 1995(b) YEAR ENDED OCTOBER 31, 1994
-----------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------------
Class B
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............. $ 8.82 $ 9.98 $ 9.39 $ 9.31 $ 9.07 $ 9.29
-------- -------- -------- ------- ------- -------
Net Investment Income ............................ 0.25 0.48 0.53 0.55 0.54 0.55
Net Realized and Unrealized Gain (Loss) on
Investments Sold and
Financial Futures Contracts .................... 0.47 (0.90) 0.72 0.17 0.34 (0.14)
-------- -------- -------- ------- ------- -------
Total from Investment Operations ................ 0.72 (0.42) 1.25 0.72 0.88 0.41
-------- -------- -------- ------- ------- -------
Less Distributions
Dividends from Net Investment Income ............. (0.28) (0.48) (0.56) (0.55) (0.54) (0.55)
Distributions in Excess of Net Investment Income.. -- (0.07) -- -- -- --
Distributions from Net Realized Gain on
Investments Sold ................................ -- (0.19) (0.10) (0.09) -- --
Distributions from Capital Paid-in ............... -- -- -- -- (0.10) (0.08)
Total Distributions ............................. (0.28) (0.74) (0.66) (0.64) (0.64) (0.63)
-------- -------- -------- ------- ------- -------
Net Asset Value, End of Period ................... $ 9.26 $ 8.82 $ 9.98 $ 9.39 $ 9.31 $ 9.07
======== ======== ======== ======= ======= =======
Total Investment Return at Net Asset Value ...... 8.38% (4.44%) 13.69% 7.89% 10.07% 4.60%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ........ $159,361 $151,069 $113,442 $65,933 $51,467 $35,820
Ratio of Expenses to Average Net Assets .......... 1.84%* 1.85% 2.06% 2.17% 2.36% 2.20%
Ratio of Net Investment Income to Average Net
Assets........................................... 5.74%* 5.36% 5.23% 5.78% 5.61% 5.96%
Portfolio Turnover Rate .......................... 18% 62% 100% 40% 83% 41%
</TABLE>
* On an annualized basis.
(a) On average month end shares outstanding.
(b) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 255
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
SCHEDULE OF INVESTMENTS
April 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY HIGH
YIELD TAX-FREE FUND ON APRIL 30, 1995. IT'S DIVIDED INTO TWO MAIN CATEGORIES:
TAX-EXEMPT LONG-TERM BONDS AND TAX-EXEMPT SHORT-TERM NOTES. THE BONDS ARE
FURTHER BROKEN DOWN BY STATES. UNDER EACH STATE IS A LIST OF THE SECURITIES
OWNED BY THE FUND.
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
-------------------------- ---- ---- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
CALIFORNIA (17.12%)
Fontana, County Of,
Special Tax Rev Community Facility District No 90-3
Empire Center............................................. 8.500% 04-01-21 BB-** $8,000 $ 8,000,000 8.50%
Fresno Joint Powers Financing Auth,
Rev Ser B Subordinated Debt................................ 7.350 09-02-12 BB-** 5,540 5,585,760 7.29
Pleasanton Joint Powers Financing Auth,
Rev Reassessment Ser B Subordinated Debt................... 6.750 09-02-17 BBB-** 3,420 3,312,407 6.97
San Bernardino, County Of,
Cert Of Part Medical Center Fin Proj....................... 5.500 08-01-17 A- *4,500 3,648,510 6.78
Santa Ana Financing Auth,
Lease Rev Police Admin & Holding Facil Ser A............... 6.250 07-01-19 AAA *2,000 2,045,100 6.11
South Orange County Public Financing Auth,
Spec Tax Rev Levrrs........................................ 6.095 08-15-17 AAA** *7,500 7,171,875 6.37
-----------
29,763,652
-----------
COLORADO (2.95%)
Denver, City & County of,
Airport Rev Ser A.......................................... 7.250 11-15-25 BB 5,000 5,134,600 7.06
-----------
DISTRICT OF COLUMBIA (0.56%)
District of Columbia,
Cert of Part............................................... 7.300 01-01-13 B- 1,000 976,600 7.47
-----------
FLORIDA (6.92%)
Florida Housing Finance Agency,
Southlake Apartments Proj Ser D Remarketed 6-1-1993........ 8.400 10-01-12 BBB-** 3,300 3,366,165 8.23
Hillsborough County Aviation Auth,
Rev Special Purpose Facil Improv US Air Proj............... 8.600 01-15-22 B- 3,900 3,886,974 8.63
Homestead, City of,
Ind'l Development Rev Community Rehab Proj Ser A........... 7.950 11-01-18 BB** 2,000 1,864,920 8.53
Jacksonville Electric Auth,
Elec Sys Rev Ser 3A........................................ 5.250 10-01-28 AA 1,000 871,660 6.02
South Indian River Water Control District,
Rev Egret Landing Proj Section 15 Phase 1.................. 7.500 11-01-18 BB+** 2,000 2,039,240 7.36
-----------
12,028,959
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 256
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
-------------------------- ---- ---- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
GEORGIA (3.43%)
Rockdale County Development Auth,
Solid Waste Disposal Rev Visy Paper Inc Proj............... 7.400% 01-01-16 BB** $5,000 $ 4,957,450 7.46%
Solid Waste Disposal Rev Visy Paper Inc Proj............... 7.500 01-01-26 BB** 1,000 1,000,550 7.50
-----------
5,958,000
-----------
ILLINOIS (7.98%)
Bedford Park, City Of,
Tax Increment Rev Sr Lien Mark IV Proj..................... 9.750 03-01-12 BB** 1,000 1,108,470 8.80
Chicago, City Of,
Chicago-O'Hare Int'L Airport Spec Facil Rev Ref
American Airlines Inc 8.200 12-01-24 BB+* 1,500 1,656,240 7.43
Illinois Development Finance Auth,
Solid Waste Disposal Rev Facility Ford Heights
Waste Tire Proj 7.875 04-01-11 BB-** 5,035 4,923,072 8.05
Illinois Health Facilities Auth,
Rev Fairview Obligated Group Proj Ser A.................... 9.500 10-01-22 BB** 2,500 2,659,550 8.93
Rev Fairview Obligated Group Proj Ser B.................... 9.000 10-01-22 BB** 1,500 1,547,790 8.72
Round Lake Beach, City Of,
Tax Increment Rev Ref...................................... 7.500 12-01-13 BB+** 2,000 1,978,080 7.58
-----------
13,873,202
-----------
INDIANA (0.45%)
Bluffton Economic Development Auth,
Rev Ref Kroger Co Proj Adjustable Rate Convertible 5-1-1992 7.850 08-01-15 BA2** 750 784,905 7.50
-----------
IOWA (0.12%)
Iowa Finance Auth,
Health Care Facil Rev Mercy Health - Health Initiatives Proj 9.950 07-01-19 BB** 200 211,238 9.42
-----------
KANSAS (1.17%)
Prarie Village, City of,
Rev Ser A Claridge Court Proj.............................. 8.750 08-15-23 BBB-** 2,000 2,044,400 8.56
-----------
KENTUCKY (3.72%)
Kenton County Airport Board,
Rev Spec Facil Delta Airlines Inc Ser 1985................. 7.800 12-01-15 BB 2,500 2,620,650 7.44
Rev Spec Facil Delta Airlines Proj Ser B................... 7.250 02-01-22 BB 3,800 3,850,882 7.15
-----------
6,471,532
-----------
MARYLAND (1.16%)
Baltimore, County of,
Poll Control Rev Ref Bethelehem Steel Corp Proj............ 7.500 06-01-15 BB-** 2,000 2,016,220 7.44
-----------
MASSACHUSETTS (3.11%)
Massachusetts Industrial Finance Agency,
Rev Ser A Southeastern Mass Proj........................... 9.000 07-01-15 BB** 2,800 3,019,744 8.35
Massachusetts Port Auth,
Spec Proj Rev Harborside Hyatt Hotel Remarketed 6-20-1991.. 10.000 03-01-26 BB** 2,200 2,381,346 9.24
-----------
5,401,090
-----------
MICHIGAN (3.04%)
Michigan Hospital Finance Auth,
Rev Ref Ser A Detroit Osteopathic.......................... 7.500 11-01-10 B+ 1,455 1,417,374 7.70
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 257
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
-------------------------- ---- ---- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
MICHIGAN (CONTINUED)
Monroe, County Of,
Poll Control Rev Ser A Detroit Edison Co................... 10.500% 12-01-16 BBB $ 250 $ 264,825 9.91%
Waterford Township Economic Development Corp,
Rev Ltd Oblig Canterbury Hlth Care......................... 8.375 07-01-23 BB+** 3,500 3,604,265 8.13
-----------
5,286,464
-----------
MISSOURI (0.59%)
Lees Summit Industrial Development Auth,
Hlth Facil Ref Rev & Imp John Knox Vlg Proj................ 7.125 08-15-12 A-** 1,000 1,018,300 7.00
-----------
NEW YORK (2.91%)
New York, City Of,
Go Ser B................................................... 7.300 08-15-11 A-* 950 995,315 6.97
Triborough Bridge And Tunnel Auth,
Gen Purpose Rev Ser Y...................................... 6.125 01-01-21 A+ 4,000 4,064,600 6.03
-----------
5,059,915
-----------
OHIO (4.78%)
Bedford, County Of,
Rev Ref Community Hosp Bedford Inc......................... 8.500 05-15-09 AAA** 1,465 1,705,465 7.30
Cleveland, City Of,
Parking Facil Imp Rev...................................... 8.000 09-15-12 BBB** 1,000 1,043,380 7.67
Parking Facil Imp Rev...................................... 8.100 09-15-22 BBB** *2,000 2,091,860 7.74
Lorain, County Of,
Rev First Mtg Kendal At Oberlin Proj Ser A................. 8.625 02-01-22 A1 3,300 3,474,042 8.19
-----------
8,314,747
-----------
OKLAHOMA (1.18%)
Tulsa Municipal Airport Trust, Trustees Of,
Rev American Airlines Inc.................................. 7.350 12-01-11 BB+ 2,000 2,057,940 7.14
-----------
OREGON (2.49%)
Western Generation Agency,
Rev 1994 Ser A Wauna Cogeneration Proj..................... 7.125 01-01-21 BB+** 4,300 4,330,616 7.07
-----------
PENNSYLVANIA (15.69%)
Chester County Industrial Development Auth,
Rev First Mtg Rha/Pa Nursing Home.......................... 10.125 05-01-19 BB** 200 212,730 9.52
Montgomery County Higher Education & Health Auth,
Hosp Rev Ser A Utd Hosp Original Iss....................... 7.500 11-01-14 BA1** 1,055 1,021,472 7.75
Hosp Rev Ser B Utd Hosp Original Iss....................... 7.500 11-01-13 BA1** 3,030 2,970,673 7.65
Montgomery County Redevelopment Auth,
Multifamily Hsg Rev Ser A KBF Assoc L.P. Proj.............. 6.500 07-01-25 BBB+** *3,500 3,191,510 7.13
Northampton County Industrial Development Auth,
Poll Control Rev Ref Bethlehem Steel Proj.................. 7.550 06-01-17 BB-** *2,000 2,011,700 7.51
Pennsylvania Convention Center Auth,
Rev Ser A.................................................. 6.000 09-01-19 AAA 2,700 2,743,146 5.91
Pennsylvania Economic Development Finance Auth,
Rev Ser C Subordinated Debt Northampton Generating......... 6.875 01-01-11 BB** 5,800 5,357,924 7.44
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 258
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
-------------------------- ---- ---- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Philadelphia Auth For Industrial Development,
Rev First Mtg Rha Care Pavilion Proj....................... 10.250% 02-01-18 BB** $ 285 $ 298,127 9.80%
Philadelphia Hospitals And Higher Education Facilities Auth
Hosp Rev Methodist Hosp Ser 1987A.......................... 9.000 07-01-10 BB 2,295 2,400,157 8.61
Rev Ser A Philadelphia Protestant Home Proj................ 8.625 07-01-21 BB-** 2,300 2,336,455 8.49
Philadelphia Municipal Auth,
Rev Ref Lease Ser D........................................ 6.300 07-15-17 BBB- 2,000 1,864,360 6.76
Philadelphia, City Of,
Gas Works Rev Fourteenth Ser............................... 6.375 07-01-14 BBB *1,900 1,847,598 6.56
Scranton-Lackawanna Health & Welfare Auth,
Rev Ser B Moses Taylor Hosp Proj........................... 8.500 07-01-20 BB+ 1,000 1,019,190 8.34
-----------
27,275,042
-----------
RHODE ISLAND ( 1.33%)
Providence Redevelopment Agency,
Cert of Part Ser A......................................... 8.000 09-01-24 BB-** 2,250 2,308,635 7.80
-----------
SOUTH CAROLINA (1.17%)
McCormick, County Of,
Hosp Facil Rev McCormick County Nursing Center Proj........ 10.500 03-01-18 BB** 100 102,727 10.22
Piedmont Municipal Power Agency,
Elec Sys Rev Ref........................................... 5.375 01-01-25 AAA 2,155 1,922,842 6.02
-----------
2,025,569
-----------
TEXAS (1.51%)
Houston Housing Finance Corp,
Single Family Mtg Rev...................................... 9.750 09-15-03 B 410 411,406 9.72
Sam Rayburn Municipal Power Agency,
Rev Ref Ser A.............................................. 6.750 10-01-14 BB 2,525 2,216,217 7.69
-----------
2,627,623
-----------
UTAH (3.23%)
Carbon, County of,
Solid Waste Disposal Rev Ref East Carbon Development Corp
Ser A..................................................... 9.000 07-01-12 BBB-** 2,000 2,075,360 8.67
Solid Waste Disposal Rev Ref Sunnyside Cogeneration Proj... 9.250 07-01-18 BBB-** 1,900 2,044,799 8.59
Solid Waste Disposal Rev Ref Sunnyside Cogeneration Proj... 7.500 07-01-07 BBB-** 1,500 1,496,190 7.52
-----------
5,616,349
-----------
VIRGINIA (3.28%)
Hopewell Industrial Development Auth,
Poll Control Rev Stone Container Corp Proj................. 8.250 05-01-10 BB** 1,000 1,037,870 7.95
Resource Recovery Rev Ref Stone Container Corp Proj........ 8.250 06-01-16 BB** 4,500 4,658,130 7.97
-----------
5,696,000
-----------
WEST VIRGINIA (2.10%)
Marion, County Of,
Community Solid Waste Disposal Rev American Power Paper
Recycling Proj............................................ 7.750 12-01-11 BB** 4,000 3,655,960 8.48
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 259
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
-------------------------- ---- ---- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
WISCONSIN (3.04%)
Wisconsin Public Power Inc.,
Pwr Supply Sys Rev Serv A.................................. 5.250% 07-01-21 AAA $6,000 $ 5,287,020 5.96%
------------
TOTAL TAX-EXEMPT LONG TERM BONDS
(Cost $165,068,152) (95.03%) 165,224,578
------ ------------
TAX-EXEMPT SHORT-TERM NOTES
MISSISSIPPI (0.12%)
Jackson, County Of,
Poll Control Rev Ref Chevron USA Inc Proj Adj Rate......... 4.700%# 06-01-23 200 200,000
------------
TOTAL TAX-EXEMPT SHORT TERM NOTES (0.12%) 200,000
------ ------------
TOTAL INVESTMENTS (95.15%) $165,424,578
====== ============
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
* Securities, other than short term investments, newly added to the portfolio,
during the period ended April 30, 1995.
** Credit ratings are rated by Moody's Investors Services or John Hancock
Advisers, Inc. where Standard & Poor's ratings are not available and are
unaudited.
+ The yield is not calculated with guidelines established by the U.S.
Securities Exchange Commission and is unaudited.
# Securities redeemable at any time subject to prior notification to issuer.
Represents the rate in effect on April 30, 1995.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 260
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
PORTFOLIO CONCENTRATION (UNAUDITED)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE HIGH YIELD TAX-FREE FUND INVESTS PRIMARILY IN SECURITIES ISSUED BY THE
VARIOUS STATES AND THEIR VARIOUS POLITICAL SUBDIVISIONS. THE PERFORMANCE OF THE
FUND IS CLOSELY TIED TO ECONOMIC CONDITIONS WITHIN THE APPLICABLE STATES AND THE
FINANCIAL CONDITION OF THE STATES AND THEIR AGENCIES AND MUNICIPALITIES. THE
CONCENTRATION OF INVESTMENTS BY STATES AND CREDIT RATINGS FOR INDIVIDUAL
SECURITIES HELD BY THE FUND ARE SHOWN IN THE SCHEDULE OF INVESTMENTS. IN
ADDITION, THE CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY VARIOUS SECTOR
CATEGORIES.
THE TABLE BELOW SHOWS THE PERCENTAGES OF THE FUND'S INVESTMENTS AT APRIL 30,
1995 ASSIGNED TO THE VARIOUS SECTOR CATEGORIES.
<TABLE>
<CAPTION>
MARKET VALUE AS A PERCENTAGE OF
SECTOR DISTRIBUTION THE FUND'S NET ASSETS:
------------------- -------------------------------
<S> <C>
General Obligation..................................................................... 0.57%
Revenue Bonds - Certificate of Participation........................................... 3.99
Revenue Bonds - Education.............................................................. 0.00
Revenue Bonds - Electric Power......................................................... 8.43
Revenue Bonds - Health................................................................. 10.61
Revenue Bonds - Housing................................................................ 4.01
Revenue Bonds - Industrial Development Bond............................................ 10.18
Revenue Bonds - Other.................................................................. 25.53
Revenue Bonds - Pollution Control Facilities........................................... 22.19
Revenue Bonds - Transportation......................................................... 8.49
Revenue Bonds - Water & Sewer.......................................................... 1.18
-----
TOTAL TAX-EXEMPT LONG-TERM BONDS 95.18%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 261
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Trust") is a diversified, open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of six series portfolios: John Hancock High Yield Tax-Free Fund
(the "Fund"), John Hancock Emerging Growth Fund, John Hancock Global Resources
Fund, John Hancock Government Income Fund, John Hancock High Yield Bond Fund and
John Hancock Money Market Fund. The Trustees may authorize the creation of
additional Funds from time to time to satisfy various investment objectives.
Effective December 22, 1994 (see Note B), the Trust and Funds changed names by
replacing the word Transamerica with John Hancock.
The Trustees have authorized the issuance of two classes of the Fund,
designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemption, dividends, and liquidation, except that certain expenses,
subject to the approval of the Trustees, may be applied differently to each
class of shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution/service expenses under the terms of a distribution plan
have exclusive voting rights regarding such distribution plan. Class A Shares
are subject to an initial sales charge of up to 4.50% and a 12b-1 distribution
plan. Prior to May 15, 1995, the maximum sales charge was 4.75%. Class B Shares
are subject to a contingent deferred sales charge and a separate 12b-1
distribution plan.
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it
will be required to deposit with its custodian a specified amount of cash or
U.S. government securities, known as "initial margin", equal to a certain
percentage of the value of the financial futures contract being traded. Each
day, the futures contract will be valued at the official settlement price of the
board of trade or U.S. commodities exchange. Subsequent payments, known as
"variation margin", to and from the broker will be made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund will recognize a gain or loss. Risks
of entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuations imposed by an exchange.
17
<PAGE> 262
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
For Federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At April 30, 1995, open positions in financial futures contracts are as
follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITIONS DEPRECIATION
---------- -------------- --------- ------------
<S> <C> <C> <C>
JUNE 1995 75 U.S. TREASURY BOND SHORT ($7,031)
=======
</TABLE>
At April 30, 1995, the Fund has deposited in a segregated account $131,250 to
cover margin requirements on open financial futures contracts.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis for both financial
reporting and federal income tax purposes.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $2,785,979 of a capital
loss carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforwards are used by the Fund,
no capital gain distribution will be made. The carryforward expires 12/31/2002.
The Fund's tax year end is December 31.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund, if any, with respect to each
class of shares will be calculated in the same manner, at the same time and will
be in the same amount, except for effect of expenses that may be applied
differently to each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Fund.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
NOTE B --
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES AND TRANSACTIONS WITH AFFILIATES
AND OTHERS
On December 22, 1994, the Adviser became the investment adviser for the Fund
with approval of the Trustees and shareholders of the Fund. The Fund's former
investment manager was Transamerica Fund Management Company ("TFMC").
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, to
0.6250% of the first $75,000,000 of the Fund's average daily net asset value,
0.5625% of the next $75,000,000, and 0.5000% of the Fund's average daily net
asset value in excess of $150,000,000. This fee structure is consistent with the
former agreement with TFMC. For the period ended April 30, 1995, the advisory
fee earned by the Adviser and TFMC amounted to $323,285 and $161,643,
respectively, resulting in a total fee of $484,928.
The Adviser and TFMC, for their respective periods, provided administrative
services to the Fund pursuant to an administrative
18
<PAGE> 263
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
service agreement through January 16, 1995 on which day the agreement was
terminated.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
On December 22, 1994 John Hancock Funds, Inc. ("JH Funds"), a wholly-owned
subsidiary of the Adviser, became the principal underwriter of the Fund. Prior
to this date, Transamerica Fund Distributors, Inc. ("TFD") served as the
principal underwriter and distributor of the Fund. For the period ended April
30, 1995, JH Funds and TFD received net sales charges of $80,407 with regard to
sales of Class A shares. Out of this amount, $8,677 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, and
$71,730 was paid as sales commissions to unrelated broker-dealers.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds, formerly TFD, and are used in whole or in
part to defray its expenses related to providing distribution related services
to the Fund in connection with the sale of Class B shares. For the period ended
April 30, 1995, contingent deferred sales charges amounted to $328,342.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments for
distribution and service expenses which in total will not exceed on an annual
basis 0.25% of the Fund's average daily net assets attributable to Class A
shares and 1.00% of the Fund's average daily net assets attributable to Class B
shares, to reimburse for its distribution/service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers which became
effective July 7, 1993. Under the amended Rules of Fair Practice, curtailment of
a portion of the Fund's 12b-1 payments could occur under certain circumstances.
This fee structure and plan is similar to the former arrangement with TFD.
The Board of Trustees approved a shareholder servicing agreement between the
Fund and John Hancock Investor Services Corporation ("Investor Services"), a
wholly owned subsidiary of The Berkeley Financial Group, for the period between
December 22, 1994 and May 12, 1995, inclusive under which Investor Services
processed telephone transactions on behalf of the Fund. As of May 15, 1995, the
Fund entered into a full service transfer agent agreement with Investor
Services. Prior to this date The Shareholder Services Group was the transfer
agent. The Fund will pay Investor Services a fee based on transaction volume and
number of shareholder accounts.
A partner with Baker & Botts was an officer of the Trust until December 22,
1994. During the period ended April 30, 1995, legal fees paid to Baker & Botts
amounted to $1,382.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser and its
affiliates as well as Trustee of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. Effective with the fees paid for 1995, the
unaffiliated Trustees may elect to defer for tax purposes their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund will make investments into other John Hancock Funds, as applicable, to
cover its liability with regard to the deferred compensation.
19
<PAGE> 264
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
Investments to cover the Fund's deferred compensation liability will be recorded
on the Fund's books as an other asset. The deferred compensation liability will
be marked to market on a periodic basis and income earned by the investment will
be recorded on the Fund's books.
The Fund has an independent advisory board composed of certain members of the
former Transamerica Board of Trustees who provide advice to the current Trustees
in order to facilitate a smooth management transition for which the Fund pays
the advisory board and its counsel a fee.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended April 30, 1995 aggregated $29,329,941 and
$33,745,030, respectively.
The cost of investments owned at April 30, 1995 (including the short-term
investments) for Federal income tax purposes was $165,268,152. Gross unrealized
appreciation and depreciation of investments aggregated $4,508,453, and
$4,352,027, respectively, resulting in net unrealized depreciation of $156,426.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1994, the Fund has reclassified $1,483,253
from distributions in excess of net investment income to capital paid-in. This
represents the amount necessary to report these balances on a tax basis,
excluding certain temporary differences, as of October 31, 1994. Additional
adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the Fund, are
primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles.
20
<PAGE> 265
Transamerica Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
STATEMENT OF NET ASSETS
October 31, 1994
<TABLE>
<CAPTION>
COMPANY SHARES VALUE
----------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 98.34%
COMPUTERS & OFFICE EQUIPMENT - 15.69%
Adaptec Inc.* ...................... 110,000 $2,557,500
Adobe Systems Inc. ................. 75,000 2,700,000
Amtech Corp. ....................... 4,375 43,750
Ascend Communications Inc.* ........ 39,700 1,290,250
Auspex Systems Inc.* ............... 5,000 36,875
Autodesk, Inc. ..................... 29,000 1,000,500
BMC Software Inc.* ................. 2,000 90,500
Banyan Systems Inc.* ............... 60,000 1,035,000
Blyth Industries Inc.* ............. 15,000 345,000
Brock Control Systems Inc.* ........ 2,500 24,375
Broderbund Software Inc.* .......... 10,000 640,000
C-Cube Microsystems, Inc.* ......... 15,000 322,500
Cadence Design Systems, Inc.* ...... 75,029 1,500,580
Cheyenne Software Inc.* ............ 2,000 22,250
Compuware Corp.* ................... 26,600 1,040,725
Concord EFS Inc.* .................. 4,500 110,250
Continuum Inc.* .................... 65,000 1,746,875
Cornerstone Imaging Inc.* .......... 7,000 106,750
Corporate Express Inc.* ............ 5,000 112,500
Dataware Technologies Inc.* ........ 3,000 39,000
Dell Computer Corp.* ............... 55,000 2,447,500
Electronic Arts Inc.* .............. 15,000 337,500
FileNet Corp.* ..................... 7,000 178,500
Franklin Electronic Publishers
Inc.* ............................ 9,500 176,938
Franklin Quest Co.* ................ 36,000 1,273,500
GaSonics International Corp.* ...... 18,000 364,500
Gateway 2000 Inc.* ................. 110,000 2,578,125
Global Village Communications,
Inc.* ............................ 2,000 18,000
Hogan Systems, Inc. ................ 230,000 1,437,500
IMRS Inc.* ......................... 48,500 1,927,875
Informix Corp.* .................... 130,000 3,575,000
InfoSoft International, Inc.* ...... 5,000 173,750
International Imaging
Materials Inc.* .................. 22,500 562,500
Kronos Inc.* ....................... 21,500 489,125
Learning Co.* ...................... 15,000 356,250
LEGENT Corp.* ...................... 50,000 1,425,000
Madge N.V.* ........................ 160,000 1,740,000
MapInfo Corp.* ..................... 6,000 129,000
Mercury Interactive Corp.* ......... 95,000 1,401,250
Minnesota Educational
Computing Corp.* ................. 5,000 77,500
NetManage Inc.* .................... 6,000 172,500
Network General Corp.* ............. 100,000 2,162,500
Norand Corp.* ...................... 2,500 98,125
OPTi Inc.* ......................... 120,000 1,740,000
PeopleSoft Inc.* ................... 30,000 1,860,000
Platinum Technology Inc.* .......... 85,000 1,880,625
Printronix, Inc.* .................. 40,000 840,000
Progress Software Corp.* ........... 21,000 653,625
Project Software &
Development Inc.* ................ 25,000 400,000
Quantum Corp.* ..................... 50,000 768,750
QuickResponse Services Inc.* ....... 6,000 97,500
Quickturn Design System Inc.* ...... 1,500 16,500
Read-Rite Corp.* ................... 51,000 886,125
SPSS Inc.* ......................... 70,000 953,750
Seagate Technology Inc.* ........... 40,000 1,015,000
Software Spectrum, Inc.* ........... 5,000 63,125
Sterling Software, Inc.* ........... 105,000 3,281,250
Structural Dynamics
Research Corp.* .................. 2,000 9,750
SyBase Inc.* ....................... 56,000 2,933,000
Symantec Corp.* .................... 14,000 248,500
Tech Data Corp.* ................... 8,000 158,000
3COM Corp.* ........................ 150,000 6,037,500
Viewlogic Systems Inc.* ............ 32,500 715,000
Wall Data Inc.* .................... 8,000 290,000
Wonderware Corp.* .................. 20,000 498,750
</TABLE>
8
<PAGE> 266
Transamerica Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
COMPANY SHARES VALUE
----------------------------------------------------------------
<S> <C> <C>
Zebra Technologies Corp. Class A* . . . 2,200 88,550
Zilog, Inc.* . . . . . . . . . . . . . 60,000 1,725,000
----------
65,027,918
CONSUMER CYCLICALS - 14.23%
AnnTaylor Stores Corp.* . . . . . . . . 67,000 2,780,500
Arbor Drugs, Inc. . . . . . . . . . . . 6,000 127,500
Ashworth Inc.* . . . . . . . . . . . . 25,000 262,500
Bed Bath & Beyond Inc.* . . . . . . . . 60,000 1,770,000
Best Buy Co., Inc.* . . . . . . . . . . 95,000 3,586,250
Big B Inc. . . . . . . . . . . . . . . 10,000 123,750
Brookstone Inc.* . . . . . . . . . . . 144,500 2,167,500
CUC International, Inc.* . . . . . . . 20,000 642,500
Campo Electronics, Appliances
& Computers Inc.* . . . . . . . . . . 155,000 1,879,375
Cash America International Inc. . . . . 35,000 288,750
Catherine's Stores Corp.* . . . . . . . 37,500 318,750
Cato Corp. Class A . . . . . . . . . . 100,000 937,500
Chic by H.I.S. Inc.* . . . . . . . . . 29,000 311,750
Claire's Stores Inc. . . . . . . . . . 4,000 46,500
Clayton Homes Inc.* . . . . . . . . . . 90,037 1,631,920
Coleman Company Inc.* . . . . . . . . . 5,000 173,125
Consolidated Stores Corp.* . . . . . . 24,000 435,000
Copart Inc.* . . . . . . . . . . . . . 50,000 931,250
Cygne Designs Inc.* . . . . . . . . . . 38,000 489,250
Cyrk Inc.* . . . . . . . . . . . . . . 45,000 1,755,000
Decker's Outdoor Corp.* . . . . . . . . 10,000 152,500
Department 56 Inc.* . . . . . . . . . . 20,000 732,500
Detroit Diesel Corp.* . . . . . . . . . 20,000 495,000
Discount Auto Parts, Inc.* . . . . . . 40,000 610,000
Duracraft Corp.* . . . . . . . . . . . 9,000 335,250
Edelbrock Corp.* . . . . . . . . . . . 10,000 127,500
Ellett Brothers Inc. . . . . . . . . . 81,000 1,255,500
Ethan Allen Interiors Inc.* . . . . . . 41,000 1,004,500
Federated Dept. Stores, Inc.* . . . . . 90,000 1,867,500
Fingerhut Cos., Inc. . . . . . . . . . 16,000 260,000
First Alert Inc.* . . . . . . . . . . . 70,000 1,487,500
Fossil Inc.* . . . . . . . . . . . . . 15,000 412,500
Friedmans, Inc. Class A* . . . . . . . 10,000 162,500
FunCo Inc.* . . . . . . . . . . . . . . 20,000 355,000
General Nutrition Cos., Inc.* . . . . . 2,000 51,000
Gymboree Corp.* . . . . . . . . . . . . 22,000 715,000
Haggar Corp. . . . . . . . . . . . . . 8,000 192,000
Home Theater Products
International Inc.* . . . . . . . . . 165,000 979,688
Just For Feet Inc.* . . . . . . . . . . 2,500 73,750
Koala Corp.* . . . . . . . . . . . . . 35,000 271,250
Little Switzerland Inc.* . . . . . . . 115,000 618,125
Manufactured Home Communities Inc. . . 40,000 745,000
Men's Wearhouse Inc.* . . . . . . . . . 12,750 312,375
Michael's Stores Inc.* . . . . . . . . 74,000 3,001,625
NCI Building Systems Inc.* . . . . . . 15,000 281,250
Nautica Enterprises Inc.* . . . . . . . 35,000 1,015,000
Nine West Group Inc.* . . . . . . . . . 75,000 2,109,375
Oakwood Homes Corp. . . . . . . . . . . 80,000 1,900,000
Oasis Residential Inc. . . . . . . . . 20,000 467,500
Office Depot, Inc.* . . . . . . . . . . 35,009 866,473
Pep Boys-Manny, Moe & Jack . . . . . . 10,000 357,500
Perrigo Co.* . . . . . . . . . . . . . 20,000 270,000
PETsMART Inc.* . . . . . . . . . . . . 8,000 295,000
Pier 1 Imports Inc. . . . . . . . . . . 115,000 891,250
ROC Communities Inc. . . . . . . . . . 25,000 500,000
Redman Industries Inc.* . . . . . . . . 165,000 2,825,625
St. John Knits Inc. . . . . . . . . . . 5,000 152,500
Schuler Homes Inc.* . . . . . . . . . . 5,000 80,000
Sears Roebuck D'Mexico S.A. ADS* . . . 25,000 586,250
Spiegel, Inc. Class A . . . . . . . . . 25,000 371,875
Sportmart Inc.* . . . . . . . . . . . . 2,500 38,125
Sportmart Inc. Class A* . . . . . . . . 2,500 33,750
Sports & Recreation Inc.* . . . . . . . 60,000 1,695,000
Stein Mart Inc.* . . . . . . . . . . . 54,250 962,937
Sunglass Hut International Inc.* . . . 51,000 2,126,063
Talbots, Inc. . . . . . . . . . . . . . 50,000 1,737,500
</TABLE>
9
<PAGE> 267
Transamerica Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
COMPANY SHARES VALUE
----------------------------------------------------------------
<S> <C> <C>
Tandy Brands Accessories Inc.* . . . . 6,750 92,813
Tanger Factory Outlet Centers Inc. . . 18,000 405,000
Tiffany & Co. . . . . . . . . . . . . . 28,500 1,111,500
Urban Outfitters, Inc.* . . . . . . . . 18,000 544,500
Zale Corp.* . . . . . . . . . . . . . . 30,000 378,750
----------
58,971,769
CONSUMER GOODS & SERVICES - 8.49%
APS Holding Corp. Class A* . . . . . . 10,000 295,000
America Online Inc.* . . . . . . . . . 2,700 191,025
American Business Information Inc.* . . 5,000 86,875
Apple South Inc. . . . . . . . . . . . 77,062 1,252,257
Applebee's International, Inc. . . . . 25,000 459,375
Au Bon Pain Inc. Class A* . . . . . . . 15,000 292,500
Brinker International, Inc.* . . . . . 42,579 984,639
Catalina Marketing Corp.* . . . . . . . 27,000 1,373,625
Chart House Enterprises* . . . . . . . 50,000 468,750
DF&R Restaurants Inc.* . . . . . . . . 25,000 703,125
Dr. Pepper/Seven-Up Cos., Inc.* . . . . 40,000 1,015,000
Dreyer's Grand Ice Cream Inc. . . . . . 11,000 280,500
Eckerd (Jack) Corp.* . . . . . . . . . 60,000 1,860,000
El Chico Restaurants Inc.* . . . . . . 120,000 1,545,000
Equity Inns, Inc. . . . . . . . . . . . 30,000 315,000
Fresh Choice Inc.* . . . . . . . . . . 10,000 185,000
Good Times Restaurants Inc.* . . . . . 120,000 185,628
Hi-Lo Automotive, Inc.* . . . . . . . . 25,600 288,000
HomeTown Buffet, Inc.* . . . . . . . . 46,500 534,750
Host Marriott Corp. . . . . . . . . . . 10,000 106,250
IHOP Corp.* . . . . . . . . . . . . . . 130,000 3,607,500
INBRAND Corp.* . . . . . . . . . . . . 10,500 149,625
Interim Services Inc.* . . . . . . . . 15,000 371,250
J & J Snack Foods Corp.* . . . . . . . 15,000 174,375
Landry's Seafood Restaurants Inc.* . . 40,000 1,200,000
Lands' End Inc. . . . . . . . . . . . . 32,000 592,000
Lone Star Steakhouse & Saloon Inc.* . . 13,500 345,937
Marcus Corp. . . . . . . . . . . . . . 25,000 656,250
Marriott International Inc. 10,000 292,500
Maybelline Inc. . . . . . . . . . . . . 50,006 906,359
National Convenience Stores, Inc.* . . 10,000 77,500
Outback Steakhouse Inc.* . . . . . . . 105,000 3,241,875
Panamerican Beverages Inc. Class A . . 25,000 862,500
Papa Johns International Inc. . . . . . 2,500 80,000
Playtex Products Inc.* . . . . . . . . 100,000 912,500
Protection One Inc.* . . . . . . . . . 100,000 612,500
Quality Dining, Inc.* . . . . . . . . . 31,000 418,500
Service Corporation International . . . 50,000 1,331,250
Snapple Beverage Corp.* . . . . . . . . 1,000 14,000
Sonic Corp.* . . . . . . . . . . . . . 43,000 817,000
Spaghetti Warehouse, Inc.* . . . . . . 10,000 61,250
Staples, Inc.* . . . . . . . . . . . . 36,000 828,000
Starbucks Corp.* . . . . . . . . . . . 1,600 43,400
Stewart Enterprises, Inc. Class A . . . 32,250 778,031
Strouds Inc.* . . . . . . . . . . . . . 10,000 126,250
Sylvan Learning Systems, Inc.* . . . . 5,600 100,800
TRC Companies* . . . . . . . . . . . . 30,000 300,000
U.S. Delivery Systems Inc.* . . . . . . 14,000 218,750
Wall Street Deli Inc.* . . . . . . . . 7,500 90,000
Wendy's International, Inc. . . . . . . 130,000 1,917,500
Whole Foods Market Inc.* . . . . . . . 80,000 1,240,000
Williams-Sonoma Inc.* . . . . . . . . . 12,000 414,000
----------
35,203,701
ENERGY - 6.74%
Anadarko Petroleum Corp. . . . . . . . 12,500 610,938
Apache Corp. . . . . . . . . . . . . . 74,000 2,081,250
B.J. Services Co.* . . . . . . . . . . 14,500 295,437
Baker Hughes Inc. . . . . . . . . . . . 25,000 512,500
Barrett Resources Corp.* . . . . . . . 12,500 248,438
Basin Exploration Inc.* . . . . . . . . 35,000 437,500
</TABLE>
10
<PAGE> 268
Transamerica Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
COMPANY SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
Brown (Tom) Inc.*................... 115,000 1,473,437
Cabot Oil & Gas Corp.
Class A .......................... 85,000 1,572,500
Cairn Energy USA Inc.*.............. 50,000 387,500
Cross Timbers Oil Co. .............. 23,300 372,800
Energy Services Co., Inc.*.......... 22,500 326,250
Enron Oil & Gas Co. ................ 65,000 1,438,125
Geoworks*........................... 60,000 525,000
Hornbeck Offshore
Services Inc.*.................... 70,000 1,050,000
Hugoton Energy Corp.*............... 25,000 275,000
Landmark Graphics Corp.*............ 22,500 461,250
Mitchell Energy &
Development Corp.
Class B .......................... 30,000 540,000
Newfield Exploration Co.*........... 73,000 1,761,125
Noble Affiliates, Inc. ............. 80,000 2,400,000
Nuevo Energy Co.*................... 91,300 2,042,838
Oceaneering
International Inc.*............... 18,000 231,750
Offshore Logistics Inc.*............ 11,500 150,938
Offshore Pipelines Inc.*............ 62,500 1,273,438
Parker & Parsley
Petroleum Co. .................... 55,000 1,375,000
PetroCorp Inc.*..................... 20,000 220,000
Pogo Producing Co. ................. 75,000 1,678,125
San Juan Basin Royalty Trust ....... 65,800 501,725
Smith International, Inc.*.......... 50,000 837,500
Snyder Oil Corp. ................... 19,000 327,750
Stone Energy Corp.*................. 20,000 357,500
Tidewater, Inc. .................... 20,000 457,500
Tuboscope Vetco
International Corp.*.............. 25,000 159,375
Weatherford
International Inc.*............... 135,000 1,535,625
----------
27,918,114
FINANCIAL SERVICES - 11.37%
ACE Limited ........................ 50,000 1,137,500
ADVANTA Corp. Class A .............. 7,500 213,750
ADVANTA Corp. Class B .............. 6,750 177,187
Alex Brown, Inc. ................... 6,500 179,563
Alliance Capital
Management, L.P. ................ 110,000 2,310,000
American RE Corp.*.................. 39,000 1,145,625
Avalon Properties, Inc. ............ 20,000 390,000
Bay Apartment
Community, Inc. .................. 20,000 390,000
Beacon Properties Corp. ............ 10,000 188,750
Bear Stearns Cos., Inc. ............ 4,663 75,774
Berkley (W.R.) Corp. ............... 10,000 362,500
Blanch (E.W.) Holdings Inc. ........ 10,000 203,750
CCP Insurance Inc. ................. 10,000 155,000
CFI ProServices Inc.*............... 25,000 345,312
CMAC Investment Corp. .............. 24,400 671,000
Camden Property Trust SBI .......... 30,000 637,500
Capital Guaranty Corp. ............. 30,000 453,750
Capital RE Corp. ................... 30,000 660,000
Chateau Properties, Inc. ........... 15,300 306,000
Concord Holding Corp.*.............. 15,000 127,500
Cresent Real Estate
Equities Inc. .................... 20,300 548,100
Eaton Vance Corp. .................. 13,000 411,125
Enhance Financial Services
Group, Inc. ...................... 30,000 543,750
Equifax, Inc. ...................... 41,500 1,208,688
Equity Residential Properties
Trust SBI ........................ 20,000 597,500
Europe Fund Inc. ................... 60,000 720,000
Evan Withycombe
Residential Inc. ................. 5,000 98,750
Exel Limited ....................... 10,500 413,438
Factory Stores of
America Inc. ..................... 30,000 622,500
First Colony Corp. ................ 10,000 200,000
First Financial
Management Corp. ................. 11,000 616,000
First Industrial Realty
Trust Inc.*....................... 10,000 195,000
Franklin Resources, Inc. ........... 32,000 1,308,000
</TABLE>
11
<PAGE> 269
Transamerica Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
COMPANY SHARES VALUE
-----------------------------------------------------------------
<S> <C> <C>
Gables Residential Trust SBI ...... 25,000 537,500
Gallagher (Arthur J.) & Co. ....... 10,000 327,500
Guaranty National Corp. ........... 35,000 586,250
HCC Insurance Holdings Inc.* ...... 22,000 437,250
Hibernia Corp. Class A ............ 15,000 120,000
Highwoods Properties Inc.* ........ 5,000 103,125
Hilb, Rogal & Hamilton Co. ........ 53,000 629,375
Horace Mann Educators Corp. ....... 50,000 1,081,250
Horizon Outlet Centers, Inc. ...... 17,500 411,250
Insignia Financial Group Inc.
Class A* ........................ 25,000 493,750
Insurance Auto Auctions Inc.* ..... 29,500 951,375
KBK Capital Corp.* ................ 133,000 897,750
Latin America Equity Fund Inc. .... 18,000 418,500
Liberty Property Trust SBI* ....... 10,000 190,000
Life Partners Group Inc. .......... 65,000 1,413,750
Life RE Co. ....................... 12,500 228,125
MBIA, Inc. ........................ 23,000 1,244,875
MBNA Corp. ........................ 15,000 401,250
Mercer International Inc. SBI* .... 50,000 731,250
Mexico Fund Inc. .................. 45,016 1,412,377
Mid-America Apartment
Communities, Inc. ............... 25,400 631,825
Mid Ocean Ltd.* ................... 10,000 240,000
NAC Re Corp. ...................... 30,050 777,544
National Golf Properties Inc. ..... 15,000 300,000
National RE Corp. ................. 48,000 1,176,000
Oppenheimer Capital, L.P. ......... 50,000 1,106,250
PXRE Corp. ........................ 15,000 369,375
PartnerRe Holdings Ltd. ........... 60,000 1,215,000
Paul Revere Corp. (The) ........... 30,000 442,500
Philadelphia Consolidated
Holding Corp.* ................. 75,000 1,012,500
Policy Management
Systems Corp.* .................. 2,300 108,100
Post Properties Inc. .............. 11,100 326,062
Price, T. Rowe &
Associates, Inc. ................ 56,000 1,918,000
Property Trust America SBI ........ 20,000 322,500
Prophet 21 Inc.* .................. 40,000 240,000
RFS Hotel Investors Inc. .......... 10,000 155,000
Raymond James Financial, Inc. ..... 84,750 1,271,250
Regency Realty Corp. .............. 70,300 1,116,013
SEI Corp. ......................... 18,000 378,000
Security Capital Industrial
Trust SBI ....................... 15,000 228,750
Storage USA Inc. .................. 10,400 261,300
SunAmerica Inc. ................... 7,000 272,125
Texas Regional Bancshares Inc.
Class A ......................... 5,000 61,250
Transatlantic Holdings Inc. ....... 17,000 864,875
Transnational Re Corp.
Class A* ........................ 1,000 19,750
UNUM Corp. ........................ 27,500 1,261,562
Vornado Realty Trust .............. 25,000 787,500
Winston Hotels Inc. ............... 5,300 51,675
-----------
47,144,520
HEALTH CARE - 11.45%
ALZA Corp.* ....................... 14,600 259,150
Abbey Healthcare Group Inc.* ...... 60,000 1,335,000
Apogee Inc.* ...................... 5,000 83,750
Applied Bioscience
International Inc.* ............. 40,000 220,000
Arbor Health Care Co.* ............ 3,000 63,000
Benson Eyecare Corp.* ............. 20,000 142,500
Beverly Enterprises Inc.* ......... 25,000 378,125
Bioject Medical
Technologies Inc.* .............. 20,000 61,250
Bollinger Industries, Inc.* ....... 90,000 1,260,000
Cardinal Health Inc. .............. 3,750 175,312
Caremark International Inc. ....... 70,000 1,522,500
Centocor, Inc.* ................... 29,000 512,938
Cerner Corp.* ..................... 20,000 815,000
</TABLE>
12
<PAGE> 270
Transamerica Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
COMPANY SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
Chiron Corp.* ....................... 5,000 336,875
Chronimed Inc.* ..................... 69,000 862,500
Cor Therapeutics Inc.*............... 10,000 130,000
Cordis Corp.* ....................... 28,000 1,613,500
CorVel Corp.* ....................... 20,000 435,000
Diagnostek Inc.*..................... 80,000 1,260,000
Elan Corp. PLC-ADR* ................. 5,250 193,594
Express Scripts Inc.
Class A* .......................... 25,000 843,750
Forest Laboratories Inc.*............ 10,000 460,000
Genzyme Corp.* ...................... 1,000 32,750
GranCare Inc.* ...................... 20,000 310,000
Gulf South Medical
Supply, Inc.* ..................... 10,000 315,000
Haemonetics Corp.* .................. 15,000 300,000
Health Care &
Retirement Corp.*.................. 57,100 1,534,563
Health Management Assoc., Inc.
Class A* .......................... 16,875 438,750
Health Management
Systems Inc.* ..................... 20,000 567,500
Heart Technology Inc.*............... 1,000 23,875
Horizon Healthcare Corp.* ........... 85,000 2,348,125
IVAX Corp. .......................... 22,000 420,750
Integrated Health
Services Inc.* .................... 2,000 81,500
Isolyser Co., Inc.* ................. 700 13,475
KLA Instruments Corp.* .............. 15,000 791,250
Living Centers of
America Inc.* ..................... 41,500 1,250,187
Manor Care, Inc. .................... 37,500 1,031,250
Mariner Health Group Inc.* .......... 43,500 984,188
Maxicare Health Plans Inc.* ......... 125,000 1,953,125
MAXXIM Medical Inc.* ................ 30,000 390,000
Medtronic, Inc....................... 26,000 1,355,250
Multicare Cos., Inc.* ............... 50,000 1,031,250
Mylan Labs Inc....................... 85,000 2,380,000
North American
Vaccine Inc.* ..................... 25,000 275,000
NovaCare Inc.* ...................... 65,200 652,000
Orphan Medical Inc.* ................ 6,900 30,187
Oxford Health Plans Inc.* ........... 5,000 410,000
PacifiCare Health
System, Inc.* .................... 5,000 372,500
Patterson Dental Inc.* .............. 28,500 541,500
PhyCor Inc.* ........................ 3,500 119,875
Physicians Health Services Inc.
Class A* .......................... 7,500 193,125
Pyxis Corp.* ........................ 60,000 1,155,000
Quantum Health
Resources Inc.*.................... 7,000 257,250
REN Corp.-USA* ...................... 10,000 125,000
Renal Treatment
Centers Inc.*...................... 15,000 288,750
Rite-Aid Corp. 50,000 1,200,000
Rotech Medical Corp.* ............... 36,000 936,000
Rural/Metro Corp.* .................. 15,000 315,000
Scherer (R.P.) Corp.*................ 22,000 981,750
SciMed Life Systems Inc.*............ 3,500 167,125
Sierra Health Services Inc.*......... 35,000 1,137,500
Steris Corp.* ....................... 14,000 390,250
Stryker Corp. ....................... 6,100 208,925
Summit Care Corp.* .................. 40,000 635,000
Surgical Care Affiliates, Inc........ 31,000 608,375
Syncor International Corp.*.......... 1,500 12,562
Target Therapeutics Inc.* ........... 8,500 269,875
Tecnol Medical
Products, Inc.* ................... 62,500 1,000,000
TheraTx Inc.* ....................... 50,000 931,250
Vencor Inc.* ........................ 8,437 252,070
Ventritex Inc.* ..................... 33,300 865,800
Vivra Inc.* ......................... 65,000 1,836,250
Watson Pharmaceuticals Inc.*......... 30,000 789,375
----------
47,473,826
INDUSTRIAL - 5.99%
Acordia Inc.......................... 15,000 423,750
Alantec Corp.* ...................... 7,500 135,000
Applied Materials Inc.*.............. 55,000 2,860,000
</TABLE>
13
<PAGE> 271
Transamerica Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
COMPANY SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
Biomedical Waste System, Inc.*......... 175,000 273,438
BioWhittaker, Inc. .................... 73,000 520,125
Birmingham Steel Corp.................. 15,000 388,125
Coastcast Corp.*....................... 5,000 93,125
Cognex Corp.* ......................... 42,000 1,029,000
Collins & Aikman Corp.*................ 50,000 443,750
Deflecta-Shield Corp.* ................ 5,000 47,500
Digital Biometrics, Inc.*.............. 11,000 82,500
GNI Group, Inc.*....................... 125,000 609,375
GTECH Holdings Corp.*.................. 10,000 197,500
Hayes Wheels International Inc......... 80,000 1,880,000
Huaneng Power International Inc. ADS* 75,000 1,387,500
IMCO Recycling Inc.* .................. 48,500 703,250
Intergold Ltd.*........................ 100,000 277,000
Johnstown America Industries Inc.*..... 15,000 296,250
Landair Services, Inc.*................ 1,300 27,625
Mallinckrodt Group, Inc................ 6,000 182,250
Measurex Corp.......................... 10,500 227,062
Olympic Steel Inc.*.................... 75,000 1,106,250
Pall Corp.............................. 6,666 120,821
Parametric Technology Corp.*........... 70,000 2,520,000
Revco D.S. Inc.*....................... 127,454 2,851,783
Stant Corp............................. 66,000 750,750
Stewart & Stevenson Services Inc....... 35,000 1,347,500
Tetra Tech, Inc.*...................... 12,500 237,500
Triconex Corp.*........................ 88,800 1,332,000
Wausau Paper Mills Co.................. 21,777 500,871
Webco Industries Inc.*................. 10,000 77,500
Wheelabrator Technologies, Inc......... 100,000 1,387,500
Willamette Industries Inc.............. 11,000 511,500
----------
24,828,100
MEDIA & LEISURE - 4.79%
Acclaim Entertainment, Inc.*........... 60,000 1,042,500
Aldila Inc.*........................... 2,000 26,000
American Classic Voyager Co............ 10,000 175,000
American Recreation Co. Holdings, Inc.* 25,000 193,750
Bally Gaming International Inc.*....... 20,000 227,500
Barnes & Noble Inc.*................... 11,000 312,125
Callaway Golf Co....................... 26,000 994,500
Circus Circus Enterprises Inc.*........ 5,050 112,362
Clear Channel Communications Inc.*..... 30,075 1,515,028
Cobra Golf Inc.*....................... 32,000 1,192,000
DSC Communications, Corp.*............. 7,500 230,625
Doubletree Corp.*...................... 2,500 51,875
E-Z Communications Inc. Class A*....... 10,000 130,000
Gaylord Entertainment Co. Class A...... 26,000 510,250
Grupo Radio Centro S.A. ADS............ 25,000 421,875
Hollywood Entertainment Corp.*......... 7,500 240,000
Integrity Music Inc. Class A* ......... 110,000 1,127,500
LodgeNet Entertainment Corp.* ......... 5,000 36,250
Marvel Entertainment Group Inc.*....... 9,198 167,864
Mecklermedia Corp.*.................... 60,000 315,000
NFO Research Inc.*..................... 30,000 517,500
Players International Inc.*............ 100,000 2,250,000
Primadonna Resorts Inc.*............... 41,000 1,301,750
Radica Games Ltd.*..................... 20,000 113,750
</TABLE>
14
<PAGE> 272
Transamerica Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
COMPANY SHARES VALUE
--------------------------------------------------------------------------
<S> <C> <C>
Reader's Digest Association Inc. Class A...... 20,000 877,500
Royal Caribbean Cruises Ltd. ................. 40,000 1,190,000
SFX Broadcasting Inc. Class A*................ 40,000 680,000
Scholastic Corp.*............................. 32,500 1,482,812
Sodak Gaming Inc.*............................ 41,500 575,813
StarSight Telecast Inc.*...................... 3,000 33,750
Station Casinos Inc.*......................... 65,000 845,000
United International Holdings Inc. Class A*... 6,400 100,800
West Marine, Inc.*............................ 40,000 880,000
----------
19,870,679
TECHNOLOGY-RELATED - 11.92%
Aspen Technology Inc.*........................ 5,000 85,000
Asyst Technologies Inc.*...................... 15,000 251,250
Atmel Corp.*.................................. 60,000 2,212,500
BancTec, Inc.*................................ 55,000 1,100,000
Bay Networks Inc.*............................ 50,000 1,265,625
Cirrus Logic Inc.*............................ 40,000 1,150,000
Credence Systems Corp.*....................... 120,000 3,060,000
EPIC Design Technology Inc.*.................. 500 11,062
Electroglas Inc.*............................. 111,000 4,412,250
Exar Corp.*................................... 96,000 2,016,000
Frame Technology Corp.*....................... 2,500 36,250
Indigo N.V.*.................................. 65,000 1,088,750
Integrated Circuit Systems Inc.*.............. 42,500 425,000
LAM Research Corp.*........................... 100,000 4,500,000
Level One Communications Inc.*................ 4,500 81,000
Loronix Information Systems Inc.*............. 255,000 1,593,750
Mattson Technology Inc.*...................... 2,000 42,000
Maxim Integrated Products Inc.*............... 27,000 1,809,000
Megatest Corp.*............................... 120,000 1,800,000
Micron Technology Inc. ....................... 85,000 3,368,125
Micropolis*................................... 96,500 772,000
Novellus Systems, Inc.*....................... 70,000 3,815,000
PRI Automation Inc.*.......................... 10,000 152,500
Radius, Inc.*................................. 2,500 24,375
Sensormatic Electronics Corp. ................ 2,250 84,656
7th Level Inc.*............................... 40,000 410,000
Sierra On-Line Inc.*.......................... 25,000 600,000
Softdesk Inc.*................................ 35,000 695,625
S3 Inc.*...................................... 15,000 212,812
Tektronix, Inc. .............................. 2,000 76,000
Tencor Instruments*........................... 120,000 5,280,000
Teradyne Inc.*................................ 115,000 3,780,625
Ultratech Stepper Inc.*....................... 15,000 588,750
Varian Associates, Inc. ...................... 18,000 666,000
Western Digital Corp.*........................ 25,000 425,000
Xilinx Inc.*.................................. 25,900 1,505,438
----------
49,396,343
TELECOMMUNICATIONS - 5.75%
ACC Corp. .................................... 12,000 201,000
ALC Communications Corp.*..................... 10,000 378,750
Adflex Solutions Inc.*........................ 10,000 200,000
ANTEC Corp.*.................................. 1,000 28,500
Applied Digital Access Inc.*.................. 5,000 123,750
BroadBand Technologies Inc.*.................. 15,000 388,125
Cabletron Systems, Inc.*...................... 17,500 879,375
Centigram Communications Corp.*............... 2,000 38,000
Chipcom Corp.*................................ 3,000 180,750
CIDCO Inc.*................................... 15,200 465,500
Communications Center, Inc.*.................. 15,000 225,000
DigiDesign Inc.*.............................. 1,000 28,500
General Instrument Corp.*..................... 16,000 536,000
Gilat Satellite Networks Ltd.*................ 2,500 35,625
</TABLE>
15
<PAGE> 273
Transamerica Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
COMPANY SHARES VALUE
------------------------------------------------------------------
<S> <C> <C>
Harte-Hanks
Communications Inc.*............... 50,000 956,250
Heftel Broadcasting
Corp. Class A*..................... 125,000 1,796,875
IDB Communications
Group Inc.*........................ 135,075 1,249,444
International Cabletel Inc.*......... 20,000 620,000
LDDS Communications, Inc.*........... 63,582 1,494,177
MFS Communications
Co., Inc.*......................... 11,200 414,400
Metrocall Inc.*...................... 41,000 686,750
Mobile Telecommunications
Technologies Corp.*................ 30,000 596,250
Octel Communications Corp.*.......... 20,000 432,500
Paging Network Inc.*................. 3,750 126,562
ParcPlace Systems, Inc.*............. 6,000 120,000
Pittencrieff
Communications Inc.*............... 5,000 45,938
ProNet Inc.*......................... 40,000 640,000
QUALCOMM Inc.*....................... 5,000 147,500
Scientific-Atlanta Inc. ............. 8,000 173,000
Sonic Solutions*..................... 10,000 138,750
Stanford
Telecommunications Inc.*........... 11,000 211,750
Tellabs, Inc.*....................... 94,500 4,606,875
Telular Corp.*....................... 5,000 48,750
Transaction Network
Services, Inc.*.................... 15,000 196,875
U.S. Robotics Inc.*.................. 115,000 4,628,750
VeriFone Inc.*....................... 25,000 562,500
Zoom Telephonics, Inc.*.............. 30,000 210,000
-----------
23,812,771
TRANSPORTATION - 1.92%
Alaska Air Group, Inc.*.............. 25,000 437,500
Atlantic Southeast
Airlines Inc. ..................... 65,000 1,137,500
Comair Holdings, Inc. ............... 57,300 1,246,275
Continental Airlines, Inc.
Class B* .......................... 20,000 330,000
Frontier Airlines, Inc.*............. 50,000 187,500
Greenbrier Cos., Inc.*............... 20,000 385,000
Heartland Express, Inc.*............. 2,500 73,750
Mesa Airlines Inc.*.................. 135,000 1,096,875
Northwest Airlines Corp.*............ 65,000 1,365,000
Rollins Truck Leasing Corp. ......... 22,500 264,375
SkyWest Inc. ........................ 30,000 615,000
Southwest Airlines Co. .............. 35,000 826,875
-----------
7,965,650
-----------
TOTAL COMMON STOCKS
(Cost $296,236,828) ................. 407,613,391
STOCK WARRANTS - 0.01% WARRANTS
----------
CONSUMER GOODS & SERVICES - 0.01%
Good Times
Restaurants Inc.*(A) ..............
(Cost $50,148)....................... 60,000 22,500
SHORT-TERM FACE
OBLIGATIONS - 2.29% AMOUNT
----------
COMMERCIAL PAPER - 0.97%
FINANCIAL SERVICES - 0.34%
General Electric
Capital Corp.
4.750% due 11/03/94 ................. $1,400,000 1,399,631
TELECOMMUNICATIONS - 0.63%
Motorola Inc.
4.770% to 4.800% due
11/02/94 to 11/08/94 ............ 2,630,000 2,628,370
----------
TOTAL COMMERCIAL PAPER
(Cost $4,028,001) ................... 4,028,001
</TABLE>
16
<PAGE> 274
Transamerica Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
STATEMENT OF NET ASSETS
See Notes to Financial Statements.
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
------------------------------------------------------------------
<S> <C> <C>
REPURCHASE
AGREEMENT - 1.32%
Lehman Brothers 4.830% due
11/01/94 (dated 10/31/94).
Collateralized by
$5,567,160 value, Federal
Home Loan Mortgage
Corporation ARM
4.823% due 06/01/24.
(Cost and repurchase
proceeds $5,458,732).............. 5,458,000 5,458,732
------------
TOTAL SHORT-TERM
OBLIGATIONS
(Cost $9,486,733)................... 9,486,733
------------
TOTAL INVESTMENTS - 100.64%
(Cost $305,773,709)................. 417,122,624
------------
CASH AND OTHER ASSETS,
LESS LIABILITIES - (0.64)%........ (2,634,977)
------------
NET ASSETS, at value,
equivalent to $26.82 per
share for 4,886,971 Class A
Shares ($.01 par value)
of capital stock outstanding
and $26.04 per share for
10,883,600 Class B
Shares ($.01 par value)
of capital stock
outstanding - 100.00%............. $414,487,647
============
</TABLE>
(A) Each warrant entitles the holder to purchase one common share at an
exercise price of $3.50 and will expire 06/15/95.
* Non-income producing.
See Notes to Financial Statements.
17
<PAGE> 275
Transamerica Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS
STATEMENT OF OPERATIONS
Year Ended October 31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends........................... $ 2,182,020
Interest............................ 451,229
-----------
2,633,249
EXPENSES
Distribution expenses
(see Note D)...................... $2,775,578
Management fees..................... 2,706,438
Transfer agent fees................. 822,733
Administrative service fees......... 222,044
Shareholder reports................. 153,995
Registration fees................... 147,818
Custodian fees...................... 122,773
Audit and legal fees................ 51,246
Directors' fees and expenses........ 26,635
Miscellaneous....................... 43,714 7,072,974
---------- -----------
NET INVESTMENT LOSS (4,439,725)
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments.... (8,817,307)
Net change in unrealized
appreciation of investments....... 27,047,214
-----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS............... 18,229,907
-----------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS................... $13,790,182
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment loss................. $ (4,439,725) $ (2,920,334)
Net realized loss on investments.... (8,817,307) (4,446,420)
Net change in unrealized
appreciation of investments....... 27,047,214 55,194,255
------------ ------------
Increase in net assets resulting
from operations................... 13,790,182 47,827,501
CAPITAL SHARE TRANSACTIONS
Increase in capital shares
outstanding....................... 99,950,356 119,859,803
------------ ------------
Increase in net assets.............. 113,740,538 167,687,304
NET ASSETS
Beginning of year................... 300,747,109 133,059,805
------------ ------------
End of year......................... $414,487,647 $300,747,109
============ ============
</TABLE>
See Notes to Financial Statements.
18
<PAGE> 276
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------ -----------------------------------------------------
FROM
AUGUST 22,
YEAR ENDED OCTOBER 31, 1991 TO YEAR ENDED OCTOBER 31,
------------------------------ OCTOBER 31, ----------------------------------------------------
1994 1993 1992 1991(2) 1994 1993 1992 1991 1990
-------- ------- ------- ----------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share income and capital
changes for a share
outstanding during
each period.(1)
Net asset value, beginning
of period................... $ 25.89 $ 20.60 $ 19.26 $ 18.12 $ 25.33 $ 20.34 $ 19.22 $ 11.06 $ 12.76
INCOME FROM
INVESTMENT OPERATIONS
Net investment loss .......... (0.18) (0.16) (0.20) (0.03) (0.36) (0.36) (0.38) (0.30) (0.22)
Net realized and unrealized
gain (loss) on investments.. 1.11 5.45 1.60 1.17 1.07 5.35 1.56 8.46 (1.26)
-------- ------- ------- ------- -------- -------- ------- ------- -------
Total from Investment
Operations ............... 0.93 5.29 1.40 1.14 0.71 4.99 1.18 8.16 (1.48)
LESS DISTRIBUTIONS
Distribution from
realized gains ............. - - (0.06) - - - (0.06) - (0.22)
-------- ------- ------- ------- -------- -------- ------- ------- -------
Net asset value,
end of period .............. $ 26.82 $ 25.89 $ 20.60 $ 19.26 $ 26.04 $ 25.33 $ 20.34 $ 19.22 $ 11.06
======== ======= ======= ======= ======== ======== ======= ======= =======
TOTAL RETURN(3)............... 3.59% 25.68% 7.32% 6.29% 2.80% 24.53% 6.19% 73.78% (11.82)%
======== ======= ======= ======= ======== ======== ======= ======= =======
RATIOS AND
SUPPLEMENTAL DATA
Ratio of expenses to average
net assets ................. 1.44% 1.40% 1.67% 0.33% 2.19% 2.28% 2.64% 2.85% 3.11%
Ratio of net investment loss
to average net assets ...... (0.71)% (0.70)% (1.03)% (0.15)% (1.46)% (1.58)% (1.99)% (1.83)% (1.64)%
Portfolio turnover ........... 25% 29% 48% 66% 25% 29% 48% 66% 82%
Net Assets, end of period
(in thousands).............. $131,053 $81,263 $46,137 $38,859 $283,435 $219,484 $86,923 $52,743 $11,668
</TABLE>
(1) Per share information has been calculated using the average number of
shares outstanding.
(2) Financial highlights, including total return, have not been annualized.
Portfolio turnover is for the year ended October 31, 1991.
(3) Total return does not include the effect of the initial sales charge for
Class A Shares nor the contingent deferred sales charge for Class B Shares.
See Notes to Financial Statements.
19
<PAGE> 277
Transamerica Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
NOTES TO FINANCIAL STATEMENTS
October 31, 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special
Series, Inc., is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Issuer
operates as a series fund, currently issuing six series of shares. On May 20,
1994, the shareholders of the Issuer approved changes to the name of the Issuer
and to the names of each of the series of the Issuer. These changes became
effective on June 15, 1994.
Transamerica Emerging Growth Fund (the "Fun"'), formerly Transamerica
Special Emerging Growth Fund, is one of the series of the Issuer. The Fund made
its initial offering of shares to the public on October 26, 1987 and presently
offers two classes of shares. Class A Shares are subject to an initial sales
charge and a 12b-1 distribution plan. Class B Shares are subject to a
contingent deferred sales charge and a separate 12b-l distribution plan. The
following is a summary of significant accounting policies consistently
followed by the Fund.
(1) Securities traded on stock exchanges or in the over-the-counter
market are valued at the last sale price on the primary exchange or market on
which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the mean between the most
recent closing bid and asked prices. All securities initially expressed in
terms of foreign currencies are translated into U.S. dollar equivalents based
on quoted exchange rates as of the close of the NYSE. Securities for which
market quotations are not readily available are valued at a fair value as
determined in good faith by the Issuer's Board of Directors. Short-term
investments are valued at amortized cost (original cost plus amortized discount
or accrued interest).
(2) Security transactions are accounted for on the trade date. Dividend
income is recorded on the ex-dividend date. Interest income on investments is
accrued daily. Realized gains and losses from security transactions are
determined on the basis of identified cost for both financial reporting and
federal income tax purposes. The Fund does not report separately the gain or
loss resulting from changes in foreign exchange rates on investments from
changes in market prices of securities held. Such fluctuations are included
with net realized and unrealized gains or losses from investments.
(3) Dividends and other distributions are recorded by the Fund on the
ex-dividend date and may be reinvested at net asset value. Income and capital
gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
(4) No provision for federal income taxes has been made since it is the
Fund's intention to distribute all of its taxable income and profits to its
shareholders and to comply with the requirements applicable to regulated
investment companies and the minimum distribution requirements of the Internal
Revenue Code. At October 31, 1994, the Fund had a realized capital loss
carryforward of approximately $17,163,000 which will expire as follows:
$1,478,000 - 1995, $117,000 - 1997, $2,304,000 - 2000, $4,447,000 - 2001 and
$8,817,000 - 2002. The amount of capital loss carryforward utilized in any one
year may be limited.
(5) The Fund reports custodian fees net of credits and charges
resulting from cash positions in the custodial accounts greater than or less
than the amounts required to settle portfolio transactions. For the year ended
October 31, 1994, these amounts were $5,575 and $34,039, respectively.
(6) On a daily basis, income, unrealized and realized gains and losses,
and expenses which are not class specific are allocated to each class based on
their respective relative net assets. Class specific expenses, such as
distribution expenses, are applied to the class to which they are attributed.
NOTE B - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund's management fee is paid monthly to Transamerica Fund Management
Company (the "Investment Adviser"). The management fee is calculated
monthly on the average daily net assets of the Fund at an annual rate of 0.75%.
At October 31, 1994, the management fee payable to the Investment Adviser was
$254,623.
The Investment Adviser provides administrative services to the Fund
pursuant to an administrative service agreement. During the year ended October
31, 1994, the Fund paid or accrued $192,019 to the Investment Adviser for these
services, of which $14,798 was payable at October 31, 1994.
20
<PAGE> 278
Transamerica Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE B (Continued)
During the year ended October 31, 1994, Transamerica Fund Distributors,
Inc. (the "Distributor"), an affiliate of the Investment Adviser, as the
principal underwriter, retained $65,421 as its portion of the commissions
charged on sales of Class A Shares of the Fund. At October 31, 1994,
receivables from and payables to the Distributor for Fund share transactions
were $453,568 and $245,546, respectively.
The Fund paid no compensation directly to any officer. Certain officers
and a director of the Issuer are affiliated with the Investment Adviser.
During the year ended October 31, 1994, the Fund paid legal fees of
$12,379 to Baker & Botts. A partner with Baker & Botts is an officer of the
Issuer.
NOTE C - COST, PURCHASES AND SALES OF INVESTMENT SECURITIES
During the year ended October 31, 1994, purchases and sales of
securities, other than short-term obligations, aggregated $171,536,375 and
$86,559,288, respectively. At October 31, 1994, receivables from and payables
to brokers for securities sold and purchased were $540,746 and $2,843,926,
respectively.
At October 31, 1994, the identified cost of total investments owned is
the same for both financial reporting and federal income tax purposes. At
October 31, 1994, the gross unrealized appreciation and gross unrealized
depreciation of investments for federal income tax purposes were $122,594,705
and $11,245,790, respectively.
NOTE D - PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is
authorized under separate distribution plans to finance activities related
to the distribution of its Class A and Class B Shares (the "Class A Plan" and
the "Class B Plan," respectively). The distribution plans, together with the
initial sales charge on Class A Shares and the contingent deferred sales charge
on Class B Shares, comply with the regulations covering maximum sales charges
assessed by mutual funds distributed through securities dealers that are NASD
members.
The Class A Plan and the Class B Plan permit each class to make
payments to the Distributor up to 0.25% annually of average daily net assets
for certain distribution costs such as service fees paid to dealers, production
and distribution of prospectuses to prospective investors, services provided to
new and existing shareholders and other distribution related activities.
During the year ended October 31, 1994, Class A and Class B made payments to
the Distributor of $277,671 or 0.25% and $639,690 or 0.25%, respectively,
related to the above activities.
The Class B Plan also permits Class B to reimburse the Distributor up
to 0.75% annually of average daily net assets for costs related to compensation
paid to securities dealers, in place of an initial sales charge to investors,
on the sale of Class B Shares. These costs are based upon a commission payment
charge of 5% of the value of Class B Shares sold (excluding shares acquired
through reinvestment), reduced by the amount of contingent deferred sales
charges (CDSC) that have been received by the Distributor on redemptions of
Class B Shares. These costs also include a charge of interest (carrying charge)
at an annual rate of 1% over the prevailing prime rate to the extent cumulative
commission payment charges, plus any previous carrying charges, less CDSC
received by the Distributor, have not been paid in full by the Fund. For the
year ended October 31, 1994, Class B reimbursed the Distributor $1,858,217 or
0.75% for such costs. For the year ended October 31, 1994, the Distributor
received $382,553 in CDSC. At October 31, 1994, the balance of unrecovered
costs was $10,122,481.
At October 31, 1994, Class A had $60,704 and Class B had $314,192
payable to the Distributor pursuant to the above distribution plans.
21
<PAGE> 279
Transamerica Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE E - CAPITAL AND RELATED TRANSACTIONS
A summary of capital stock transactions follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
1994 1993
--------------------------- ---------------------------
SHARES DOLLARS SHARES DOLLARS
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold - Class A ....................... 4,169,752 $ 107,936,683 2,776,240 $ 63,777,110
Shares sold - Class B ....................... 10,731,824 265,135,236 11,557,712 262,430,256
Shares redeemed - Class A ................... (2,421,719) (62,106,008) (1,876,824) (43,383,203)
Shares redeemed - Class B ................... (8,513,937) (211,015,555) (7,165,167) (162,964,360)
---------- ------------- ---------- -------------
Net increase in capital shares outstanding .... 3,965,920 $ 99,950,356 5,291,961 $ 119,859,803
========== ============= ========== =============
</TABLE>
The components of net assets at October 31, 1994, are as follows:
<TABLE>
<S> <C>
Capital paid-in (125,000,000 shares authorized) ............................................. $320,301,854
Accumulated net realized loss on investments ................................................ (17,163,122)
Net unrealized appreciation of investments .................................................. 111,348,915
------------
NET ASSETS .................................................................................. $414,487,647
============
</TABLE>
22
<PAGE> 280
John Hancock Emerging Growth Fund
(effective December 22, 1994, John Hancock Emerging Growth Fund)
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
John Hancock Emerging Growth Fund,
a series of John Hancock Series, Inc.
We have audited the accompanying statement of net assets of John Hancock
Emerging Growth Fund (formerly Transamerica Emerging Growth Fund), a series
of John Hancock Series, Inc. (formerly Transamerica Series, Inc.), as of
October 31, 1994, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of John Hancock Emerging Growth Fund, a series of John Hancock
Series, Inc., at October 31, 1994, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Houston, Texas
December 2, 1994, except as to Note F
as to which the date is January 25, 1995.
23
<PAGE> 281
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON APRIL 30, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF THAT
DATE.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks and warrants
(cost - $281,399,064)................................. $426,371,410
Joint repurchase agreement (cost - $7,177,000) 7,177,000
Corporate savings account............................... 39
------------
433,548,449
Receivable for shares sold ............................... 677,341
Receivable for investments sold .......................... 1,720,234
Dividends receivable ..................................... 139,274
Interest receivable ...................................... 1,182
Other assets ............................................. 190,015
------------
Total Assets .......................... 436,276,495
-----------------------------------------------------------
LIABILITIES:
Payable for shares repurchased ........................... 732,054
Payable for investments purchased ........................ 1,543,063
Payable to John Hancock Advisers, Inc. and
affiliates - Note B .................................... 292,101
Accounts payable and accrued expenses .................... 138,448
------------
Total Liabilities ..................... 2,705,666
-----------------------------------------------------------
NET ASSETS:
Capital paid-in .......................................... 308,582,095
Accumulated net realized loss on investments ............. (17,387,462)
Net unrealized appreciation of investments ............... 144,972,346
Net investment loss ...................................... (2,596,150)
------------
Net Assets ............................ $433,570,829
===========================================================
NET ASSET VALUE PER SHARE:
(Based on net assets and shares of beneficial
interest outstanding - 125,000,000 shares
authorized with $.01 per share par value,
respectively)
Class A - $130,666,252/4,531,343 ......................... $ 28.84
===============================================================================
Class B - $302,904,577/10,856,014 ........................ $ 27.90
===============================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($28.84 x 106.10%) ............................. $ 30.60
===============================================================================
<FN>
*On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Six months ended April 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes
of $1,532) ..................................... $ 1,151,393
Interest ......................................... 154,052
------------
1,305,445
------------
Expenses:
Investment management fee - Note B ............. 1,506,430
Distribution/service fee - Note B
Class A ....................................... 155,192
Class B ....................................... 1,387,807
Transfer agent fee ............................. 571,669
Registration and filing fees ................... 83,199
Custodian fee .................................. 61,755
Auditing fee ................................... 35,341
Trustees' fees ................................. 30,453
Advisory board fee ............................. 26,292
Printing ....................................... 20,600
Legal fees ..................................... 11,651
Miscellaneous .................................. 11,206
------------
Total Expenses ................ 3,901,595
------------------------------------------------------------
Net Investment Loss ........... (2,596,150)
------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments sold ............ (224,340)
Change in net unrealized appreciation/depreciation
of investments ................................. 33,623,431
------------
Net Realized and Unrealized
Gain on Investments ........... 33,399,091
------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ..... $ 30,802,941
============================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 282
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1995 OCTOBER 31,
(UNAUDITED) 1994
---------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment loss................................................................... $ (2,596,150) $ (4,439,725)
Net realized loss on investments sold................................................. (224,340) (8,817,307)
Change in net unrealized appreciation/depreciation of investments..................... 33,623,431 27,047,214
------------ ------------
Net Increase in Net Assets Resulting from Operations................................ 30,802,941 13,790,182
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET*................................................... (11,719,759) 99,950,356
------------ ------------
NET ASSETS:
Beginning of period................................................................... 414,487,647 300,747,109
------------ ------------
End of period (including accumulated net investment loss of $2,596,150 and
$4,439,725, respectively) .......................................................... $433,570,829 $414,487,647
============ ============
<FN>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1995 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1994
--------------------------- ---------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold.................................................. 1,289,696 $ 34,302,818 4,169,752 $ 107,936,683
Less shares repurchased...................................... (1,645,324) (43,979,606) (2,421,719) (62,106,008)
---------- ------------- ---------- -------------
Net increase (decrease)...................................... (355,628) $ (9,676,788) 1,748,033 $ 45,830,675
========== ============= ========== =============
CLASS B
Shares sold.................................................. 4,157,695 $ 105,472,196 10,731,824 $ 265,135,236
Less shares repurchased...................................... (4,185,281) (107,515,167) (8,513,937) (211,015,555)
---------- ------------- ---------- -------------
Net increase (decrease)...................................... (27,586) $ (2,042,971) 2,217,887 $ 54,119,681
========== ============= ========== =============
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS YEAR. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, AND ANY INCREASE OR
DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE FUND. THE FOOTNOTE ILLUSTRATES
THE NUMBER OF FUND SHARES SOLD, REINVESTED AND REDEEMED DURING THE LAST TWO
PERIODS, ALONG WITH THE CORRESPONDING DOLLAR VALUE.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 283
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
AUGUST 22, 1991
(COMMENCEMENT
SIX MONTHS ENDED YEAR ENDED OCTOBER 31, OF OPERATIONS)
APRIL 30, 1995 ---------------------------- TO OCTOBER 31,
(UNAUDITED) 1994 1993 1992 1991
---------------- -------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ..................... $ 26.82 $ 25.89 $ 20.60 $ 19.26 $ 18.12
-------- -------- ------- ------- -------
Net Investment Loss (a) .................................. (0.10) (0.18) (0.16) (0.20) (0.03)
Net Realized and Unrealized Gain on Investments .......... 2.12 1.11 5.45 1.60 1.17
-------- -------- ------- ------- -------
Total from Investment Operations ....................... 2.02 0.93 5.29 1.40 1.14
-------- -------- ------- ------- -------
Less Distributions
Distributions from Net Realized Gain on Investments Sold.. -- -- -- (0.06) --
-------- -------- ------- ------- -------
Net Asset Value, End of Period ........................... $ 28.84 $ 26.82 $ 25.89 $ 20.60 $ 19.26
======== ======== ======= ======= =======
Total Investment Return at Net Asset Value ............... 7.53% 3.59% 25.68% 7.32% 6.29%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's Omitted) ................ $130,666 $131,053 $81,263 $46,137 $38,859
Ratio of Expenses to Average Net Assets .................. 1.43%* 1.44% 1.40% 1.67% 0.33%
Ratio of Net Investment Loss to Average Net Assets ....... (0.78%)* (0.71%) (0.70%) (1.03%) (0.15%)
Portfolio Turnover Rate .................................. 11% 25% 29% 48% 66%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: INCOME, EXPENSES, DISTRIBUTIONS AND GAINS
(LOSSES) OF THE FUND. IT SHOWS HOW THE FUND'S NET ASSET VALUE FOR A SHARE HAS
CHANGED SINCE THE END OF THE PREVIOUS PERIOD. ADDITIONALLY, IMPORTANT
RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE FINANCIAL STATEMENTS ARE
EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 284
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1995 -------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.................. $ 26.04 $ 25.33 $ 20.34 $ 19.22 $ 11.06 $ 12.76
------- -------- -------- ------- ------- -------
Net Investment Loss (a)............................... (0.19) (0.36) (0.36) (0.38) (0.30) (0.22)
Net Realized and Unrealized Gain (Loss)
on Investments...................................... 2.05 1.07 5.35 1.56 8.46 (1.26)
------- -------- -------- ------- ------- -------
Total from Investment Operations.................... 1.86 0.71 4.99 1.18 8.16 (1.48)
------- -------- -------- ------- ------- -------
Less Distributions
Distributions from Net Realized Gain on
Investments Sold.................................... -- -- -- (0.06) -- (0.22)
------- -------- -------- ------- ------- -------
Net Asset Value, End of Period........................ $ 27.90 $ 26.04 $ 25.33 $ 20.34 $ 19.22 $ 11.06
======== ======== ======== ======= ======= =======
Total Investment Return at Net Asset Value............ 7.14% 2.80% 24.53% 6.19% 73.78% (11.82%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's Omitted)............. $302,905 $283,435 $219,484 $86,923 $52,743 $11,668
Ratio of Expenses to Average Net Assets............... 2.17%* 2.19% 2.28% 2.64% 2.85% 3.11%
Ratio of Net Investment Loss to Average Net Assets.... (1.52%)* (1.46%) (1.58%) (1.99%) (1.83%) (1.64%)
Portfolio Turnover Rate............................... 11% 25% 29% 48% 66% 82%
<FN>
* On an annualized basis.
(a) On average month end shares outstanding.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 285
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
EMERGING GROWTH FUND ON APRIL 30, 1995. IT'S DIVIDED INTO TWO MAIN CATEGORIES:
COMMON STOCKS AND WARRANTS AND SHORT-TERM INVESTMENTS. COMMON STOCKS ARE FURTHER
BROKEN DOWN BY INDUSTRY GROUP. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE
FUND'S "CASH" POSITION, ARE LISTED LAST.
SCHEDULE OF INVESTMENTS
April 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
------------------- ---------------- ------------
<S> <C> <C>
COMMON STOCKS
ADVERTISING (0.53%)
Catalina Marketing Corp.**............. 27,000 $ 1,269,000
Cyrk International, Inc.**............. 45,000 635,625
Katz Media Group**..................... 25,000* 403,125
------------
2,307,750
------------
AUTOMOBILE/TRUCK (1.13%)
APS Holding Corp. (Class A)**.......... 10,000 223,750
Copart, Inc.**......................... 50,000 1,018,750
Deflecta-Shield Corp.**................ 5,000 53,750
Detroit Diesel Corp.**................. 20,000 465,000
Discount Auto Parts, Inc.**............ 30,000 723,750
Edelbrock Corp.**...................... 10,000 131,250
Johnstown America Industries, Inc.**... 10,000 127,500
Pep Boys - Manny, Moe & Jack........... 20,000 515,000
Rollins Truck Leasing Corp............. 22,500 247,500
Stant Corp............................. 30,000 390,000
Stewart & Stevenson Services, Inc...... 15,000 562,500
Thompson PBE, Inc.**................... 30,000* 435,000
------------
4,893,750
------------
BANKS (0.13%)
Hibernia Corp. (Class A)**............. 15,000 120,000
MBNA Corp.............................. 15,000 453,750
------------
573,750
------------
BROADCASTING (1.16%)
Clear Channel Communications, Inc.**... 30,075 1,691,719
E-Z Communications, Inc. (Class A)**... 10,000 162,500
Gaylord Entertainment Co. (Class A).... 26,000 614,250
Heftel Broadcasting Corp. (Class A)**.. 125,000 1,406,250
Lodgenet Entertainment Corp.**......... 5,000 37,500
SFX Broadcasting, Inc. (Class A)**..... 40,000 920,000
United International Holdings, Inc.
(Class A)**.......................... 6,400 91,200
Young Broadcasting Corp. (Class A)**... 5,100* 112,200
------------
5,035,619
------------
BUILDING PRODUCTS (0.06%)
NCI Building Systems, Inc.**........... 15,000 262,500
------------
CHEMICAL (0.05%)
Mallinckrodt Group, Inc................ 6,000 216,000
------------
COMPUTERS (23.01%)
Adaptec, Inc.**........................ 110,000 3,520,000
Adobe Systems, Inc..................... 70,000 4,077,500
Alantec Corp.**........................ 7,500 287,812
America Online, Inc.**................. 10,800 500,850
American Business Information, Inc.**.. 5,000 120,000
Amtech Corp............................ 4,375 30,078
Applied Voice Technology, Inc.**....... 35,000* 546,875
Applix, Inc.**......................... 8,000* 208,000
Aspen Technology, Inc.**............... 5,000 103,750
Auspex Systems, Inc.**................. 5,000 51,875
Autodesk, Inc.......................... 29,000 987,812
Avid Technology, Inc.**................ 790* 31,847
BancTec, Inc.**........................ 5,000 85,000
Banyan Systems, Inc.**................. 60,000 873,750
Bay Networks, Inc.**................... 50,000 1,818,750
BISYS Group, Inc. (The)**.............. 11,835* 245,576
BMC Software, Inc.**................... 7,000 435,750
Brock Control Systems, Inc.**.......... 2,500 17,500
Broderbund Software, Inc.**............ 14,000 693,000
Cabletron Systems, Inc.**.............. 22,500 1,068,750
Cadence Design Systems, Inc.**......... 75,029 2,419,685
C*ATS Software, Inc.**................. 4,000* 52,000
Cerner Corp.**......................... 20,000 1,062,500
CFI ProServices, Inc.**................ 25,000 265,625
Cheyenne Software, Inc.**.............. 2,000 29,000
Chipcom Corp.**........................ 4,500 147,375
Cirrus Logic, Inc.**................... 40,000 1,992,500
Cognex Corp.**......................... 42,000 1,260,000
Compuware Corp.**...................... 26,600 698,250
Concentra Corp.**...................... 10,000* 128,750
Continuum, Inc.**...................... 75,000 2,475,000
Cornerstone Imaging, Inc.**............ 7,000 109,375
Datastream Systems, Inc.**............. 10,000* 240,000
Dataware Technologies, Inc.**.......... 3,000 47,625
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 286
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
<TABLE>
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
------------------- ---------------- ------------
<S> <C> <C>
COMPUTERS (CONTINUED)
Dell Computer Corp.**.................... 70,000 $ 3,832,500
Digital Biometrics, Inc.**............... 11,000 104,500
Electronic Arts, Inc.**.................. 5,000 115,000
EPIC Design Technology, Inc.**........... 500 13,250
Expert Software, Inc.**.................. 8,000* 118,000
FileNet Corp.**.......................... 7,000 234,500
Frame Technology Corp.**................. 2,500 52,500
Gateway 2000, Inc.**..................... 50,000 946,875
General Magic, Inc.**.................... 5,000* 69,375
Geoworks**............................... 60,000 555,000
Global Village Communication**........... 2,000 27,000
HCIA, Inc.**............................. 200* 5,300
Hogan Systems, Inc.**.................... 100,000 850,000
Hyperion Software Corp.**................ 48,500* 2,085,500
Information Resources, Inc.**............ 35,000* 492,187
Informix Corp.**......................... 125,000 4,921,875
InfoSoft International, Inc.**........... 5,000 313,750
KLA Instruments Corp.**.................. 15,000 930,000
Kronos, Inc.**........................... 21,500 655,750
Lannet Data Communications, Ltd.**....... 55,000* 1,086,250
Learning Co. (The)**..................... 15,000 393,750
LEGENT Corp.**........................... 65,000 1,771,250
Loronix Information Systems, Inc.**+..... 265,000 761,875
Madge, N.V.**............................ 250,000 6,875,000
MapInfo Corp.**.......................... 6,000 179,250
Measurex Corp............................ 20,500 512,500
Mercury Interactive Corp.**.............. 95,000 2,042,500
Micropolis Corp.**....................... 96,500 699,625
Minnesota Educational Computing Corp.**.. 5,000 128,750
Mustang Software, Inc.**................. 8,000* 62,000
National Instruments Corp.**............. 6,000* 112,500
NetManage, Inc.**........................ 12,000 219,000
Network General Corp.**.................. 95,000 2,481,875
Norand Corp.**........................... 2,500 76,250
Oak Technology, Inc.**................... 13,500* 372,938
Open Environment Corp.**................. 20,000* 350,000
OPTi, Inc.**............................. 120,000 1,815,000
Parametric Technology Corp.**............ 70,000 3,325,000
PeopleSoft, Inc.**....................... 55,400 2,839,250
Phamis, Inc.**........................... 5,500* 106,562
Physician Computer Network, Inc.**....... 25,000* 112,500
Pinnacle Systems, Inc.**................. 35,000* 638,750
Platinum Technology, Inc.**.............. 125,000 2,500,000
Policy Management Systems Corp.**........ 2,300 115,863
PRI Automation, Inc.**................... 10,000 262,500
Printronix, Inc.**....................... 25,000 578,125
Progress Software Corp.**................ 28,500 1,154,250
Project Software & Development, Inc.**... 25,000 606,250
Pyxis Corp.**............................ 95,000 1,888,125
Quantum Corp.**.......................... 25,000 462,500
QuickResponse Services, Inc.**........... 6,000 111,750
Radius, Inc.**........................... 2,500 25,313
Read-Rite Corp.**........................ 51,000 1,083,750
Renaissance Solutions, Inc.**............ 9,000* 117,000
S3, Inc.**............................... 15,000 346,875
Seagate Technology, Inc.**............... 50,000 1,593,750
Security Dynamics Technologies, Inc.**... 5,000* 176,250
7th Level, Inc.**........................ 40,000 345,000
Sierra On-Line, Inc.**................... 40,000 755,000
Softdesk, Inc.**......................... 35,000 796,250
Software Artistry, Inc.**................ 2,500* 62,188
Software Spectrum, Inc.**................ 5,000 80,000
SPSS, Inc.**............................. 70,000 975,625
Sterling Software, Inc.**................ 105,000 3,570,000
Sybase, Inc.**........................... 61,000 1,479,250
Sylvan Learning Systems, Inc.**.......... 5,600 97,300
Symantec Corp.**......................... 14,000 325,500
TGV Software, Inc.**..................... 3,000* 56,250
3COM Corp.**............................. 115,000 6,440,000
Transaction Systems Architects, Inc.
(Class A)**............................ 10,000* 206,250
Viewlogic Systems, Inc.**................ 5,000 56,250
Wall Data, Inc.**........................ 8,000 154,000
Western Digital Corp.**.................. 35,000 560,000
Wonderware Corp.**....................... 20,000 662,500
Zebra Technologies Corp. (Class A)**..... 2,200 100,925
Zilog, Inc.**............................ 60,000 2,107,500
------------
99,769,486
------------
COSMETICS & TOILETRIES (0.62%)
INBRAND Corp.**.......................... 10,500 139,125
Maybelline Inc........................... 65,006 1,430,132
Playtex Products, Inc.**................. 140,000 1,120,000
-----------
2,689,257
-----------
DRUGS (2.11%)
ALZA Corp.**............................. 24,600 479,700
Big B, Inc............................... 10,000 145,000
Centocor, Inc.**......................... 35,500 501,437
Chronimed, Inc.**........................ 40,000 610,000
Circa Pharmaceuticals, Inc.**............ 10,000* 243,750
Cor Therapeutics, Inc.**................. 20,000 330,000
Eckerd (Jack) Corp.**.................... 85,000 2,475,625
Elan Corp., PLC, American
Depository Receipt, (ADR)**............. 5,250 185,719
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 287
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
<TABLE>
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
------------------- ---------------- ------------
<S> <C> <C>
DRUGS (CONTINUED)
Mylan Laboratories, Inc................... 85,000 $ 2,613,750
North American Vaccine, Inc.**............ 20,000 145,000
Syncor International Corp.**.............. 16,500 150,563
Watson Pharmaceuticals, Inc.**............ 40,000 1,245,000
------------
9,125,544
------------
ELECTRONICS (9.57%)
American Sensors, Inc.**.................. 45,000* 450,000
ANADIGICS, Inc.**......................... 6,350* 84,931
Applied Materials, Inc.**................. 70,000 4,313,750
Atmel Corp.**............................. 60,000 2,640,000
C-Cube Microsystems, Inc.**............... 15,000 333,750
CIDCO, Inc.**............................. 15,200 547,200
Exar Corp.**.............................. 96,000 2,532,000
GaSonics International Corp.**............ 18,000 414,000
General Instrument Corp.**................ 16,000 546,000
Home Theater Products
International, Inc.**..................... 100,000 359,370
Integrated Circuit Systems, Inc.**........ 42,500* 440,937
Integrated Silicon Solution, Inc.**....... 5,000* 192,500
Itron, Inc.**............................. 15,000* 378,750
LAM Research Corp.**...................... 100,000 5,050,000
Level One Communications, Inc.**.......... 4,500 69,188
Mattson Technology, Inc.**................ 2,000 53,500
Maxim Integrated Products, Inc.**......... 54,000 1,957,500
Megatest Corp.**.......................... 140,000 1,470,000
Micrel, Inc.**............................ 17,500* 315,000
PSC, Inc.**............................... 70,000* 910,000
Quickturn Design System, Inc.**........... 1,500 12,750
SDL, Inc.**............................... 10,000* 255,000
Sonic Solutions, Inc.**................... 10,000 116,250
Tektronix, Inc............................ 2,000 91,000
Tencor Instruments**...................... 110,000 7,452,500
Teradyne, Inc.**.......................... 115,000 5,821,875
Ultratech Stepper, Inc.**................. 15,000 840,000
Varian Associates, Inc.................... 28,000 1,288,000
VeriFone, Inc.**.......................... 25,000 590,625
Xilinx, Inc.**............................ 25,900 1,987,825
------------
41,514,201
------------
ENGINEERING (0.40%)
J. Ray Mcdermott, S. A.**................. 62,500* 1,718,750
------------
FINANCE (3.50%)
ADVANTA Corp. (Class A)**................. 7,500 260,625
ADVANTA Corp. (Class B)................... 6,750 217,687
Alex Brown, Inc.**........................ 5,000 205,000
Alliance Capital Management, L.P.......... 110,000 2,048,750
Bear Stearns Cos., Inc.................... 4,663 96,174
Capital RE Corp........................... 30,000 $ 697,500
Cash America International, Inc........... 5,000 38,125
Concord EFS, Inc.**....................... 4,500 135,000
CUC International, Inc.**................. 20,000 790,000
Eaton Vance Corp.......................... 25,000 790,625
First Financial Management Corp........... 11,000 804,375
Franklin Resources, Inc................... 32,000 1,288,000
KBK Capital Corp.**....................... 128,000 752,000
Lehman Brothers Holdings, Inc............. 25,000* 487,500
Mercer International, Inc. SBI**.......... 50,000 750,000
Oppenheimer Capital, L.P.................. 60,000 1,245,000
Price (T. Rowe) & Associates, Inc......... 66,000 2,425,500
Raymond James Financial, Inc.............. 84,750 1,483,125
SEI Corp.................................. 18,000 337,500
SunAmerica, Inc........................... 7,000 343,000
------------
15,195,486
------------
FUNERAL SERVICES (0.53%)
Service Corp. International............... 50,000 1,412,500
Stewart Enterprises, Inc. (Class A)....... 32,250 886,875
------------
2,299,375
------------
HEALTHCARE (5.84%)
Abbey Healthcare Group, Inc.**............ 63,000 2,504,250
Apogee, Inc.**............................ 5,000 91,250
Applied Bioscience International, Inc.**.. 40,000 220,000
Arbor Health Care Co.**................... 3,000 61,500
Beverly Enterprises, Inc.**............... 25,000 359,375
Cardinal Health, Inc...................... 3,750 172,969
Caremark International, Inc............... 120,000 2,100,000
CorVel Corp.**............................ 20,000 495,000
Diagnostek, Inc.**........................ 100,000 1,850,000
Express Scripts, Inc. (Class A)**......... 25,000 721,875
Genzyme Corp.**........................... 1,000 42,750
GranCare, Inc.**.......................... 20,000 327,500
Health Care & Retirement Corp.**.......... 57,100 1,613,075
Health Management Associates, Inc.
(Class A)**............................. 16,875 489,375
Health Management Systems, Inc.**......... 30,000 690,000
Horizon Healthcare Corp.**................ 85,000 1,774,375
Horizon Mental Health Management, Inc.**.. 5,000* 55,625
Integrated Health Services, Inc........... 2,000 69,250
Interim Services, Inc.**.................. 15,000 433,125
Living Centers Of America, Inc.**......... 41,500 1,177,562
Manor Care, Inc........................... 37,500 1,101,562
Mariner Health Group, Inc.**.............. 43,500 636,187
MedPartners, Inc.**....................... 15,000* 354,375
Mid Atlantic Medical Services**........... 20,000* 345,000
</TABLE>
SEE NOTES TO FINANCI AL STATEMENTS.
13
<PAGE> 288
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
<TABLE>
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
------------------- ---------------- ------------
<S> <C> <C>
HEALTHCARE (CONTINUED)
Multicare Cos., Inc.**.................... 50,000 $ 1,025,000
NovaCare, Inc.**.......................... 65,200 562,350
OrNda Healthcorp**........................ 20,000* 350,000
PhyCor, Inc.**............................ 5,250 166,688
Physician Reliance Network**.............. 10,000* 252,500
Quantum Health Resources, Inc.**.......... 7,000 113,750
REN Corp., U.S.A.**....................... 10,000 160,000
Renal Treatment Centers, Inc.**........... 15,000 375,000
Summit Care Corp.**....................... 40,000 820,000
Surgical Care Affiliates, Inc............. 31,000 720,750
TheraTx, Inc.**........................... 50,000 725,000
Vencor, Inc.**............................ 8,437 261,547
Vivra, Inc.**............................. 65,000 2,088,125
------------
25,306,690
------------
HOTELS & MOTELS (0.55%)
Equity Inns, Inc.......................... 30,000 345,000
Marcus Corp............................... 25,000 665,625
Marriott International, Inc............... 10,000 360,000
Primadonna Resorts, Inc.**................ 41,000 1,014,750
------------
2,385,375
------------
INSURANCE (5.61%)
ACE, Ltd.................................. 50,000 1,325,000
Acordia, Inc.............................. 15,000 466,875
American RE Corp.......................... 57,000 2,166,000
Berkley (W. R.), Corp..................... 10,000 375,000
Blanch (E. W.) Holdings, Inc.............. 10,000 187,500
Capital Guaranty Corp..................... 10,000 177,500
CMAC Investment Corp...................... 15,000 555,000
Enhance Financial Services Group, Inc..... 5,000 85,000
Exel Ltd.................................. 10,500 477,750
First Colony Corp......................... 10,000 222,500
Gallagher (Arthur J.) & Co................ 15,000 513,750
Guaranty National Corp.................... 35,000 577,500
HCC Insurance Holdings, Inc.**............ 22,000 506,000
Hilb, Rogal & Hamilton Co................. 10,000 117,500
Horace Mann Educators Corp................ 75,000 1,546,875
Insurance Auto Auctions, Inc.**........... 29,500 877,625
Life Partners Group, Inc.................. 65,000 1,267,500
Life RE Co................................ 5,000 94,375
Maxicare Health Plans, Inc.**............. 125,000 1,937,500
MBIA, Inc................................. 23,000 1,443,250
Mid Ocean Ltd............................. 4,000 114,500
NAC Re Corp............................... 30,050 991,650
National RE Corp.......................... 78,000 2,359,500
Oxford Health Plans, Inc.**............... 10,000 416,250
PacifiCare Health Systems, Inc.**......... 5,000 307,500
PartnerRe Holdings, Ltd................... 10,000 230,625
Paul Revere Corp. (The)................... 5,000 82,500
Philadelphia Consolidated
Holding Corp.**......................... 75,000 1,021,875
Physicians Health Services, Inc...........
(Class A)**............................. 7,500 192,656
PXRE Corp................................. 5,000 121,250
Sierra Health Services, Inc.**............ 35,000 949,375
Transatlantic Holdings, Inc............... 17,000 1,079,500
Transnational Re Corp. (Class A)**........ 1,000 20,250
UNUM Corp................................. 27,500 1,179,063
Vesta Insurance Group, Inc................ 10,000* 333,750
------------
24,320,244
------------
LEISURE & RECREATION (0.32%)
Coleman Co., Inc.**....................... 5,000 181,250
Rawlings Sporting Goods Co.**............. 25,000* 271,875
Royal Caribbean Cruises Ltd............... 40,000 955,000
------------
1,408,125
------------
MACHINERY (3.49%)
ASM Lithography Holding, NV**............. 10,000* 273,750
Asyst Technologies, Inc.**................ 20,000 780,000
Bridgeport Machines, Inc.**............... 25,000* 365,625
Credence Systems Corp.**.................. 120,000 4,350,000
Duracraft Corp.**......................... 9,000 285,750
Electroglas, Inc.**....................... 111,000 4,828,500
Novellus Systems, Inc.**.................. 70,000 4,252,500
------------
15,136,125
------------
MEDICAL/DENTAL (3.22%)
Benson Eyecare Corp.**.................... 20,000 200,000
Bioject Medical Technologies, Inc.**...... 20,000 40,000
BioWhittaker, Inc.**...................... 120,000 960,000
Cordis Corp.**............................ 28,000 2,009,000
Forest Laboratories, Inc.**............... 10,000 450,000
Gulf South Medical Supply, Inc.**......... 10,000 420,000
Haemonetics Corp.**....................... 30,000 465,000
Heart Technology, Inc.**.................. 1,000 17,750
Isolyser Co., Inc.**...................... 5,000 87,500
IVAX Corp................................. 22,000 569,250
Liposome Co., Inc.**...................... 45,000* 405,000
MAXXIM Medical, Inc.**.................... 30,000 416,250
MedCath, Inc.**........................... 20,000* 260,000
Pall Corp................................. 6,666 155,818
Patterson Dental, Inc.**.................. 28,500 662,625
Perrigo Co.**............................. 20,000 222,500
Rotech Medical Corp.**.................... 36,000 1,170,000
Scherer (R.P.) Corp.**.................... 22,000 1,050,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 289
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
<TABLE>
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
------------------- ---------------- ------------
<S> <C> <C>
MEDICAL/DENTAL (CONTINUED)
Steris Corp.**............................... 14,000 $ 553,000
Stryker Corp................................. 6,100 275,263
Target Therapeutics, Inc.**.................. 8,500 310,250
Tecnol Medical Products, Inc.**.............. 80,000 1,490,000
Uromed Corp.**............................... 50,000* 350,000
Ventritex, Inc.**............................ 70,000 1,050,000
Vital Signs, Inc............................. 25,000* 365,625
------------
13,955,331
------------
METALS (0.02%)
Webco Industries, Inc.**..................... 10,000 80,000
------------
OFFICE EQUIPMENT & SUPPLIES (0.70%)...........
Indigo N. V.**............................... 45,000* 2,182,500
Staples, Inc.**.............................. 36,000 868,500
------------
3,051,000
------------
OIL & GAS (4.75%)
Alexander Energy Corp.**..................... 60,000* 285,000
Anadarko Petroleum Corp...................... 12,500 514,062
Apache Corp.................................. 50,000 1,350,000
Baker Hughes, Inc............................ 10,000 225,000
Barrett Resources Corp.**.................... 12,500 293,750
Basin Exploration, Inc.**.................... 20,000 175,000
B.J. Services Co.**.......................... 1,000 22,875
Brown (Tom), Inc.**.......................... 115,000 1,624,375
Cabot Oil & Gas Corp. (Class A)**............ 50,000 775,000
Cairn Energy USA, Inc.**..................... 50,000 487,500
Cross Timbers Oil Co.**...................... 40,000 655,000
Energy Service Co., Inc.**................... 10,000 167,500
Enron Oil & Gas Co........................... 65,000 1,486,875
Halliburton Co............................... 5,000* 191,875
Hornbeck Offshore Services, Inc.**........... 25,000 343,750
HS Resources, Inc.**......................... 10,000* 165,000
Hugoton Energy Corp.**....................... 10,000 82,500
Landmark Graphics Corp.**.................... 10,000 247,500
Mitchell Energy & Development Corp
(Class B).................................. 10,000 180,000
Newfield Exploration Co.**................... 73,000 1,679,000
Noble Affiliates, Inc........................ 70,000 1,890,000
Nuevo Energy Co.**........................... 80,000 1,530,000
Oceaneering International, Inc.**............ 18,000 180,000
ParcPlace Systems, Inc.**.................... 6,000 70,500
Parker & Parsley Petroleum, Co............... 30,000 641,250
PetroCorp, Inc.**............................ 20,000 175,000
Pogo Producing Co............................ 75,000 1,687,500
Smith International, Inc.**.................. 50,000 862,500
Snyder Oil Corp.............................. 19,000 273,125
Stone Energy Corp.**......................... 20,000 277,500
Tidewater, Inc............................... 10,000 237,500
Tuboscope Vetco International Corp.**........ 45,000 315,000
Weatherford International, Inc.**............ 135,000 1,485,000
------------
20,576,437
------------
POLLUTION CONTROL (0.60%)
BioMedical Waste System, Inc.**.............. 175,000 103,897
GNI Group, Inc.**............................ 125,000 796,875
IMCO Recycling, Inc.......................... 48,500 763,875
Safety-Kleen Corp............................ 10,000* 170,000
Tetra Tech, Inc.**........................... 12,500 254,688
TRC Companies**.............................. 30,000 228,750
U.S. Filter Corp.**.......................... 17,500* 277,813
------------
2,595,898
------------
PRINTING (0.69%)
Harte-Hanks Communications, Inc.............. 50,000 1,162,500
International Imaging Materials, Inc.**...... 35,000 936,250
Mecklermedia Corp.**......................... 50,000 881,250
------------
2,980,000
------------
PROTECTION (0.40%)
Checkpoint Systems, Inc.**................... 5,000* 105,625
First Alert, Inc.**.......................... 70,000 866,250
Koala Corp.**................................ 35,000 231,875
Protection One, Inc.**....................... 100,000 462,500
Sensormatic Electronics Corp................. 2,250 66,938
------------
1,733,188
------------
PUBLISHING (0.74%)
Franklin Electronic Publishers, Inc.**....... 19,500 604,500
Readers Digest Association, Inc. (Class A)... 20,000 787,500
Scholastic Corp.**........................... 32,500 1,820,000
------------
3,212,000
------------
(3.66%)
Beacon Properties Corp....................... 10,000 196,250
Camden Property Trust........................ 30,000 630,000
Clayton Homes, Inc........................... 112,546 1,899,214
Crescent Real Estate Equities, Inc........... 20,300 583,625
Equity Residential Properties Trust.......... 20,000 535,000
Evans Withycombe Residential, Inc............ 5,000* 93,750
Factory Stores Of America, Inc............... 30,000 588,750
Gables Residential Trust..................... 10,000 183,750
Highwoods Properties, Inc.................... 5,000 110,000
Horizon Outlet Centers, Inc.................. 17,500 385,000
Insignia Financial Group, Inc. (Class A)**... 25,000 581,250
Liberty Property Trust....................... 10,000 186,250
Manufactured Home Communities, Inc........... 40,000 630,000
Mid-America Apartment Communities, Inc....... 25,400 635,000
Oakwood Homes Corp........................... 80,000 2,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 290
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
<TABLE>
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
------------------- ---------------- ------------
<S> <C> <C>
REAL ESTATE (CONTINUED)
Oasis Residential, Inc....................... 20,000 $ 437,500
Post Properties, Inc......................... 11,100 328,838
Redman Industries, Inc.**.................... 155,000 3,022,500
Regency Realty Corp.......................... 25,000 396,875
RFS Hotel Investors, Inc..................... 10,000 145,000
ROC Communities, Inc......................... 25,000 503,125
Security Capital Industrial Trust............ 15,000 234,375
Security Capital Pacific Trust............... 20,000* 350,000
Storage USA, Inc............................. 10,400 297,700
Tanger Factory Outlet Centers, Inc........... 18,000 420,750
Vornado Realty Trust......................... 15,000 506,250
------------
15,880,752
------------
RETAIL (13.36%)
ADFlex Solutions, Inc.**..................... 50,000 1,212,500
AmeriSource Health Corp.**................... 40,000* 885,000
AnnTaylor Stores, Inc.**..................... 40,000 1,005,000
Apple South, Inc. ........................... 77,062 1,117,399
Applebee's International, Inc.**............. 25,000 550,000
Arbor Drugs, Inc............................. 6,000 153,750
Au Bon Pain Co., Inc. (Class A)**............ 15,000 202,500
Barnes & Noble, Inc.**....................... 11,000 314,875
Bed Bath & Beyond, Inc.**.................... 60,000 1,252,500
Best Buy Co., Inc.**......................... 75,000 2,053,125
Blyth Industries, Inc.**..................... 15,000 416,250
Brinker International, Inc.**................ 42,579 729,165
Brookstone, Inc.**........................... 75,000 384,375
Campo Electronics, Appliances and
Computers, Inc.**.......................... 155,000 1,026,875
Catherine's Stores Corp.**................... 10,000 87,500
Cato Corp. (Class A)......................... 10,000 82,500
Chart House Enterprises, Inc.**.............. 76,000 684,000
Claire's Stores, Inc......................... 4,000 55,500
Consolidated Stores Corp.**.................. 24,000 411,000
Corporate Express, Inc.**.................... 10,000 282,500
Creative Computers, Inc.**................... 25,000* 615,625
Daisytek International Corp.**............... 5,000* 106,250
Department 56, Inc.**........................ 20,000 740,000
DF & R Restaurants, Inc.**................... 10,000 142,500
Dollar Tree Stores, Inc.**................... 1,000* 22,500
Dreyer's Grand Ice Cream, Inc................ 15,000 446,250
El Chico Restaurants, Inc.**................. 100,000 775,000
Ellett Brothers, Inc......................... 81,000 688,500
Ethan Allen Interiors, Inc.**................ 41,000 768,750
Federated Department Stores, Inc.**.......... 90,000 1,901,250
Fingerhut Cos., Inc.......................... 16,000 186,000
Fossil, Inc.**............................... 15,000 251,250
Franklin Quest Co.**......................... 41,000 1,363,250
Friedman's, Inc. (Class A)**................. 10,000 177,500
General Nutrition Cos., Inc.**............... 2,000 49,750
Good Times Restaurants, Inc.**............... 120,000 210,000
Gymboree Corp.**............................. 22,000 517,000
Hollywood Entertainment Corp.**.............. 7,500 270,000
HomeTown Buffet, Inc.**...................... 10,000 118,750
IHOP Corp.**................................. 130,000 2,892,500
Integrity Music, Inc. (Class A)**+........... 110,000 715,000
Just For Feet, Inc.**........................ 3,750 107,344
Landry's Seafood Restaurants, Inc.**......... 40,000 1,385,000
Little Switzerland, Inc.**................... 115,000 517,500
Lone Star Steakhouse & Saloon, Inc.**........ 13,500 413,437
Men's Wearhouse, Inc. (The)**................ 12,750 321,937
Michael's Stores, Inc.**..................... 74,000 2,109,000
Movie Gallery, Inc.**........................ 15,000* 468,750
Nine West Group, Inc.**...................... 75,000 2,437,500
Office Depot, Inc.**......................... 35,009 796,455
OfficeMax, Inc.**............................ 26,200* 671,375
Outback Steakhouse, Inc.**................... 105,000 2,651,250
Papa John's International, Inc.**............ 2,500 86,562
PetSmart, Inc.**............................. 8,000 267,000
Pier 1 Imports, Inc.......................... 120,750 1,086,750
Quality Dining, Inc.**....................... 31,000 414,625
Revco D.S., Inc.**........................... 170,454 3,664,761
Rite-Aid Corp................................ 65,000 1,511,250
Sonic Corp.**................................ 43,000 1,112,625
Sports Authority, Inc. (The)**............... 21,900* 388,725
Sports & Recreation, Inc.**.................. 60,000 705,000
Starbucks Corp.**............................ 20,000 470,000
Stein Mart, Inc.**........................... 10,250 116,594
Sunglass Hut International, Inc.**........... 102,000 2,926,125
Talbots, Inc................................. 50,000 1,518,750
Tiffany & Co................................. 20,000 642,500
U.S. Delivery Systems, Inc.**................ 14,000 311,500
Urban Outfitters, Inc.**..................... 18,000 382,500
Wall Street Deli, Inc.**..................... 7,500 52,500
Wendy's International, Inc................... 145,000 2,465,000
West Marine, Inc.**.......................... 45,000 1,113,750
Whole Foods Market, Inc.**................... 30,000 356,250
Williams-Sonoma, Inc.**...................... 12,000 225,750
Zale Corp.**................................. 30,000 350,625
------------
57,912,629
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 291
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
<TABLE>
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
------------------- ---------------- ------------
<S> <C> <C>
TELECOMMUNICATIONS (7.04%)
ACC Corp..................................... 12,000 $ 186,000
ANTEC Corp.**................................ 40,000 990,000
Applied Digital Access, Inc.**............... 5,000 71,250
Ascend Communications, Inc.**................ 37,000 2,849,000
BroadBand Technologies, Inc.**............... 15,000 375,000
Communications Center, Inc.**................ 15,000 251,250
DSC Communications Corp.**................... 7,500 277,500
Equifax, Inc................................. 71,500 2,314,812
Gilat Satellite Networks Ltd.**.............. 2,500* 40,313
International Cabletel, Inc.**............... 20,000 590,000
LDDS Communications, Inc.**.................. 127,996 3,071,904
Metrocall, Inc.**............................ 41,000 727,750
MFS Communications Co., Inc.**............... 11,200 400,400
Mobile Telecommunications
Technologies Corp.**....................... 30,000 708,750
NFO Research, Inc.**......................... 25,000 478,125
Octel Communication Corp.**.................. 20,000 452,500
Paging Network, Inc.**....................... 3,750 103,125
Pairgain Technologies, Inc.**................ 10,000* 212,500
PriCellular Corp. (Class A)**................ 25,000* 181,250
ProNet, Inc.**............................... 40,000 795,000
QUALCOMM, Inc.**............................. 5,000 131,250
Scientific-Atlanta, Inc...................... 8,000 182,000
Stanford Telecommunications, Inc.**.......... 11,000 181,500
Tellabs, Inc.**.............................. 94,500 6,520,500
Telular Corp.**.............................. 5,000 45,000
Transaction Network Services, Inc.**......... 15,000 210,000
U. S. Robotics, Inc.**....................... 100,000 7,925,000
Zoom Telephonics, Inc.**..................... 30,000 262,500
------------
30,534,179
------------
TEXTILES (0.45%)
Ashworth, Inc.**............................. 25,000 262,500
Cygne Designs, Inc.**........................ 33,000 206,250
Haggar Corp.................................. 8,000 162,000
Nautica Enterprises, Inc.**.................. 40,000 1,100,000
St. John Knits, Inc.......................... 5,000 173,125
Tandy Brands Accessories, Inc.**............. 6,750 64,969
------------
1,968,844
------------
TOYS/GAMES/HOBBY PRODUCTS (1.92%)
Acclaim Entertainment, Inc.**................ 30,000 450,000
Bollinger Industries, Inc.**................. 80,000 610,000
Callaway Golf Co............................. 52,000 643,500
Cannondale Corp.**........................... 20,200* 308,050
Circus Circus Enterprises, Inc.**............ 5,050 167,281
Cobra Golf, Inc.**........................... 32,000 696,000
GTECH Holdings Corp.**....................... 10,000 220,000
Happiness Express, Inc.**.................... 55,000* 660,000
Intergold Ltd.**............................. 100,000 227,820
Players International, Inc.**................ 106,000 3,140,250
Sodak Gaming, Inc.**......................... 5,000 71,250
Station Casinos, Inc.**...................... 85,000 1,041,250
Toy Biz, Inc.**.............................. 5,000* 93,750
------------
8,329,151
------------
TRANSPORTATION (2.14%)
Alaska Air Group, Inc.**..................... 25,000 428,125
American Classic Voyage Co................... 10,000 102,500
Atlantic Southeast Airlines, Inc............. 65,000 1,495,000
Comair Holdings, Inc......................... 57,300 1,443,244
Continental Airlines, Inc. (Class B)**....... 10,000 165,000
Fritz Cos., Inc.**........................... 2,000* 120,500
Frontier Airlines, Inc.**.................... 50,000 250,000
Greenbrier Cos., Inc......................... 20,000 277,500
Intertrans Corp.............................. 10,000* 216,250
Heartland Express, Inc.**.................... 2,500 65,000
Landair Services, Inc.**..................... 1,300 19,825
Mesa Airlines, Inc.**........................ 100,000 612,500
Northwest Airlines Corp.**................... 75,000 2,231,250
Offshore Logistics, Inc.**................... 11,500 155,969
Rural/Metro Corp.**.......................... 15,000 281,250
Skywest, Inc................................. 20,000 355,000
Southwest Airlines Co........................ 45,000 1,040,625
------------
9,259,538
------------
UTILITIES (0.03%)
York Research Corp.**........................ 22,000* 121,000
------------
TOTAL COMMON STOCKS
(Cost $281,348,916) (98.33%) 426,347,974
------------
NUMBER OF
WARRANTS
---------
WARRANTS
RETAIL (0.01%)
Good Times Restaurants, Inc.**............... 60,000 23,436
------------
TOTAL WARRANTS
(Cost $50,148) (0.01%) 23,436
------------
TOTAL COMMON STOCKS
AND WARRANTS
(Cost $281,399,064) (98.34%) 426,371,410
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 292
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (OOO'S OMITTED) VALUE
------------------- -------- --------------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (1.65%)
Investment in a joint repurchase agreement transaction with
Bankers Trust - Dated 4-28-95, Due 5-1-95 (secured by U.S.
Treasury Bond, 10.75%, due 8-15-05 and U.S. Treasury Note,
6.875%, due 10-31-96) Note A................................. 5.93% $7,177 $ 7,177,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%............................................... 39
------------
TOTAL SHORT-TERM INVESTMENTS (1.65%) 7,177,039
------ ------------
TOTAL INVESTMENTS (99.99%) $433,548,449
====== ============
<FN>
* Securities, other than short-term investments, newly added to the portfolio during the period ended April 30, 1995
** Non-income producing security.
+ Denotes an affiliated company in which the Fund has ownership of at least 5%
of the voting securities. Investments in affiliates at April 30, 1995 were as
follow:
</TABLE>
<TABLE>
<CAPTION>
AFFILIATE COST DIVIDEND INCOME
--------------------------------- ---------- ---------------
<S> <C> <C>
Integrity Music, Inc. (Class A) $1,043,750 ----
Longnix Information Systems, Inc. 1,595,000 ----
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE> 293
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Trust") is a diversified, open-end management
investment company, registered under the Investment Company Act of 1940, as
amended. The Trust consists of six series portfolios: John Hancock Emerging
Growth Fund (the "Fund"), John Hancock Global Resources Fund, John Hancock High
Yield Tax Free Fund, John Hancock High Yield Bond Fund, John Hancock Money
Market Fund B and John Hancock Government Income Fund. The Trustees may
authorize the creation of additional Funds from time to time to satisfy various
investment objectives. Effective December 22, 1994 (see Note B), the Trust and
Funds changed names by replacing the word Transamerica with John Hancock.
The Trustees have authorized the issuance of two classes of shares of the
Fund, designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemption, dividends, and liquidation, except that certain expenses,
subject to the approval of the Trustees, may be applied differently to each
class of shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution/service expenses under the terms of a distribution plan
have exclusive voting rights regarding such distribution plan. Class A Shares
are subject to an initial sales charge of up to 5.00% and a 12b-1 distribution
plan. Prior to May 15, 1995, the maximum sales charge was 5.75%. Class B Shares
are subject to a contingent deferred sales charge and a separate 12b-1
distribution plan. Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S.dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/loss on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and
19
<PAGE> 294
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
losses on sales of investments are determined on the identified cost basis for
both financial reporting and federal income tax purposes.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, at October 31, 1994, the Fund has
approximately $17,163,000 of capital loss carryforwards available, to the extent
provided by regulations, to offset future net realized capital gains. The
carryforwards expire as follows: October 31, 1995 -- $1,478,000, October 31,
1997 -- $117,000, October 31, 2000 -- $2,304,000, October 31, 2001 -- $4,447,000
and October 31, 2002 -- $8,817,000. If such carryforwards are used by the Fund,
no capital gain distributions will be made. Expired capital loss carryforwards
are reclassified to capital paid-in, in the year of expiration.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis. Dividend income on investment securities is
recorded on the ex-dividend date, or, in the case of some foreign securities, on
the date thereafter when the Fund is made aware of the dividend. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund, if any,
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for effect of expenses that
may be applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Fund.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level based
on the appropriated net assets of each class and the specific expense rate(s)
applicable to each class.
NOTE B --
MANAGEMENT FEE, ADMINISTRATIVE SERVICES AND TRANSACTIONS WITH AFFILIATES AND
OTHERS
On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser
for the Fund with approval of the Trustees and shareholders of the Fund. The
Fund's former investment manager was Transamerica Fund Management Company
("TFMC").
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, to
0.75% of the Fund's average daily net assets. This fee structure is consistent
with the former agreement with TFMC. For the period ended April 30, 1995, the
advisory fee earned by the Adviser and TFMC amounted to $1,010,222 and $496,208,
respectively, resulting in a total fee of $1,506,430.
The Adviser and TFMC, for their respective periods, provided administrative
services to the Fund pursuant to an administrative service agreement through
January 16, 1995 on which day the agreement was terminated.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
20
<PAGE> 295
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
On December 22, 1994 John Hancock Funds, Inc. ("JH Funds"), a wholly-owned
subsidiary of the Adviser, became the principal underwriter of the Fund. Prior
to this date, Transamerica Fund Distributors, Inc. ("TFD") served as the
principal underwriter and distributor of the Fund. For the period ended April
30, 1995, JH Funds and TFD received net sales charges of $192,073 with regard to
sales of Class A shares. Out of this amount, $18,453 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, and
$173,620 was paid as sales commissions to unrelated broker-dealers.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds, formerly TFD, and are used in whole or in
part to defray its expenses related to providing distribution related services
to the Fund in connection with the sale of Class B shares. For the period ended
April 30, 1995, contingent deferred sales charges amounted to $692,155.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments for
distribution and service expenses which in total will not exceed on an annual
basis 0.25% of the Fund's average daily net assets attributable to Class A
shares and 1.00% of the Fund's average daily net assets attributable to Class B
shares, to reimburse for its distribution/service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. This fee structure and plan is
similar to the former arrangement with TFD.
The Board of Trustees approved a shareholder servicing agreement between the
Fund and John Hancock Investor Services Corporation ("Investor Services"), a
wholly owned subsidiary of The Berkeley Financial Group, for the period between
December 22, 1994 and May 12, 1995, inclusive under which Investor Services
processed telephone transactions on behalf of the Fund. As of May 15, 1995, the
Fund entered into a full service transfer agent agreement with Investor
Services. Prior to this date The Shareholder Services Group was the transfer
agent. The Fund will pay Investor Services a fee based on transaction volume and
number of shareholder accounts.
A partner with Baker & Botts was an officer of the Trust until December 22,
1994. During the period ended April 30, 1995, legal fees paid to Baker & Botts
amounted to $4,849.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser and its
affiliates as well as Trustee of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. Effective with the fees paid for 1995, the
unaffiliated Trustees may elect to defer their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The Fund will
make investments into other John Hancock funds, as applicable, to cover its
liability with regard to the deferred compensation. Investments to cover the
Fund's deferred compensation liability will be recorded on the Fund's books as
other assets. The deferred compensation liability will be marked to market on a
periodic basis and income earned by the investment will be recorded on the
Fund's books.
The Fund has an independent advisory board composed of certain members of
the former Transamerica Board of Trustees who provide advice to the current
Trustees in order to facilitate a smooth management transition for which the
Fund pays the advisory board and its counsel a fee.
21
<PAGE> 296
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended April 30, 1995 aggregated $45,266,140 and
$60,330,177, respectively.
The cost of investments owned at April 30, 1995 for Federal income tax
purposes was $288,576,064. Gross unrealized appreciation and depreciation of
investments aggregated $159,856,697 and $14,884,351, respectively, resulting in
net unrealized appreciation of $144,972,346.
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended October 31, 1994, the Fund has reclassified the
accumulated net investment loss in the amount of $4,439,725 to capital paid-in.
This represents the cumulative amount necessary to report these balances on a
tax basis, excluding certain temporary differences, as of October 31, 1994.
Additional adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the Fund, are
primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles.
22
